<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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:
<TABLE>
<S> <C>
JOSEPH C. CARTER, III DANIEL A. NEFF, ESQ.
MCGUIRE, WOODS, BATTLE & BOOTHE LLP WACHTELL, LIPTON, ROSEN & KATZ
901 EAST CARY STREET 51 WEST 52ND STREET
RICHMOND, VA 23219 NEW YORK, NY 10019
(804) 775-1000 (212) 403-1000
</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. [X] ________
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>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2) DEBENTURE OR SHARE(3) PRICE(3) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Zero Coupon Convertible Debentures
due 2018.......................... $1,125,000,000 principal 17.5% $196,875,000 $58,079
amount at maturity of
Debentures
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Common Stock, par value $.01 per
share............................. Such indeterminate number (4) (4) (4)
of shares of Common Stock
as may be issued upon
conversion, redemption or
repurchase of the
Debentures
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Total............................... $196,875,000 $58,079
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</TABLE>
(1) Includes such indeterminate number of shares of Common Stock as may be
issued upon conversion, redemption or repurchase of the Debentures. Pursuant
to Rule 416 under the Securities Act, such indeterminate number of shares of
Common Stock registered hereby shall include an indeterminate number of
shares of Common Stock that may be issued in connection with a stock split,
stock dividend, recapitalization or similar event. See "Description of
Securities".
(2) The debentures were issued at an original price of $252.57 per $1,000
principal amount at maturity, which represents an aggregate issue price of
$284,141,250, and a redemption price at maturity of $1,125,000,000.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low bid
quotations per $1,000 principal amount for the Debentures on the Portal
Market on August 5, 1998.
(4) Pursuant to Rule 457(i), there is no filing fee with respect to the shares
of Common Stock issuable upon conversion, redemption or repurchase of the
Debentures, because no additional consideration will be received in
connection with the exercise of the conversion, redemption or repurchase
privilege.
------------------------
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.
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<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 AUGUST 7, 1998
PROSPECTUS
AMF BOWLING, INC.
$1,125,000,000
AGGREGATE PRINCIPAL AMOUNT OF
[AMF LOGO] ZERO COUPON CONVERTIBLE DEBENTURES DUE 2018
AND
SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION, REDEMPTION OR REPURCHASE THEREOF
------------------------
This Prospectus relates to the resale from time to time by certain holders
identified in this Prospectus (the "Selling Securityholders") of up to
$1,125,000,000 aggregate principal amount at maturity of Zero Coupon Convertible
Debentures due 2018 (the "Debentures") of AMF Bowling, Inc., a Delaware
corporation ("AMF Bowling" or the "Company"), and an indeterminate number of
shares of Common Stock, par value $0.01 per share, of the Company (the "Common
Stock" and, together with the Debentures, the "Securities") issuable upon the
conversion, redemption or repurchase of the Debentures. The Debentures were
originally issued by the Company in a private placement (the "Private
Placement") on May 12, 1998 to the Initial Purchasers (as hereinafter defined)
at an offering price of 25.257% plus accrued Original Issue Discount (as
hereinafter defined) from May 12, 1998, and were subsequently sold by the
Initial Purchasers to "qualified institutional buyers" in transactions exempt
from registration pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Securities Act"). The Company has filed the Registration Statement
(as hereinafter defined) of which this Prospectus is a part to satisfy its
obligations under the Registration Rights Agreement, dated as of May 12, 1998,
between the Company, the Designated Subsidiaries listed therein and the Initial
Purchasers (the "Debenture Registration Rights Agreement") to permit secondary
trading of the Debentures and the underlying Common Stock without restrictions
under the Securities Act. See "Description of Debentures -- Registration
Rights".
The Debentures will be convertible at any time prior to maturity, unless
previously redeemed or otherwise purchased by the Company, into shares of AMF
Bowling's Common Stock, at a conversion rate of 8.6734 shares per $1,000
principal amount at maturity. The Conversion Rate (as hereinafter defined) will
not be adjusted for accrued Original Issue Discount, but will be subject to
adjustment in certain events. See "Description of Debentures -- Conversion of
Debentures".
Prior to May 12, 2003, the Debentures will not be redeemable at the option
of AMF Bowling. Thereafter, the Debentures will be redeemable for cash at the
option of AMF Bowling at Redemption Prices (as hereinafter defined) equal to the
Issue Price plus accrued Original Issue Discount to the date of redemption. See
"Description of Debentures -- Redemption of Debentures at the Option of the
Company". The Debentures are not entitled to any sinking fund and will mature on
May 12, 2018.
The Debentures will be purchased by AMF Bowling, at the option of the Holder
(as hereinafter defined), as of May 12, 2003, May 12, 2008 and May 12, 2013 for
Purchase Prices (as hereinafter defined) equal to the Issue Price plus accrued
Original Issue Discount to such dates. See "Description of
Debentures -- Purchase of Debentures at the Option of the Holder". The
Debentures may be redeemed at the option of the Holder if there is a Debenture
Change of Control (as hereinafter defined) at a Debenture Change of Control
Redemption Price (as hereinafter defined) equal to the Issue Price plus accrued
Original Issue Discount to the date of such redemption. See "Description of
Debentures -- Redemption at the Option of the Holder Upon a Debenture Change of
Control". AMF Bowling may elect to pay any such Purchase Price or the Debenture
Change of Control Redemption Price in cash or Common Stock, or any combination
thereof.
The Securities may be sold from time to time directly by the Selling
Securityholders or, alternatively, through underwriters, broker-dealers or
agents. The Securities may be sold in one or more transactions at fixed prices,
at prevailing market prices at the time of sale, at varying prices determined at
the time of sale, or at negotiated prices. Such sales may be effected on any
national securities exchanges or U.S. inter-dealer quotation system of a
registered national securities association on which the Securities may be listed
or quoted at the time of sale, in the over-the-counter market, in transactions
otherwise than on such exchanges or systems or in the over-the-counter market,
or through the writing of options. To the extent required, the names of any
underwriters, broker-dealers or agents, the amount and nature of any commission,
concession, allowances or discounts paid in connection with such sales, and any
other required information with respect to any particular offer of the
Securities by the Selling Securityholders, will be set forth in a Prospectus
Supplement. See "Selling Securityholders" and "Plan of Distribution".
The Selling Securityholders and any underwriters, broker-dealers or agents
which participate in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit realized on the resale of the Securities
purchased by them may be deemed to constitute underwriting commissions,
concessions, allowances or discounts under the Securities Act. See "Plan of
Distribution".
The Debentures have been designated for trading in the Portal(SM) Market
("PORTAL"), a subsidiary of The Nasdaq Stock Market, Inc. The Company has not
applied and does not intend to apply for listing of the Debentures on any
securities exchange or for inclusion of the Debentures on any automated
inter-dealer quotation system. The Common Stock is listed on The New York Stock
Exchange, Inc. (the "NYSE") under the symbol "PIN". The reported closing price
of the Common Stock on the NYSE Composite Tape on August 3, 1998 was $14.4375
per share. The Common Stock issuable upon conversion, redemption or repurchase
of the Debentures will be listed, upon notice of issuance, on the NYSE.
The Company will not receive any of the proceeds from the sale by the
Selling Securityholders of any Debentures or the Common Stock issuable upon
conversion, redemption or repurchase thereof. The Selling Securityholders will
pay all underwriting discounts and selling commissions, if any, applicable to
the sale of the Debentures and the Common Stock issuable upon conversion,
redemption or repurchase of the Debentures. The Company has agreed to bear
certain expenses incident to the registration of the Securities under federal
and state securities laws and to indemnify the Selling Securityholders against
certain liabilities, including liabilities under the Securities Act.
------------------------
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS IN EVALUATING AN INVESTMENT IN THE DEBENTURES AND THE COMMON STOCK,
SEE "RISK FACTORS" BEGINNING ON PAGE 14.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is September , 1998.
<PAGE> 3
AVAILABLE INFORMATION
AMF Bowling is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York (Seven World Trade Center, 13th Floor, New York,
New York 10048), and Chicago (Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661). Copies of these materials may be obtained from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a site on the World Wide Web at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. Reports, proxy
statements and other information concerning AMF Bowling may also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005, where AMF
Bowling's Common Stock is listed. Any such request and requests for the
agreements summarized herein should be directed to: Renee D. Antolik, Director
of Investor Relations and Financial Reporting, AMF Bowling, Inc., 8100 AMF
Drive, Richmond, Virginia 23111, telephone number (804) 730-4000.
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, with respect to the Securities offered
hereby. This Prospectus (as hereinafter defined) constitutes a part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete and, with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement is deemed qualified in its entirety by such reference.
2
<PAGE> 4
FORWARD-LOOKING STATEMENTS
This prospectus (the "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 "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 the Company or any other person that the
objectives or plans of the Company will be achieved. Many 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, (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, (vi)
the popularity of bowling as an activity in the United States and abroad, (vii)
the continuation or worsening of economic difficulties currently being
experienced by certain countries in the Asia Pacific region and (viii)
fluctuations in currency exchange rates which affect translation of operating
results. In addition, actual results may 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, of which this
Prospectus constitutes a part, and the Company's periodic reports filed under
the Exchange Act. The Company 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.
3
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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 hereinafter used in this Prospectus, except as otherwise
specifically set forth, "AMF Bowling" refers to AMF Bowling, Inc., and the
"Company" or "AMF" refers to AMF Bowling and its subsidiaries. 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 U.S. 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. Unless otherwise indicated, all information in this
Prospectus assumes the discount to the Initial Purchasers and expenses payable
by the Company in connection with the Private Placement and the subsequent
offering by the Initial Purchasers aggregate approximately $11.0 million.
THE COMPANY
AMF is the largest bowling company in the world. The Company owns or
operates 539 bowling centers worldwide which generate over 60 million customer
visits per year. AMF is the U.S. market leader with 419 bowling centers, and is
also the largest operator internationally, with an additional 120 bowling
centers in eleven other 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 419 centers has
approximately 110 centers. The next three largest operators collectively account
for only approximately 54 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.
("Goldman Sachs"), acquired AMF in May 1996 for a total purchase price of
approximately $1.37 billion (the "Acquisition"). The investor group appointed a
new management team that is aggressively consolidating the U.S. bowling center
industry and building a nationally recognized brand of bowling-based family
recreation centers. In addition, the management team seeks to capitalize on the
long term demand for bowling products and centers in global markets.
Management is utilizing the well-recognized AMF name to build the only
national branded network of bowling-based family recreation centers in the U.S.
through a series of initiatives. These include upgrading the physical appearance
of centers, improving the food and beverage offerings, implementing a
comprehensive customer appreciation and rewards system (AMF CARES!) and
introducing innovative new products, such as Durabowl(TM) bumper bowling,
Xtreme(TM) Bowling and the BOSS NT automatic scoring and operating control
system. Since May 1996, AMF's management team has grown the number of AMF's U.S.
centers from 207 to 419 (as of July 31, 1998), an increase of approximately
102%, almost exclusively through acquisitions.
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<PAGE> 6
AMF participates in the international demand for bowling products through
direct sales of equipment and the building of new bowling centers abroad. AMF's
New Center Packages ("NCPs") include all of the equipment necessary to outfit
one new bowling lane. Over 85% of the Company's NCP backlog is to international
markets. Although current economic difficulties in certain markets of the Asia
Pacific region have resulted in the reduction in the level of shipments for
NCPs, AMF's ongoing strategy is to continue capitalizing on the long term demand
for bowling products and centers in global markets. AMF also seeks to accelerate
the development of bowling in key potential markets. To this end, during 1997,
AMF entered into joint ventures that opened bowling centers equipped with AMF
bowling products in China, Brazil and Argentina.
BUSINESS STRATEGY
AMF believes that its future growth will depend on the continued success of
its strategy to consolidate the U.S. bowling center industry, to build a
nationally recognized AMF brand of bowling-based family recreation centers and
to 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 251 centers that AMF has acquired since May 1996, the Company's 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 become 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
improvements are designed to generate increased revenue and to further AMF's
goal of creating a nationally recognized brand of bowling-based family
recreation centers.
BUILD A NATIONALLY RECOGNIZED BRAND OF BOWLING-BASED FAMILY RECREATION
CENTERS. The Company is developing a nationally recognized brand of
bowling-based family recreation centers. These centers generally will offer
state-of-the-art bowling equipment including many of the products manufactured
by AMF's Bowling Products business, such as the Xtreme(TM) package for
glow-in-the-dark bowling, high scoring HPL synthetic lanes, the BOSS NT
automatic scoring and operating control system with animated computer graphics,
the Options furniture package for concourse and settee areas, and Durabowl(TM)
bumpers that enable young bowlers to knock down pins.
In 1997, the Company launched AMF CARES!, a comprehensive customer
appreciation and rewards system, designed to deliver a consistent quality, fun
recreational experience to customers of AMF centers throughout the United
States. This start-up program concentrates on customer-focused operating
standards, employee awards and recognition, loyalty-driven marketing programs,
enhanced food and beverage operations and stronger brand identity with new
signage and employee uniforms.
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
5
<PAGE> 7
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 bowling-based
family recreation 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. The Company is scheduled to open a new bowling
center in the Marina City Development in Chicago during October 1998.
IMPROVE FOOD AND BEVERAGE REVENUE. 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 GLOBAL DEMAND FOR BOWLING PRODUCTS. Management believes that
AMF's well-established global brand name, the quality of its products, its
comprehensive service and strong direct sales force and distribution network
enable it to take advantage of NCP demand worldwide. The Company is focused on
sales of NCPs (which comprised approximately 55% of AMF's Bowling Products sales
in 1997) into selected countries with demonstrated strong demand for bowling
products. 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, such as India, Poland and Brazil, which are in the early development
stage, have the potential for high growth. There can be no assurance that these
early stage markets will develop to the same extent as the United States, the
Company's most mature market, as only a small number of markets have achieved
such 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.
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 Durabowl(TM) bumpers,
Xtreme(TM) Bowling and the BOSS NT automatic scoring and operating control
system. AMF positions its products as high quality and technologically advanced.
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 position AMF to increase sales of Modernization and Consumer
Products. These products, which include modernization equipment, supplies, spare
parts and consumable products, comprised approximately 45% of AMF's Bowling
Products sales in 1997. 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.
6
<PAGE> 8
BACKGROUND
AMF Bowling is a Delaware corporation which was incorporated in 1996 by
GSCP to effect 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.
In connection with the Acquisition, AMF Bowling Worldwide, Inc. ("Bowling
Worldwide"), a subsidiary of AMF Bowling, issued 10 7/8% Senior Subordinated
Notes Due 2006 (the "Subsidiary Senior Subordinated Notes") and 12 1/4% Senior
Subordinated Discount Notes Due 2006 (the "Subsidiary Senior Subordinated
Discount Notes" and, collectively with the Subsidiary Senior Subordinated Notes,
the "Subsidiary Notes") pursuant to certain indentures (collectively, the
"Subsidiary Indentures"), and incurred substantial bank debt.
On November 7, 1997, AMF Bowling completed an initial public offering (the
"Initial Public Offering") of 15,525,000 shares of Common Stock, which trades on
the NYSE under the symbol "PIN". The net proceeds of $279.1 million from the
Initial Public Offering were contributed by AMF Bowling to Bowling Worldwide and
used by Bowling Worldwide to reduce and refinance its bank debt pursuant to
Bowling Worldwide's Third Amended and Restated Credit Agreement (the "Credit
Agreement") and to redeem a portion of the Subsidiary Senior Subordinated
Discount Notes.
On May 12, 1998, AMF Bowling completed the Private Placement of the
Debentures to Goldman, Sachs & Co., Cowen & Company, Morgan Stanley & Co.
Incorporated and Schroder & Co. Inc. (collectively, the "Initial Purchasers") in
a private placement. The Initial Purchasers subsequently sold the Debentures in
transactions exempt from registration to "qualified institutional buyers"
pursuant to Rule 144A under the Securities Act.
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.
RISK FACTORS
Prospective purchasers of the Debentures should carefully consider the
factors set forth under "Risk Factors" starting on page 14 as well as the other
information set forth in this Prospectus. The risks of investing in the
Debentures include the following factors: AMF Bowling's holding company
structure, its substantial leverage and ability to service its indebtedness, its
ability to implement growth strategies, net losses, the existence of
encumbrances on assets, dependence on key personnel, control by GSCP, risks with
respect to a Debenture Change of Control or a Change of Control (as defined in
the Subsidiary Indentures), characteristics of the bowling industry, seasonality
and market development cycles, the Company's international operations, the lack
of a public market for the Debentures and restrictions on resale, possible
volatility of stock price and Debentures, fraudulent conveyance, anti-takeover
effects of certain certificate of incorporation and by-laws provisions, shares
eligible for future sale, original issue discount consequences and risks arising
from the terms of the Debentures.
USE OF PROCEEDS
The Securities are being offered hereby solely for the accounts of the
Selling Securityholders listed herein pursuant to the Debenture Registration
Rights Agreement. The Company will not receive any of the proceeds from the
sales by the Selling Securityholders of the Debentures or the Common Stock
issuable upon conversion, redemption or repurchase thereof.
7
<PAGE> 9
THE OFFERING
SECURITIES.......................... $1,125,000,000 aggregate principal
amount at maturity of Zero Coupon
Convertible Debentures due 2018 and
such indeterminate number of shares of
Common Stock issuable upon conversion,
redemption or repurchase of the
Debentures. There are not and will not
be any periodic interest payments on
the Debentures. See "Description of
Debentures -- General".
YIELD TO MATURITY OF DEBENTURES..... 7% per annum (computed on a semi-annual
bond equivalent basis) calculated from
May 12, 1998.
CONVERSION RIGHTS................... The Debentures are convertible, at the
option of the Holder, at any time prior
to maturity unless previously redeemed
or otherwise purchased by AMF Bowling,
into Common Stock at the rate of 8.6734
shares per $1,000 principal amount at
maturity of Debentures (the "Conversion
Rate"). The Conversion Rate is not
adjusted for accrued Original Issue
Discount, but is subject to adjustment
upon the occurrence of certain events.
Upon conversion, the Holder will not
receive any cash payment representing
accrued Original Issue Discount; such
accrued Original Issue Discount will be
deemed paid by the delivery of the
Common Stock received upon conversion.
See "Description of
Debentures -- Conversion of
Debentures".
GLOBAL DEBENTURES; BOOK-ENTRY
SYSTEM.............................. The Debentures are issued in fully
registered form without coupons and in
minimum denominations of $1,000. The
Debentures are evidenced by Global
Debentures (as hereinafter defined), in
fully registered form and without
coupons, deposited with the Trustee (as
hereinafter defined), as custodian for
DTC (as hereinafter defined).
Beneficial interests in the Global
Debentures are shown on, and transfers
thereof may be effected only through,
records maintained by DTC and its
Participants (as hereinafter defined)
and Indirect Participants (as
hereinafter defined). See "Description
of Debentures -- Global Debentures;
Book-Entry Form".
ORIGINAL ISSUE DISCOUNT............. The Debentures were originally offered
at an original issue discount for
federal income tax purposes equal to
the excess of the principal amount at
maturity of the Debentures over their
Issue Price. Prospective purchasers of
Debentures should be aware that,
although there are no periodic payments
of interest on the Debentures, accrued
Original Issue Discount is included
periodically in the gross income of a
holder of Debentures (the "Holder") for
federal income tax purposes prior to
conversion, redemption, other
disposition or
8
<PAGE> 10
maturity of such Holder's Debentures,
whether or not such Debentures are
ultimately converted, redeemed, sold
(to AMF Bowling or otherwise) or paid
at maturity. See "Certain Federal
Income Tax Considerations".
SINKING FUND........................ None.
REDEMPTION.......................... The Debentures are not redeemable by
AMF Bowling prior to May 12, 2003.
Beginning on May 12, 2003, the
Debentures are redeemable for cash at
any time at the option of AMF Bowling,
in whole or in part, at Redemption
Prices equal to the Issue Price plus
accrued Original Issue Discount to the
date of redemption. See "Description of
Debentures -- Redemption of Debentures
at the Option of the Company".
DEBENTURE CHANGE OF CONTROL......... If there is a Debenture Change of
Control, the Debentures may be redeemed
at the option of the Holder at a
Debenture Change of Control Redemption
Price equal to the Issue Price plus
accrued Original Issue Discount to the
date of redemption. AMF Bowling may, at
its option, elect to pay any such
Debenture Change of Control Redemption
Price in cash or Common Stock, or any
combination thereof. See "Description
of Debentures -- Redemption at the
Option of the Holder Upon a Debenture
Change of Control".
PURCHASE AT THE OPTION OF THE
HOLDER.............................. AMF Bowling will purchase Debentures at
the option of the Holder as of May 12,
2003, May 12, 2008 and May 12, 2013 at
Purchase Prices equal to the Issue
Price plus accrued Original Issue
Discount to the date of purchase. AMF
Bowling may, at its option, elect to
pay any such Purchase Price in cash or
Common Stock, or any combination
thereof. See "Description of
Debentures -- Purchase of Debentures at
the Option of the Holder".
EVENTS OF DEFAULT................... Events of default include: (i) default
in payment of the principal amount at
maturity, accrued Liquidated Damages
(as hereinafter defined), if any,
interest, if any, Redemption Price,
Purchase Price or Debenture Change of
Control Redemption Price with respect
to any Debenture when such becomes due
and payable, provided that in the case
of any failure to pay Liquidated
Damages, such failure continues for a
period of 30 days; (ii) failure by AMF
Bowling to comply with any of its other
agreements in the Debentures or the
Indenture (as hereinafter defined) upon
the receipt by AMF Bowling of notice of
such default by the Trustee or by
Holders of not less than 25% in
aggregate principal amount at maturity
of the De-
9
<PAGE> 11
bentures then outstanding and AMF
Bowling's failure to cure such default
within 60 days after receipt by it of
such notice (plus an additional 60 days
in the case of defaults subject to
cure, provided AMF Bowling commences
such cure within the initial 60 days,
and is diligently pursuing such cure);
(iii) default which results in
acceleration of any indebtedness for
money borrowed by AMF Bowling or any of
its subsidiaries in an aggregate
principal amount of $25 million or
more; or (iv) certain events of
bankruptcy or insolvency. See
"Description of Debentures -- Events of
Default; Notice and Waiver".
REGISTRATION RIGHTS................. AMF Bowling has filed the Registration
Statement in respect of the Debentures
and the Common Stock issuable upon the
conversion, redemption or repurchase
thereof, pursuant to the Debenture
Registration Rights Agreement. Under
the Debenture Registration Rights
Agreement, AMF Bowling has agreed to
use its best efforts to keep the
Registration Statement effective until
the earlier of (i) the sale pursuant to
the Registration Statement of all the
securities registered thereunder or
(ii) the expiration of the holding
period applicable to such securities
held by non-affiliates of AMF Bowling
under Rule 144(k) of the Securities
Act, or any successor provision. See
"Description of
Debentures -- Registration Rights".
LISTING............................. The Debentures have been designated for
trading in PORTAL. The Common Stock is
listed on the NYSE under the symbol
"PIN". The Common Stock issuable upon
conversion, redemption or repurchase of
the Debentures will be listed, upon
notice of issuance, on the NYSE. The
Company has not applied and does not
intend to apply for listing of the
Debentures on any securities exchange
or for inclusion of the Debentures on
any automated inter-dealer quotation
system.
GOVERNING LAW....................... The Indenture and the Debentures are
governed by the laws of the State of
New York.
10
<PAGE> 12
SUMMARY FINANCIAL DATA
The summary financial data set forth below for the fiscal years indicated
were derived from AMF Bowling's audited consolidated financial statements for
the year ended December 31, 1997 and the period ended December 31, 1996, and the
Predecessor Company's audited combined financial statements for the years ended
December 31, 1995, 1994 and 1993. The summary financial data include the
unaudited consolidated results of AMF Bowling for the six months ended June 30,
1998 and 1997. 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 December 31, 1996
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 of AMF Bowling. The data should be read in
conjunction with AMF Bowling's 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.
11
<PAGE> 13
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS
-------------------------------------------------------- ENDED
PRO FORMA JUNE 30,
AMF -----------------
BOWLING, AMF BOWLING, AMF BOWLING,
PREDECESSOR COMPANY INC. INC. INC.
------------------------- --------- ---------------- -----------------
1993 1994(A) 1995 1996(B) 1996(C) 1997 1997 1998
------ ------- ------ --------- ------- ------ ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue......................... $427.6 $517.8 $564.9 $548.9 $384.8 $713.7 $ 318.1 $ 349.8
------ ------ ------ ------ ------ ------ ------- -------
Cost of goods sold........................ 153.2 196.0 184.1 173.6 130.5 212.6 86.1 85.0
Bowling center operating expenses......... 108.5 115.2 166.5 178.8 123.7 251.2 116.0 159.3
Selling, general and administrative
expenses................................ 41.9 57.1 50.8 51.0 35.1 64.5 30.2 34.9
Depreciation and amortization............. 21.4 24.8 39.1 73.5 49.4 102.5 43.4 56.9
------ ------ ------ ------ ------ ------ ------- -------
Operating income.......................... 102.6 124.7 124.4 72.0 46.1 82.9 42.4 13.7
Interest expense, gross................... 5.0 7.4 15.7 106.2 78.0 118.4 57.5 53.6
Other income (expense), net............... (0.1) (1.5) 0.2 3.8 3.9 (8.1) 1.3 1.4
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) before income taxes......... 97.5 115.8 108.9 (30.4) (28.0) (43.6) (16.4) (41.3)
Provision (benefit) for income taxes...... 15.1 16.5 12.1 (8.9) (8.5) (12.8) (4.2) (6.5)
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss) before equity in loss of
joint ventures and extraordinary
items................................... 82.4 99.3 96.8 (21.5) (19.5) (30.8) (12.2) (34.8)
Equity in loss of joint ventures.......... -- -- -- -- -- (1.4) -- (1.6)
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss) before extraordinary
items................................... 82.4 99.3 96.8 (21.5) (19.5) (32.2) (12.2) (36.4)
Extraordinary items, net of tax........... -- -- -- -- -- (23.4) -- --
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss)......................... $ 82.4 $ 99.3 $ 96.8 $(21.5) $(19.5) $(55.6) $ (12.2) $ (36.4)
====== ====== ====== ====== ====== ====== ======= =======
Net income (loss) per share before
extraordinary items (basic and
diluted)................................ $(0.55) $(0.49) $(0.71) $ (0.29) $ (0.61)
Per share effect of extraordinary items... -- -- (0.52) -- --
------ ------ ------ ------- -------
Net income (loss) per share (basic and
diluted)................................ $(0.55) $(0.49) $(1.23) $ (0.29) $ (0.61)
====== ====== ====== ======= =======
Ratio of earnings to fixed charges(d)..... 11.0 10.3 6.1 -- -- -- -- --
SELECTED DATA:
EBITDA.................................... $124.0 $149.5 $163.5 $145.5 $185.4 $ 85.8 $ 70.6
EBITDA margin............................. 29.0% 28.9% 28.9% 26.5% 26.0% 27.0% 20.2%
Revenue:(e)
Bowling Centers......................... $192.6 $225.4 $292.3 $307.3 $429.1 $ 201.1 $ 266.5
Bowling Products........................ 243.6 301.7 286.5 252.1 299.3 124.7 92.7
EBITDA: (f)
Bowling Centers......................... $ 54.5 $ 65.8 $ 86.8 $ 95.6 $130.4 $ 63.0 $ 76.9
Bowling Products........................ 71.1 84.6 79.3 62.6 70.8 31.3 3.9
New Center Packages sold.................. 3,577 4,941 4,437 3,029 4,576 2,069 1,163
New Center Packages backlog, end of
period(g)............................... N/A 2,078 940 1,426 1,725 2,255 1,615
Number of centers, end of period.......... 190 293 286 341 470 408 533
Number of lanes, end of period............ 5,896 9,586 9,430 11,782 16,315 14,206 18,450
Capital Expenditures:
Routine modernization and
maintenance(h)........................ $ 9.0 $ 11.4 $ 13.1 $ 14.5 $ 49.9 $ 12.2 $ 27.7
Expansion and acquisition capital(i).... 5.7 6.4 16.9 117.4 221.6 135.6 134.9
------ ------ ------ ------ ------ ------- -------
Total................................... $ 14.7 $ 17.8 $ 30.0 $131.9 $271.5 $ 147.8 $ 162.6
====== ====== ====== ====== ====== ======= =======
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
AMF BOWLING, INC.
-------------------------------------
AS OF DECEMBER 31,
-------------------- AS OF
1996 1997 JUNE 30, 1998
-------- -------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 7.8 $ 43.9 $ 96.3
Goodwill, net............................................... 771.1 772.3 775.0
Total assets................................................ 1,594.0 1,832.1 2,006.4
Total debt.................................................. 1,091.3 1,060.6 1,301.1
Stockholders' equity........................................ 408.8 654.0 616.5
Total capitalization........................................ 1,500.1 1,714.6 1,917.6
</TABLE>
- ---------------
(a) Includes results of Fair Lanes, Inc., a bowling center operator ("Fair
Lanes"), which operated 106 centers and was acquired by the Predecessor
Company 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.
(c) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes the results of operations of the acquired business
from May 1, 1996 through December 31, 1996.
(d) For the six months ended June 30, 1998 and 1997, the year ended December 31,
1997 and the period ended December 31, 1996, on a historical basis, and the
year ended December 31, 1996, on a pro forma basis, the Company had a
deficiency of earnings to fixed charges of $41.3 million, $16.4 million,
$43.6 million, $28.0 million, and $30.4 million, respectively.
(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 1993 because the Company does not
maintain this data for this period.
(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.
13
<PAGE> 15
RISK FACTORS
HOLDING COMPANY STRUCTURE
The Company conducts all of its business through subsidiaries. AMF Bowling
has no operations of its own. AMF Bowling is dependent on the cash flow of its
subsidiaries and distributions of such cash flow from its subsidiaries to AMF
Bowling in order to meet its debt service obligations, including any obligation
to redeem or repurchase Debentures. AMF Bowling's 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. Moreover, Bowling Worldwide is prohibited under both the Credit
Agreement and the Subsidiary Indentures from upstreaming funds by dividends,
loans or otherwise, to redeem or repurchase the Debentures. See "Description of
Certain Indebtedness".
In addition, as a result of the holding company structure of AMF Bowling,
the Holders are structurally subordinate to all creditors of AMF Bowling's
subsidiaries, except to the extent that AMF Bowling is itself recognized as a
creditor of any such subsidiary, in which case the claims of AMF Bowling would
still be subordinate to any security in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by AMF Bowling. See
"-- Substantial Leverage; Ability to Service Indebtedness" and "-- Asset
Encumbrances" below. AMF Bowling is not currently a creditor of any of its
subsidiaries. In the event of the insolvency, liquidation, reorganization,
dissolution or other winding-up of the subsidiaries, AMF Bowling will not
receive funds available to pay to the Holders in respect of the Debentures until
after the payment in full of the claims of the creditors of the subsidiaries.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness that it has incurred in connection with the
Acquisition, its ongoing bowling center acquisition program and the Private
Placement and that it will incur to finance future acquisitions and expansion of
operations. As of June 30, 1998, the Company had total indebtedness of $1,301.1
million and stockholders' equity of $616.5 million, resulting in a ratio of debt
to total capitalization of approximately 67.9%. The obligors for all of such
indebtedness other than the Debentures are subsidiaries of AMF Bowling, and,
thus, the Debentures are structurally subordinate to all of such indebtedness.
Further, the Indenture does not impose any limitations on the ability of AMF
Bowling's subsidiaries to incur additional indebtedness. The Company had
deficiencies of earnings to fixed charges of $41.3 million, $43.6 million and
$30.4 million for the six months ended June 30, 1998, the year ended December
31, 1997, on a historical basis, and the year ended December 31, 1996, on a pro
forma basis, respectively. See "Ratio of Earnings to Fixed Charges". 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. Interest expense for the
six months ended June 30, 1998, the year ended December 31, 1997 and the period
ended December 31, 1996 was $53.6 million, $118.4 million and $78.0 million,
respectively, of which $38.5 million, $83.0 million and $53.0 million,
respectively, was cash interest expense. In addition to the indebtedness
incurred in connection with the Private Placement, the Company intends to incur
additional indebtedness in the future, particularly to fund its ongoing bowling
center acquisition program.
The Company's ability to make scheduled payments on its indebtedness and to
make payments to Holders in the event of a redemption or repurchase depends on
the Company's future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control, including conditions of the debt and equity markets.
Based upon the current level of operations, the Company's management believes
that available cash flow, together with available borrowings under the Credit
Agreement and other
14
<PAGE> 16
sources of liquidity, will be adequate to meet the Company's requirements for
working capital, capital expenditures, scheduled payments of interest on its
Subsidiary Notes and debt outstanding under the Credit Agreement. However, a
portion of the principal payments at maturity on the Subsidiary Notes may
require refinancing. There can be no assurance that the Company's business will
generate sufficient cash flow from operations or that future borrowings will be
available in an amount sufficient to enable the Company to service its
indebtedness, redeem or repurchase the Debentures or make necessary capital
expenditures, or that any future financing or refinancing would be available on
commercially reasonable terms or at all.
The degree to which the Company is now leveraged could have important
consequences, including, but not limited to, the following: (i) a substantial
portion of the Company's cash flow from operations is required to be dedicated
to debt service and will not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future could be limited; and (iii)
certain of the Company's borrowings are at variable rates of interest, which
could result in higher interest expense in the event of increases in interest
rates.
The Credit Agreement requires the maintenance of certain financial ratios
and imposes certain operating and financial restrictions on Bowling Worldwide
which restrict, among other things, its 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. Failure by Bowling Worldwide to comply with such covenants could
result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company. Actual borrowing under the Credit
Agreement must meet certain financial tests under the Credit Agreement and the
Subsidiary 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".
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. However, the Company will become more
selective in its acquisitions and therefore the number of centers acquired will
be reduced over the next 12 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Capital Expenditures". There can
be no assurance that the Company will continue to be successful in acquiring
centers and improving operations of acquired and existing centers.
The Company's principal strategy for future growth is the acquisition of
additional bowling centers. The Company expects to finance its ongoing
acquisition program with borrowings under the Credit Agreement, with cash
generated by operations, and with various other financing sources, which may
include additional incurrences of debt by AMF Bowling and/or Bowling Worldwide
and issuances of equity of AMF Bowling. The Company used $249.6 million of net
proceeds of the Private Placement to repay amounts outstanding under the
non-amortizing revolving working capital facility under the Credit Agreement
(the "Bank Facility"), the aggregate size of which is $355.0 million. As of June
30, 1998, $128.0 million was outstanding and $227.0 million was available under
the Bank Facility. The Company's management believes that the amount available
under the Bank Facility will be adequate to fund the Company's ongoing
acquisition program at its current rate for at least 12 months following the
Private Placement. However, there can be no assurance that the Company will be
able to obtain financing or refinancing on commercially reasonable terms or at
all to continue its ongoing acquisition program. At the present time, the
restrictive covenants in the Subsidiary Indentures would prohibit Bowling
Worldwide from incurring additional indebtedness other than borrowings under the
Credit Agreement. The Company reviews the options available to it for ongoing
financing of its acquisition program on a continuing basis.
15
<PAGE> 17
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 demand for bowling products in developed as
well as in emerging bowling markets. There can be no assurance that such demand
will materialize or that the Company will be able to successfully exploit such
demand. See "-- International Operations", "-- Seasonality and Market
Development Cycles" and "Business -- Business Strategy".
NET LOSSES
The Company recorded a net loss of $32.2 million before extraordinary items
in 1997 and a net loss of $21.5 million, on a pro forma basis, in 1996. The
Company incurred after-tax extraordinary charges totaling $23.4 million in the
fourth quarter of 1997 arising from the third amendment and restatement of the
Credit Agreement that became effective on November 7, 1997, the premium paid to
redeem a portion of the Subsidiary Notes with the proceeds of the Initial Public
Offering and the write-off of the portion of deferred financing costs
attributable to the Subsidiary Notes redeemed. The Company recorded a net loss
of $36.4 million in the first six months of 1998 compared to a net loss of $12.2
million in the first six months of 1997. There can be no assurance that the
Company will not continue to generate net losses. See "Selected Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
ASSET ENCUMBRANCES
The lenders (the "Lenders") under the Credit Agreement have been granted
security interests in all of Bowling Worldwide's capital stock and substantially
all of Bowling Worldwide's current and future assets, including a pledge of all
of the issued and outstanding shares of capital stock of certain of its
subsidiaries. In addition, certain of such subsidiaries have granted to the
Lenders security interests in all of the current and future assets of such
subsidiaries (other than 35% of the outstanding capital stock of any foreign
subsidiary of any such subsidiary). In the event of a default under the Credit
Agreement (whether as a result of the failure to comply with a payment or other
covenant, a cross-default, or otherwise), the Lenders will have a prior secured
claim on the capital stock and the assets of Bowling Worldwide and such
subsidiaries. If the Lenders should attempt to foreclose on their collateral,
the Company's financial condition and the value of the Debentures will be
materially adversely effected. In the event of a foreclosure on the collateral
consisting of the Bowling Worldwide stock, unless the purchaser of such stock
were an affiliate of Goldman Sachs, a Debenture Change of Control and a Change
of Control (under the Subsidiary Indentures) would occur, with the consequences
set forth below under "-- Risks with respect to a Debenture Change of Control or
Change of Control". 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 the Company. There can be no assurance that the services of
such personnel will continue to be made available to the Company. The Company
does not maintain key-person insurance with respect to its executive officers.
CONTROL BY GSCP
GSCP and The Goldman Sachs Group, L.P. ("The Goldman Sachs Group"), which
has a 99% interest in Goldman Sachs, together beneficially own 50.9% of the
Common Stock of AMF Bowling. 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. Mr.
Friedman is Chairman of AMF Bowling. Messrs. Friedman, O'Toole and Sacerdote are
also directors of Bowling Worldwide.
16
<PAGE> 18
On April 30, 1996, AMF Bowling, GSCP, the Blackstone Group, Kelso &
Company, Bain Capital, Inc., Citicorp North America, Inc., Charles M. Diker,
Robert L. Morin and Douglas J. Stanard entered into a Stockholders Agreement,
which regulates the relationship among the Company and certain of its
stockholders (the "Stockholders Agreement"). As a result of its ownership of a
majority of the outstanding Common Stock and the terms of the Stockholders
Agreement, GSCP controls the Company and has the ability to control the election
of a majority of the Board of Directors of AMF Bowling (the "Board"), appoint
new management and approve or block any action requiring the approval of the
Company's stockholders, including adoption of amendments to AMF Bowling's
Certificate of Incorporation (the "Certificate of Incorporation") and approval
of mergers or sales of substantially all of the Company'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 of AMF Bowling, subject
to GSCP's consent, and for the formation of the Executive Committee of AMF
Bowling's Board, which consists of two directors nominated by GSCP and the
President and Chief Executive Officer of AMF Bowling. There can be no assurance
that the interests of GSCP or The Goldman Sachs Group will not conflict with the
interests of the Holders of the Debentures. See "Description of Capital Stock"
and "Securities Owned by Management and Certain Beneficial
Owners -- Stockholders Agreement".
RISKS WITH RESPECT TO A DEBENTURE CHANGE OF CONTROL OR CHANGE OF CONTROL
Upon the occurrence of a Debenture Change of Control, the Debentures may be
redeemed at the option of the Holder at a Debenture Change of Control Redemption
Price equal to the Issue Price plus accrued Original Issue Discount to the date
of redemption. AMF Bowling may, at its option, elect to pay any such Debenture
Change of Control Redemption Price in cash or Common Stock. If a Debenture
Change of Control (which may also constitute a Change of Control under the
Subsidiary Indentures and an event of default under the Credit Agreement) were
to occur, Bowling Worldwide may not have the financial resources to repay all of
its obligations which may then become due under the Credit Agreement, the
Subsidiary Indentures and other indebtedness that may become payable upon the
occurrence of such Debenture Change of Control, and AMF Bowling may not have the
financial resources to pay in cash its obligations which would then become due
under the Debentures. In this regard, Bowling Worldwide is prohibited under both
the Credit Agreement and the Subsidiary Indentures from upstreaming funds by
dividends, loans or otherwise, to redeem the Debentures. See "-- Holding Company
Structure" and "Description of Debentures -- Redemption at the Option of the
Holder Upon a Debenture Change of Control".
In addition, upon the occurrence of a Change of Control, each holder of a
Subsidiary Note may require that all or a portion of such holder's Subsidiary
Notes be repurchased at 101% of the principal amount of the Subsidiary Senior
Subordinated Notes and 101% of the Accreted Value (as defined in the indenture
governing the Senior Subsidiary Discount Notes) of the Subsidiary Senior
Subordinated Discount Notes (or, following the Full Accretion Date (as defined
in the indenture governing the Senior Subsidiary Subordinated Discount Notes),
101% of the principal amount thereof), as applicable, together with accrued and
unpaid interest, if any, and Liquidated Damages (as defined in the Subsidiary
Indentures), if any, to the date of repurchase. The Subsidiary Indentures
require that prior to such a repurchase or shortly thereafter, the Company must
either repay all outstanding indebtedness under the Credit Agreement or obtain
any required consent of the Lenders to such repurchase. If a Change of Control
(which may also constitute a Debenture Change of Control and an event of default
under the Credit Agreement) were to occur, Bowling Worldwide may not have the
financial resources to repay all of its obligations which would then become due
under the Credit Agreement, the Subsidiary Indentures and any other indebtedness
that would become payable upon the occurrence of such Change of Control, and AMF
Bowling may not have the financial resources to pay in cash its obligations
which may then become due under the Debentures. See "Description of Certain
Indebtedness -- Subsidiary Notes".
17
<PAGE> 19
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. Although AMF's
lineage has declined in the first half of 1998, in recent years AMF's U.S.
lineage has remained relatively stable 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. In the first half of 1998, the
Company experienced a decline in lineage which it was unable to offset with
price increases on a comparable basis with recent years. 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".
BOWLING PRODUCTS
AMF and Brunswick Corporation ("Brunswick") are the two largest
manufacturers of bowling center equipment, and are the only full-line
manufacturers of bowling equipment and supplies that compete on a global basis.
The Company also competes with smaller, often regionally focused companies in
certain product lines. Management estimates that AMF accounts for approximately
41% of the worldwide installed base of bowling center equipment.
NCP 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, new bowling center construction drives demand for
NCPs. For at least the last 15 years, the majority of NCP sales has been to
international markets. In recent years, this trend has been fueled by the growth
of bowling in several countries, such as China, Taiwan and South Korea. However,
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.
Current economic difficulties in certain markets of the Asia Pacific region
have resulted in a reduction in the level of shipments for NCPs. Revenue for
Bowling Products decreased by 25.7% to $92.7 million for the first six months of
1998 as compared to $124.7 million for the first six months of 1997 and EBITDA
decreased to $3.9 million in the first six months of 1998 as compared to $31.3
million in the first six months of 1997. See "-- International Operations",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Backlog; Recent NCP Sales" and "Business -- AMF Bowling Products".
18
<PAGE> 20
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 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 Bowling Centers business
may be accentuated.
Modernization and Consumer Products sales also display seasonality. The
U.S. market, which is the largest market for Modernization and Consumer
Products, is driven by the beginning of league play 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 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.
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. Current economic
difficulties in certain markets of the Asia Pacific region have resulted in the
reduction in the order rate, level of shipments and backlog for NCPs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality and Market Development Cycles".
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 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.
AMF has a history of operating in a number of international markets, in
some cases, for over thirty years. As in the case of other U.S.-based
manufacturers with export sales, local currency devaluation increases the cost
of the Company's bowling equipment in that market. As a result, a strengthening
U.S. dollar exchange rate may adversely impact sales volume and profit margins
during such periods.
Current economic difficulties in certain markets in the Asia Pacific region
have resulted in a reduction in the level of shipments for NCPs. Management
believes that many Asia Pacific customers are delaying purchases of NCP and
Modernization equipment as they await the return of economic stability to their
regions. Contributing to such delays is the continuing limited availability of
financing for customers to construct new centers and purchase AMF bowling
equipment. As of June 30, 1998, the NCP backlog was 1,615 which is a reduction
of 6.4% compared to December 31, 1997.
NCP unit sales to China, Japan and other Asia Pacific markets represented
51.5% for the six months ended June 30, 1998 compared to 72.7% for the year
ended December 31, 1997. NCP unit
19
<PAGE> 21
backlog related to China, Japan and other Asia Pacific markets represented 63.4%
of total NCP unit backlog at June 30, 1998 compared to 70.4% at December 31,
1997.
Foreign currency exchange rates also impact the translation of operating
results from international bowling centers. For the year ended December 31,
1997, revenue and EBITDA of international bowling centers represented 14.6% and
16.0% of consolidated results, respectively.
LACK OF PUBLIC MARKET FOR THE DEBENTURES; RESTRICTIONS ON RESALE
Certain of the Initial Purchasers currently make a market in the
Debentures. Such Initial Purchasers are not obligated to do so, however, and any
market-making with respect to the Debentures may be interrupted or discontinued
at any time without notice. There can be no assurance as to the liquidity of any
trading market of the Debentures or that an active public market for the
Debentures will develop or, if one does develop, that it will be maintained. If
an active market for the Debentures fails to develop or be sustained, the
trading price of the Debentures could be adversely affected. AMF Bowling has not
applied and does not intend to apply for listing or quotation of the Debentures
on any securities exchange or stock market, although the Common Stock issuable
upon conversion, redemption or repurchase of the Debentures will be listed, upon
notice of issuance, on the NYSE.
POSSIBLE VOLATILITY OF COMMON STOCK AND DEBENTURES
The market price of the Common Stock has been and may continue to be
volatile. See "Price Range of Common Stock and Debentures". The market price of
the Debentures and the shares of Common Stock into which the Debentures are
convertible may be materially adversely affected by factors such as actual or
anticipated fluctuations in the Company's operating results, bowling center
acquisition activity, impact of international markets, changes in financial
estimates by securities analysts, general market conditions and other factors.
Broad market fluctuations may adversely affect the market price of the
Debentures and the Common Stock issuable upon conversion, redemption or
repurchase of the Debentures, and there can be no assurance that the market
price of the Debentures and the Common Stock issuable upon conversion,
redemption or repurchase of the Debentures will not decline below the levels
prevailing at the time of this offering.
FRAUDULENT CONVEYANCE
Management of the Company believes that the indebtedness represented by the
Debentures was incurred for proper purposes and in good faith, and that, based
on then-current forecasts, asset valuations and other financial information,
after the issuance of the Debentures, AMF Bowling was solvent, had sufficient
capital for carrying on its business and was able to pay its debts as they
matured. See "-- Substantial Leverage; Ability to Service Indebtedness".
Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of such indebtedness, AMF Bowling was insolvent,
was rendered insolvent by reason of such incurrence, was engaged in a business
or transaction for which its remaining assets constituted unreasonably small
capital, intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, and that the indebtedness was incurred for less than
reasonably equivalent value, then such court could, among other things, (a) void
all or a portion of AMF Bowling's obligations to the Holders, the effect of
which would be that the Holders may not be repaid in full or at all and/or (b)
subordinate AMF Bowling's obligations to the Holders to other existing and
future indebtedness of AMF Bowling to a greater extent than would otherwise be
the case, the effect of which would be to entitle such other creditors to be
paid in full before payment could be made on the Debentures.
20
<PAGE> 22
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 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 of Preferred Stock that may be
issued in the future. See "-- Control by GSCP" and "Description of Capital
Stock".
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 Debentures and the Common Stock issuable upon conversion or
repurchase thereof. Of the 59,744,544 shares of Common Stock outstanding as of
August 3, 1998, 15,639,344 are eligible for immediate resale, except to the
extent owned by "affiliates" of AMF Bowling (as such term is defined in Rule
144). Additionally, 44,105,200 shares of Common Stock will be eligible for sale
in the public market pursuant to Rule 144. Sales of such shares in the public
market, or the perception that such sales may occur, could adversely affect the
market price of the Debentures or the Common Stock issuable upon conversion or
repurchase thereof or impair AMF Bowling's ability to raise additional capital
in the future. See "Shares Eligible for Future Sale".
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Debentures were originally issued at a substantial discount from the
stated Redemption Price payable at maturity. As a result, for U.S. federal
income tax purposes, Holders generally are required to include amounts in their
gross income in advance of their receipt of the cash payments to which such
income is attributable. Furthermore, the acquisition of a Debenture from a prior
Holder may give rise to market discount or acquisition premium. See "Certain
Federal Income Tax Considerations".
RISKS ARISING FROM THE TERMS OF THE DEBENTURES
The rate at which the Debentures are convertible into Common Stock is not
adjusted for accrued Original Issue Discount. Such accrued Original Issue
Discount will be deemed paid by the delivery of the Common Stock received upon
conversion, and, thus, a converting Holder will not receive any cash payment
representing accrued Original Issue Discount. Because the number of shares of
Common Stock issuable upon conversion of each Debenture is not increased even
though the accreted value of the Debentures (i.e., the Issue Price plus accrued
Original Issue Discount) increases over time, the implied effective conversion
price increases over time.
21
<PAGE> 23
RATIO OF EARNINGS TO FIXED CHARGES
The financial data contained herein were derived from the Company's
unaudited condensed consolidated financial statements for the six months ended
June 30, 1998 and 1997, audited consolidated financial statements for the year
ended December 31, 1997 and 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.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------- ------------------------------------------------------
PRO PRO PRO
FORMA FORMA FORMA
1998 1998(A) 1997 1997(A) 1997 1996(B) 1996 1995 1994 1993
---- ------- ---- ------- ---- ------- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(c)........................ -- -- -- -- -- -- -- 6.1x 10.3x 11.0x
</TABLE>
- ---------------
(a) The pro forma ratios of earnings to fixed charges for the year ended
December 31, 1997, and for the six months ended June 30, 1998, have been
calculated based on the historical results of operations for the periods
presented and adjusting the interest expense as a result of using the
proceeds of the Private Placement to repay senior bank debt, with weighted
average borrowing rates of 8.75% and 7.67% for the year ended December 31,
1997 and the six months ended June 30, 1998, respectively, as if the Private
Placement had occurred as of the beginning of the periods presented.
(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.
(c) The ratios of earnings to fixed charges are computed by dividing earnings by
fixed charges. Earnings consist of net income to which has been added fixed
charges and income taxes. Fixed charges consist of interest expense,
amortization of debt issuance costs, and the portion of rent expenses
considered to represent interest. For the six months ended June 30, 1998 and
1997, respectively, the year ended December 31, 1997 and the period ended
December 31, 1996, on a historical basis, the year ended December 31, 1996,
on a pro forma basis, the six months ended June 30, 1998 and the year ended
December 31, 1997, on a pro forma basis for the Private Placement, the
Company had a deficiency of earnings to fixed charges of $41.3 million,
$16.4 million, $43.6 million, $28.0 million, $30.4 million, $41.3 million
and $43.6 million, respectively.
USE OF PROCEEDS
The Securities are being offered hereby solely for the accounts of the
Selling Securityholders listed herein pursuant to the Debenture Registration
Rights Agreement. The Company will not receive any of the proceeds from the
sales by the Selling Securityholders of the Debentures or the Common Stock
issuable upon the conversion, redemption or repurchase thereof.
22
<PAGE> 24
PRICE RANGE OF COMMON STOCK AND DEBENTURES
The Common Stock is listed on the NYSE under the symbol "PIN". The
following table sets forth, for the periods indicated, the high and low sales
prices of the Common Stock as reported on the NYSE Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
Fourth Quarter(1)......................................... $25 1/8 $21 1/2
1998
First Quarter............................................. $27 3/8 $20 1/2
Second Quarter............................................ $31 $22 5/8
Third Quarter (through August 3, 1998).................... $28 3/8 $10 1/2
</TABLE>
- ---------------
(1) The Common Stock was offered to the public at $19.50 per share and commenced
trading on November 4, 1997.
On August 3, 1998, the reported last sale price of the Common Stock on the
NYSE Composite Tape was $14.4375. The approximate number of holders of record of
the Common Stock as of August 3, 1998 was 2,945.
The Debentures are designated for trading in PORTAL. The following table
sets forth, for the period indicated, the high and low closing bid quotations
per $1,000 principal amount for the Debentures as reported by Morgan Stanley &
Co. Incorporated, a market maker for the Debentures.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1998
Second Quarter (beginning May 12, 1998)............ $266.25 $235.00
Third Quarter (through August 5, 1998)............. $257.50 $168.80
</TABLE>
Such reported quotations may not reflect actual transactions.
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
Subsidiary 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 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.
23
<PAGE> 25
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 year ended December 31, 1997 and 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. The
selected financial data include the unaudited consolidated results of AMF
Bowling for the six months ended June 30, 1998 and 1997. 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 December 31, 1996, 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 of AMF
Bowling. The data should be read in conjunction with AMF Bowling's Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that appear elsewhere herein.
The comparability of the selected financial data is affected by the
Company's bowling center acquisition program. In 1996, the Company acquired 57
bowling centers from unrelated sellers. The combined purchase price was $108.0
million. In 1997, the Company acquired 122 bowling centers from a number of
unrelated sellers. The combined purchase price was $232.7 million (including
amounts paid in 1998 for certain bowling centers included in the 1997 total).
For the six months ended June 30, 1998, the Company acquired 66 bowling centers
from unrelated sellers. The combined purchase price was $134.9 million. See
"Business -- General".
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>
FOR THE YEAR ENDED DECEMBER 31, SIX MONTHS FOUR MONTHS
---------------------------------------------------------- ENDED ENDED
PRO FORMA JUNE 30, APRIL 30,
AMF ---------------- -----------
PREDECESSOR BOWLING, AMF BOWLING, AMF BOWLING, PREDECESSOR
COMPANY INC. INC. INC. COMPANY
------------------------- --------- ----------------- ---------------- -----------
1993 1994(A) 1995 1996(B) 1996(C) 1997 1997 1998 1996(D)
------ ------- ------ --------- ------- ------ ------ ------ -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenue.................. $427.6 $517.8 $564.9 $548.9 $384.8 $713.7 $318.1 $349.8 $164.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Cost of goods sold................. 153.2 196.0 184.1 173.6 130.5 212.6 86.1 85.0 43.1
Bowling center operating
expenses.......................... 108.5 115.2 166.5 178.8 123.7 251.2 116.0 159.3 80.2
Selling, general and administrative
expenses.......................... 41.9 57.1 50.8 51.0 35.1 64.5 30.2 30.4 35.5
Depreciation and amortization...... 21.4 24.8 39.1 73.5 49.4 102.5 43.4 56.9 15.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss)............ 102.6 124.7 124.4 72.0 46.1 82.9 (42.4) 12.7 (9.0)
Interest expense, gross............ 5.0 7.4 15.7 106.2 78.0 118.4 57.5 53.6 4.5
Other income (expense), net........ (0.1) (1.5) 0.2 3.8 3.9 (8.1) 1.3 1.4 (0.1)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes............................. 97.5 115.8 108.9 (30.4) (28.0) (43.6) (16.4) (41.3) (13.6)
Provision (benefit) for income
taxes............................. 15.1 16.5 12.1 (8.9) (8.5) (12.8) (4.2) (6.5) (1.7)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) before equity in
loss of joint ventures and
extraordinary items............... 82.4 99.3 96.8 (21.5) (19.5) (30.8) (12.2) (34.8) (11.9)
Equity in loss of joint ventures... -- -- -- -- -- (1.4) -- (1.6) --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) before
extraordinary items............... 82.4 99.3 96.8 (21.5) (19.5) (32.2) (12.2) (36.4) (11.9)
Extraordinary items, net of tax.... -- -- -- -- -- (23.4) -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss).................. $ 82.4 $ 99.3 $ 96.8 $(21.5) $(19.5) $(55.6) $(12.2) $(36.4) $(11.9)
====== ====== ====== ====== ====== ====== ====== ====== ======
Net loss per share before
extraordinary items (basic and
diluted).......................... $(0.55) $(0.49) $(0.71) $(0.29) $(0.61)
Per share effect of extraordinary
items............................. -- -- (0.52) -- --
------ ------ ------ ------ ------
Net loss per share (basic and
diluted).......................... $(0.55) $(0.49) $(1.23) $(0.29) $(0.61)
====== ====== ====== ====== ======
Ratio of earnings to fixed
charges(e)........................ 11.0 10.3 6.1 -- -- -- -- -- --
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS FOUR MONTHS
--------------------------------------------------------- ENDED ENDED
PRO FORMA JUNE 30, APRIL 30,
AMF ---------------- -----------
BOWLING, AMF BOWLING, PREDECESSOR
PREDECESSOR COMPANY INC. AMF BOWLING, INC. INC. COMPANY
------------------------- --------- ----------------- ---------------- -----------
1993 1994(A) 1995 1996(B) 1996(C) 1997 1997 1998 1996(D)
------ ------- ------ --------- ------- ------- ------ ------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED DATA:
EBITDA............................. $124.0 $149.5 $163.5 $ 145.5 $ 185.4 $ 85.8 $ 70.6 $6.1
EBITDA margin...................... 29.0% 28.9% 28.9% 26.5% 26.0% 27.0% 20.2% 3.7%
Revenue: (f)
Bowling Centers................... $192.6 $225.4 $292.3 $ 307.3 $ 429.1 $201.1 $266.5
Bowling Products.................. 243.6 301.7 286.5 252.1 299.3 124.7 92.7
EBITDA: (g)
Bowling Centers................... $ 54.5 $ 65.8 $ 86.8 $ 95.6 $ 130.4 $ 63.0 $ 76.9
Bowling Products.................. 71.1 84.6 79.3 62.6 70.8 31.3 3.9
New Center Packages sold........... 3,577 4,941 4,437 3,029 4,576 2,069 1,163
New Center Packages backlog, end of
period(h)......................... N/A 2,078 940 1,426 1,725 2,255 1,615
Number of centers, end of period... 190 293 286 341 470 408 533
Number of lanes, end of period..... 5,896 9,586 9,430 11,782 16,315 14,206 18,450
Capital Expenditures:
Routine modernization and
maintenance(i).................. $ 9.0 $ 11.4 $ 13.1 $ 14.5 $ 49.9 $ 12.2 $ 27.7
Expansion and acquisition
capital(j)...................... 5.7 6.4 16.9 117.4 221.6 135.6 134.9
------ ------ ------ ------- ------- ------ ------
Total............................. $ 14.7 $ 17.8 $ 30.0 $ 131.9 $ 271.5 $147.8 $162.6
====== ====== ====== ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------- AS OF
PREDECESSOR COMPANY AMF BOWLING, INC. JUNE 30,
------------------------- --------------------------- ---------
1993 1994(A) 1995 1996 1997 1998
------ ------- ------ ------------ ------------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(k).......................................... $ 18.9 $ 16.9 $ 29.2 $ 7.8 $ 43.9 $ 96.3
Goodwill, net............................................... -- -- -- 771.1 772.3 775.0
Total assets................................................ 228.2 410.2 400.4 1,594.0 1,832.1 2,006.4
Total debt.................................................. 75.7 186.1 167.4 1,091.3 1,060.6 1,301.1
Stockholders' equity........................................ 88.6 132.4 161.5 408.8 654.0 616.5
Total capitalization........................................ 164.3 318.5 328.9 1,500.1 1,714.6 1,917.6
</TABLE>
- ---------------
(a) Includes results of Fair Lanes, which operated 106 centers and was acquired
by the Predecessor Company 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.
(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) For six months ended June 30, 1998 and 1997, the year ended December 31,
1997 and the period ended December 31, 1996, on a historical basis, and the
year ended December 31, 1996, on a pro forma basis, the Company had a
deficiency of earnings to fixed charges of $41.3 million, $16.4 million,
$43.6 million, $28.0 million and $30.4 million, respectively. For the four
months ended April 30, 1996, the Predecessor Company had a deficiency of
earnings to fixed charges of $13.6 million.
(f) Before intersegment eliminations.
(g) Before intersegment eliminations and corporate, general and administrative
expenses.
(h) 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 1993 because the Company does not
maintain this data for this period.
(i) Defined as capital expenditures for existing product lines and manufacturing
operations and capital expenditures for modernizing and refurbishing bowling
centers.
(j) 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.
(k) Predecessor Company amounts reflect elimination of affiliates receivables
and payables.
25
<PAGE> 27
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 included elsewhere herein.
Management believes that comparisons of the results of operations for the
years ended December 31, 1997, on a historical basis, and 1996, on a pro forma
basis, and December 31, 1996, on a pro forma basis, and 1995, on a historical
basis, are more meaningful than comparisons on a 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. See "Note 3. Pro Forma Results of Operations" in the Notes to
Consolidated Financial Statements.
To facilitate a meaningful comparison, in addition to discussing the
consolidated results of the Company's operations, 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 operations 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, 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
includes 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 provides 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.
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 1997, bowling, food
and beverage and other revenue represented 60.6%, 25.4% and 14.0% of total
Bowling Centers revenue, respectively.
26
<PAGE> 28
The results shown below reflect both U.S. and international Bowling Centers
operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------ SIX MONTHS ENDED
PRO FORMA JUNE 30,
AMF AMF ----------------
PREDECESSOR BOWLING, BOWLING, AMF BOWLING,
COMPANY INC. INC. INC.
----------- --------- -------- ----------------
1995 1996(A) 1997 1997 1998
----------- --------- -------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BOWLING CENTERS (before intersegment
eliminations):
Operating revenue.................... $292.3 $ 307.3 $ 429.1 $201.1 $266.5
------ ------- ------- ------ ------
Cost of goods sold................... 26.3 27.5 39.9 18.3 25.9
Bowling center operating expenses.... 168.7 177.2 252.5 116.6 160.6
Selling, general and administrative
expenses........................... 10.5 7.0 6.3 3.2 3.1
Depreciation and amortization........ 36.6 56.2 82.8 34.3 46.3
------ ------- ------- ------ ------
Operating income..................... $ 50.2 $ 39.4 $ 47.6 $ 28.7 $ 30.6
====== ======= ======= ====== ======
SELECTED DATA:
EBITDA............................... $ 86.8 $ 95.6 $ 130.4 $ 63.0 $ 76.9
EBITDA margin........................ 29.7% 31.1% 30.4% 31.3% 28.9%
Number of centers, end of period..... 286 341 470 408 533
Number of lanes, end of period....... 9,430 11,782 16,315 14,206 18,450
</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. 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 amounts have
not been restated to reflect this change.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.
Bowling Centers operating revenue increased $65.4 million, or 32.5%. An
increase of $78.1 million is attributable to 188 new centers which were acquired
and one new center which was constructed after December 31, 1996, of which $71.0
million is from U.S. centers, and $7.1 million is from international centers.
Constant centers operating revenue decreased $10.3 million, or 5.7%. U.S.
constant centers revenue decreased $6.3 million primarily as a result of lower
lineage (games per lane per day), orienting and integrating newly acquired
centers and developing nationally branded chain development activities, and
record-setting hot weather which adversely affected customer visits.
International constant centers operating revenue decreased $4.0 million
primarily due to unfavorable currency translation of results and the World Cup
which adversely impacted revenue throughout Europe. On a constant exchange rate
basis, international operating revenue would have increased $0.8 million in the
first six months of 1998 compared to the first six months of 1997. A decrease of
$2.4 million in total operating revenue was also attributable to ten centers
which were closed since June 30, 1997.
Cost of goods sold increased $7.6 million, or 41.5% primarily as a result
of the net increase in the number of centers.
Operating expenses increased $44.0 million, or 37.7%. An increase of $45.2
million was attributable to the net increase in the number of centers and an
increase of $0.7 million was primarily attributable to increased regional
staffing costs and expenses associated with nationally branded chain development
activities. A decrease of $1.9 million was attributable to closed centers. As a
percentage of its revenue, Bowling Centers operating expenses were 60.3% for the
first six months of 1998 compared to 58.0% for the first six months of 1997
primarily attributable to the lag in achieving cost reductions in newly acquired
centers, expenses associated with nationally branded
27
<PAGE> 29
chain development activities and the higher fixed operating costs as a
percentage of constant centers revenue which decreased in the second quarter of
1998.
Selling, general and administrative expenses decreased $0.1 million, or
3.1%, primarily due to exchange rate fluctuations in the first quarter of 1998.
EBITDA increased $13.9 million, or 22.1%, primarily as a result of the net
increase in the number of centers. Additionally, Bowling Centers EBITDA was
impacted by the lag in achieving cost reductions in newly acquired centers,
increased staffing and, internationally, by the unfavorable currency translation
discussed above. EBITDA margin for the first six months of 1998 was 28.9%
compared to 31.3% in the first six months of 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,
1996. Bowling Centers operating revenue increased $121.8 million, or 39.6%. An
increase of $125.8 million was attributable to new centers, of which $116.5
million was from U.S. centers, and $9.3 million was from international centers.
An increase of $1.1 million, or 0.4%, in constant centers revenue was primarily
a result of an increase in revenue in the Northeast region of the United States,
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 for the year ended December 31, 1997
compared to the same period in 1996 was net of $1.0 million additional revenue
in 1996 due to leap year, a $3.0 million decrease in revenue from the Japanese
centers in 1997, which was primarily caused by recent poor economic conditions
in Japan, and a decrease of $1.0 million in operating revenue in the third
quarter of 1997 compared to the same period in 1996 which resulted from pricing
specials used in the U.S. and international centers to overcome lower lineage
which resulted from the hot, dry weather in these regions. Excluding these
special items, constant center revenue would have increased $6.1 million, or
2.2%, in the year ended December 31, 1997 compared to the same period in 1996. A
decrease in operating revenue of $5.1 million was primarily attributable to the
closing of a total of eight U.S. centers in May 1996, and February, May and
December 1997.
Cost of goods sold increased $12.4 million, or 45.1%, primarily as a result
of the net increase in the number of centers.
Operating expenses increased $75.3 million, or 42.5%, of which
approximately $74.6 million was attributable to new centers, including $69.6
million attributable to U.S. centers and $5.0 million attributable to
international centers. As a percentage of its revenue, Bowling Centers operating
expenses were 57.7% for the year ended December 31, 1996, on a pro forma basis,
versus 58.8% for the year ended December 31, 1997.
A decrease of $0.7 million, or 10.0%, in selling, general and
administrative expenses was attributable to cost controls implemented in
international centers in response to lower lineage discussed above and savings
associated with closed centers, partially offset by additional expenses due to
new centers.
An increase of $34.8 million, or 36.4%, in EBITDA was attributable to new
centers. EBITDA margin in 1997 was 30.4% compared to 31.1% in 1996, on a pro
forma basis.
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
28
<PAGE> 30
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.
The $3.5 million decrease in selling, general and administrative expenses
was primarily 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.
BOWLING PRODUCTS
The results shown below reflect Bowling Products operations.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------ SIX MONTHS ENDED
PRO FORMA JUNE 30,
AMF AMF ----------------
PREDECESSOR BOWLING, BOWLING, AMF
COMPANY INC. INC. BOWLING, INC.
----------- --------- -------- ----------------
1995 1996(A) 1997 1997 1998
----------- --------- -------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BOWLING PRODUCTS (before intersegment
eliminations):......................
Operating revenue..................... $286.5 $252.1 $299.3 $124.7 $ 92.7
Cost of goods sold.................... 166.9 153.3 185.7 74.7 67.1
------ ------ ------ ------ ------
Gross profit.......................... 119.6 98.8 113.6 50.0 25.6
Selling, general and administrative
expenses............................ 40.3 36.2 42.8 18.7 21.7
Depreciation and amortization......... 3.6 18.5 19.8 9.9 11.0
------ ------ ------ ------ ------
Operating income...................... $ 75.7 $ 44.1 $ 51.0 $ 21.4 $ (7.1)
====== ====== ====== ====== ======
SELECTED DATA:
Gross profit margin................... 41.7% 39.2% 38.0% 40.1% 27.6%
EBITDA................................ $ 79.3 $ 62.6 $ 70.8 $ 31.3 $ 3.9
EBITDA margin......................... 27.7% 24.8% 23.7% 25.1% 4.2%
New Center Packages sold.............. 4,437 3,029 4,576 2,069 1,163
New Center Packages backlog end of
period (b).......................... 940 1,426 1,725 2,255 1,615
</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. 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 amounts have not been restated to
reflect this change.
(b) NCP orders included in the backlog are sometimes cancelled 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. The backlog as of June 30, 1998 was 1,615 units, which represents a
reduction of 28.4% compared to a backlog of 2,255 units as of June 30, 1997.
See "-- Backlog; Recent NCP Sales".
29
<PAGE> 31
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30,
1997. Bowling Products operating revenue decreased $32.0 million, or 25.7%. NCP
revenue decreased $23.0 million, or 36.6%, and Modernization and Consumer
Products revenue decreased $9.0 million, or 14.5%. Operating results have been
adversely impacted by current economic difficulties in certain markets of the
Asia Pacific region, the strong U.S. dollar and lower prices as discussed above.
During the first six months of 1998, Bowling Products recorded NCP shipments of
1,163 units compared to shipments of 2,069 units for the first six months of
1997. The decrease in Modernization and Consumer Products revenue is primarily
due to decreased sales to Japanese customers due to economic conditions and to
U.S. customers who have delayed orders in anticipation of new product
introductions.
Gross profit decreased $24.4 million, or 48.8%, primarily as a result of
the decreased levels of NCP shipments, the strong U.S. dollar and competitive
pricing as discussed above and unabsorbed fixed overhead resulting from low
production levels.
Bowling Products selling, general and administrative expenses increased
$3.0 million, or 16.0%, primarily as a result of increases of $1.0 million in
advertising expenses and $1.9 million related to staffing. These increases are
primarily related to increased investment in international markets with long
term potential.
Bowling Products EBITDA decreased $27.4 million, or 87.5%, and the Bowling
Products EBITDA margin decreased from 25.1% in the first six months of 1997 to
4.2% in the first six months of 1998 as a result of the lower gross profit and
increased selling, general and administrative expense discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,
1996. Bowling Products operating revenue increased $47.2 million, or 18.7%,
primarily due to an increase of $44.7 million, or 37.1%, in NCP revenue, and an
increase of $1.5 million, or 1.1%, in Modernization and Consumer Products
revenue. The increase in NCP revenue was due to an overall increase in NCP sales
of 1,547 units which occurred primarily in Asia Pacific, Europe, South America
and the Middle East. See "-- Seasonality and Market Development Cycles".
Gross profit increased by $14.8 million, or 15.0%. Gross profit margin was
39.2% in 1996, on a pro forma basis, and 38.0% in 1997. Competitive pricing
pressure in certain markets and higher cost of sales, both experienced in the
third and fourth quarter, and unfavorable exchange rates experienced in certain
markets in the fourth quarter, resulted in lower year-to-date margins in 1997.
See "-- International Operations".
Bowling Products selling, general and administrative expenses increased by
$6.6 million, or 18.2%, primarily as a result of a $4.3 million increase
attributable to payroll and facilities expenses related to opening and staffing
certain of the Company's international sales and service offices, and an
increase of $3.7 million attributable to advertising and promotion expenses.
These increases were offset by a $1.4 million decrease in payroll, facilities
and related expenses at U.S. locations.
EBITDA increased $8.2 million, or 13.1%, and EBITDA margin decreased from
24.8% in 1996, to 23.7% in 1997. The margin decline was impacted by the pricing
pressure and unfavorable exchange rates discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED 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
decrease 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
South Korea and Taiwan, offset in part by an increase in NCP revenue from sales
to China. From 1995 to 1996, total NCP sales to South 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 "--
30
<PAGE> 32
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.
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.
CONSOLIDATED ITEMS
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $13.5 million or 31.1% in the six
months ended June 30, 1998 compared to the six months ended June 30, 1997. The
increase is primarily attributable to depreciation of property and equipment of
centers acquired since June 30, 1997. Incremental depreciation expense was also
incurred as a result of capital expenditures.
For the year ended December 31, 1997, depreciation and amortization
increased by $29.0 million, or 39.5%, over the same period in 1996, primarily
due to depreciation of property and equipment of centers acquired since May,
1996 and incremental depreciation expense 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 for the Acquisition.
INTEREST EXPENSE
Gross interest expense decreased $3.9 million, or 6.8%, in the six months
ended June 30, 1998 compared to the six months ended June 30, 1997. Interest
savings associated with the reduction of indebtedness under the Credit Agreement
and the redemption of a portion of the Subsidiary Senior Subordinated Discount
Notes with proceeds of the Initial Public Offering were partially offset by
interest incurred on increased levels of indebtedness under the Credit Agreement
as a result of borrowings to fund center acquisitions and the issuance of the
Debentures. See "Liquidity and Capital Resources". Non-cash bond interest
amortization totaled $14.2 million and $16.8 million for the six months ended
June 30, 1998 and 1997, respectively.
Gross interest expense increased by $12.2 million, or 11.5%, in the year
ended December 31, 1997 compared with the same period in 1996, primarily due to
interest paid on increased levels of bank debt as a result of center
acquisitions. See "-- Liquidity" and "-- Capital Resources". Cash interest paid
by the Company for the year ended December 1997 totaled $83.2 million, while
non-cash bond interest amortization totaled $33.6 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 an acquisition
facility that existed under the Credit Agreement prior to the third amendment
and restatement of the Credit Agreement in November 1997 (the "Acquisition
31
<PAGE> 33
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.
NET INCOME (LOSS)
Net loss in the six months ended June 30, 1998 was $36.4 million compared
to a net loss of $12.2 million in the six months ended June 30, 1997. The
decrease of $24.2 million was primarily a result of decreases in Bowling
Products revenue and EBITDA discussed above and the increase in depreciation
expense. Additionally, the Company recorded $1.6 million in equity in loss of
joint ventures in the six months ended June 30, 1998. The Company accounts for
its investments in Hong Leong Joint Venture (as hereinafter defined) and
Playcenter Joint Venture (as hereinafter defined) by the equity method.
Net loss increased $34.1 million, or 158.6%, for the year ended December
31, 1997 compared with the same period in 1996. Increases of $39.9 million in
EBITDA discussed above on a segment basis and income tax benefit of $3.9 million
were offset by increases of $29.0 million in depreciation and amortization
expense, $12.2 million in interest expense, $23.4 million of extraordinary
charges recorded in the fourth quarter as described below, $11.9 million in
other expenses and $1.4 million of equity in loss of joint ventures.
The Company incurred after-tax extraordinary charges totaling $23.4 million
in the fourth quarter of 1997 as a result of entering into the third amendment
and restatement of the Credit Agreement, the premium paid to redeem a portion of
the Subsidiary Senior Subordinated Discount Notes with the proceeds of the
Initial Public Offering and the write-off of the portion of deferred financing
costs attributable to the redeemed Subsidiary Senior Subordinated Discount
Notes. See "Note 9. Long-Term Debt" in the Notes to Consolidated Financial
Statements and "Selected Quarterly Data" included elsewhere herein.
Of the $11.9 million increase in other expenses, $3.6 million was
attributable to the write down of seven U.S. centers closed in 1997 and three
U.S. centers which the Company will close in 1998, $1.6 million was attributable
to an increase in losses recorded on sales of property and equipment and $3.0
million represented an increase in losses on foreign exchange transactions. In
addition to the increases in these expenses, interest income decreased $3.7
million. Proceeds from the issuance of Subsidiary Senior Subordinated Notes and
Subsidiary Senior Subordinated Discount Notes which were used to partially fund
the Acquisition were received by the Company in March 1996, and earned interest
income until May 1, 1996, the date of Acquisition. For the year ended December
31, 1997, the Company incurred a loss of $1.4 million as equity in loss of joint
ventures. See "Note 16. Joint Ventures" in the Notes to Consolidated Financial
Statements.
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.
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.
In connection with the Acquisition, the two principal subsidiaries of the
Company 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. federal 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.
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As of December 31, 1997, the Company had net operating losses of
approximately $110.0 million and foreign tax credits of $12.4 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 2011. The Company has recorded a valuation reserve as of June
30, 1998 for $15.6 million related to net operating losses and foreign tax
credits that the Company does not expect will be utilized prior to their
expirations.
LIQUIDITY
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
The following discussion compares AMF Bowling's results for the six months
ended June 30, 1998 with the six months ended June 30, 1997, on a historical
basis.
The Company's primary source of liquidity is cash provided by operations
and credit facilities as described below. Working capital on June 30, 1998 was
$96.3 million compared to $43.9 million as of December 31, 1997, an increase of
$52.4 million. Increases in working capital were primarily attributable to an
increase of $16.1 million in cash attributable to cash balances held to fund
pending acquisitions, an increase of $14.7 million in inventory balances
primarily due to new product introductions, a decrease of $12.4 million in
accounts payable and a decrease of $16.1 million in accrued expenses, and a net
increase of $3.8 million in other current assets and liabilities. These
increases in working capital were offset by a decrease in working capital caused
by a decrease of $8.2 million in accounts receivable primarily as a result of
lower Bowling Products sales, and an increase of $2.5 million in the current
portion of long term debt.
Net cash flows used in operating activities were $25.1 million for the six
months ended June 30, 1998 compared to net cash flows provided of $8.2 million
for the six months ended June 30, 1997, a decrease of $33.3 million. A decrease
of $30.8 million was caused by decreased levels of accounts payable and accrued
expenses, a decrease of $24.2 million was attributable to the net loss of $36.4
million recorded in the first six months of 1998 compared to a net loss of $12.2
million in the same period in 1997, a decrease of $2.6 million was attributable
to lower levels of bond amortization resulting from the redemption of a portion
of Bowling Worldwide's senior subordinated discount notes in connection with the
Initial Public Offering, a decrease of $2.0 million was attributable to the
decrease in income taxes payable, a decrease of $6.1 million was attributable to
the decrease in other assets, and a net decrease of $7.8 million was
attributable to changes in other operating activities. These decreases were
offset by an increase of $26.8 million attributable to lower levels of accounts
receivable and an increase of $13.4 million in depreciation and amortization.
Net cash flows used in investing activities were $185.7 million for the six
months ended June 30, 1998 compared to net cash flows used of $147.5 million for
the six months ended June 30, 1997, an increase of $38.2 million. Bowling Center
acquisition spending and purchases of property and equipment increased by $30.6
million and $2.1 million, respectively, in the first six months of 1998 compared
to the same period in 1997. A total of $17.9 million was paid in the first half
of 1998 for eight centers which were acquired in 1997. In the first six months
of 1998, 66 centers were purchased compared to 64 centers in the same period in
1997. Investments in and advances to joint ventures totaled $5.4 million in the
first six months of 1998 compared to no investments in or advances to joint
ventures in the first six months of 1997. Other cash flows provided from
investing activities increased $0.1 million. See "Note 8. Acquisitions" in the
Notes to Condensed Consolidated Financial Statements and "-- Capital
Expenditures" for additional discussion of these investing activities.
Net cash provided by financing activities was $226.9 million for the six
months ended June 30, 1998 compared to net cash provided of $112.4 million for
the six months ended June 30, 1997, an increase of $114.5 million. Proceeds from
long term debt increased $355.1 million primarily as a result of the issuance of
the Debentures on May 12, 1998 for gross proceeds of approximately $284.1
million. Borrowings under the Credit Agreement increased $71.0 million as a
result of funding
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center acquisitions and working capital. Payments on long-term debt were higher
by $242.1 million in 1998 compared to 1997 primarily because $249.6 million of
the proceeds from the Debentures was used to pay down the Bank Facility under
the Credit Agreement, and such repaid indebtedness is available for reborrowing.
In accordance with the terms of the Credit Agreement, scheduled principal
payments in the first six months of 1998 were $7.5 million lower than payments
made in the same period in 1997. In the first six months of 1998, $1.7 million
of Common Stock was issued, of which $1.2 million was attributable to shares
issued in the Active West acquisition and $0.5 million was attributable to
shares issued upon exercise of employee stock options. Expenses of the Initial
Public Offering totaling $0.6 million were paid in the first half of 1998. Net
cash flows provided by other financing activities increased $0.4 million. See
"Note 5, Long-Term Debt", "Note 7, Employee Benefit Plans", and "Note 8,
Acquisitions" in the Notes to Condensed Consolidated Financial Statements and
"-- Capital Resources".
As a result of the aforementioned, cash increased by $16.1 million for the
six months ended June 30, 1998 compared to a decrease of $26.9 million for the
six months ended June 30, 1997.
The net proceeds of the Debentures discussed above were approximately
$273.1 million, of which $249.6 million was used to repay senior bank
indebtedness under the Credit Agreement and $23.5 million was used for
acquisitions and general corporate purposes. The senior bank indebtedness repaid
remains available for reborrowing, subject to certain conditions, and such
repayment and resulting ability to reborrow will enable the Company to incur
additional indebtedness under the Credit Agreement to fund the Company's ongoing
bowling center acquisition program and for other corporate purposes.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The following discussion compares AMF Bowling's results for the year ended
December 31, 1997 with the period ended December 31, 1996, on a historical
basis.
Net cash flows provided by operating activities were $73.8 million for the
period ended December 31, 1996 compared with net cash provided of $47.7 million
for the year ended December 31, 1997, a decrease of $26.1 million. Net cash was
provided from an increase of $53.1 million in depreciation and amortization as a
result of incremental depreciation recorded on bowling center acquisitions and
capital expenditures of the Company, an increase of $8.8 million which resulted
from amortization of the discount related to the bonds used to partially fund
the Acquisition and an increase of $4.0 million attributable to loss recorded on
the sale of property and equipment. In 1997, net cash of $1.4 million was
provided by the equity in loss of joint ventures and $23.4 million was provided
by the after-tax extraordinary charges discussed above. Net cash used resulted
from an increase of $36.1 million in net loss, an increase of $19.6 million in
the change in accounts receivable primarily resulting from the increased levels
of NCP sales compared with the same period in 1996, an increase of $18.8 million
in the change in inventory primarily reflecting the increased backlog of NCP
orders to be shipped after December 31, 1997, an increase in the change in other
assets of $8.9 million, an increase in the change in net deferred income tax
assets of $6.2 million and a decrease of $27.2 million in the change in accounts
payable and other liabilities.
Net cash flows used in investing activities were $1,467.1 million for the
period ended December 31, 1996 compared with net cash flows used of $288.6
million for the year ended December 31, 1997. During the period ended December
31, 1996, cash flows used for acquisitions of operating units, net of cash
acquired, including the Acquisition, totaled $1,450.9 million, capital spending
was $16.9 million and other investing cash flows provided were $0.7 million.
During the year ended December 31, 1997, acquisitions of bowling centers totaled
$214.8 million, capital spending was $56.7 million, investments in and advances
to the Hong Leong Joint Venture and Playcenter Joint Venture totaled $21.3
million, and other cash flows provided by investing activities were $4.2 million
attributable to proceeds from the sale of property. See "Note 15. Acquisitions"
in the Notes to Consolidated Financial Statements and "-- Capital Expenditures".
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Net cash provided by financing activities was $1,438.3 million for the
period ended December 31, 1996 compared with net cash provided of $235.7 million
for the year ended December 31, 1997. 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"). During 1997, funds were used primarily for the
payment of long-term debt totaling $304.6 million, $14.6 million was
attributable to the premium paid in connection with the redemption of a portion
of the Subsidiary Senior Subordinated Discount Notes discussed above, $0.7
million was attributable to payments on non-compete obligations 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. Funds were provided in 1997 by
borrowings of long-term debt totaling $240.4 million, $36.6 million of
additional capital contributions used in part to fund acquisitions and for other
corporate purposes, and $279.1 million of net proceeds from the Initial Public
Offering. See "Note 12. Stockholders' Equity" and "Note 13. Employee Benefit
Plans" in the Notes to Consolidated Financial Statements.
As a result of the aforementioned, cash increased by $43.6 million for the
period ended December 31, 1996 compared to a decrease of $7.8 million for the
year ended December 31, 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED 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 a 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 of the Predecessor Company.
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
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<PAGE> 37
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. See "Business -- General".
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.
CAPITAL RESOURCES
The Company's total indebtedness increased substantially as a result of the
Acquisition and the Company's ongoing bowling center acquisition program. At
June 30, 1998, the Company's debt structure consisted of $563.5 million of
senior debt, $250.0 million of Subsidiary Senior Subordinated Notes, $200.8
million of Subsidiary Senior Subordinated Discount Notes, and $286.8 million of
Debentures. The Company's senior debt consisted of $433.5 million of term loans,
$128.0 million of revolving credit advances under the Bank Facility and $2.0
million represented by one mortgage note. At June 30, 1998, the Company was
capitalized with equity of $616.5 million.
The Company has the ability to borrow for general corporate purposes and
for acquisitions pursuant to the $355.0 million Bank Facility, subject to
certain conditions. Between December 31, 1997 and June 30, 1998, additional
borrowings under the Bank Facility totaled $204.5 million and were used to fund
the acquisitions of centers and increases in working capital and for general
corporate purposes.
On May 12, 1998, AMF Bowling completed the Private Placement of the
Debentures to the Initial Purchasers for net proceeds of $275.6 million. The
Company used $249.6 million of net proceeds of the Private Placement to repay
amounts outstanding under the Bank Facility. As of June 30, 1998, $128.0 million
was outstanding and $227.0 was available for borrowing under the Bank Facility.
In September 1997, certain stockholders of AMF Bowling purchased an
aggregate of 1,780,000 shares of Common Stock for $20.00 per share. The
aggregate $35.6 million capital contribution was used to fund acquisitions.
In November 1997, AMF Bowling issued 15,525,000 shares of Common Stock at
$19.50 per share pursuant to the Initial Public Offering. The net proceeds of
the Initial Public Offering were approximately $279.1 million, after deducting
the underwriting discount and expenses payable by AMF Bowling, and were used to
repay $150.8 million of indebtedness under the Credit Agreement and to redeem
$118.9 million in principal of the Subsidiary Senior Subordinated Discount
Notes. See "Note 9. Long-Term Debt" and "Note 12. Stockholders' Equity" in the
Notes to Consolidated Financial Statements.
The Company has funded its cash needs through the Bank Facility as well as
cash flow from operations and existing cash balances. A substantial portion of
the Company's available cash will be applied to service outstanding
indebtedness. For the six months ended June 30, 1998, the Company incurred cash
interest expense of $38.5 million, representing 54.5% of EBITDA for the six
months. For the six months ended June 30, 1997, the Company incurred cash
interest expense of $39.8 million, representing 46.4% of EBITDA for the six
months. For the year ended December 31, 1997, the Company incurred cash interest
expense of $83.0 million, representing 44.8% of EBITDA of $185.4 million for the
year. For the period from the inception date of January 12, 1996 through
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. The Company
finances its ongoing acquisition program with borrowings under the Bank
Facility, with cash generated by operations and with various other financing
sources, which may include additional incurrences of debt by AMF Bowling and/or
Bowling Worldwide and issuances of equity of AMF Bowling. However, the Credit
Agreement and the Subsidiary Indentures 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. At
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the present time, the restrictive covenants in the Subsidiary Indentures would
prohibit Bowling Worldwide from incurring additional indebtedness other than
borrowings under the Credit Agreement. The Company's management believes that
the amount available under the Bank Facility will be adequate to fund the
Company's ongoing acquisition program at its current rate for at least 12 months
following the date of the Private Placement. The Company reviews the options
available to it for ongoing financing of such acquisition program on a
continuing basis.
The Subsidiary 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 "Note 9. Long-Term Debt" in the Notes to Consolidated
Financial Statements.
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,
including the conditions of the debt and equity markets.
On November 3, 1997, the Company entered into the Third Amended and
Restated Credit Agreement, under which the previously existing Acquisition
Facility and a portion of the term facilities under the Credit Agreement were
converted into a non-amortizing revolving Bank Facility, the aggregate size of
which was increased to $355.0 million, and a portion of such revolving credit
indebtedness was repaid with proceeds of the Initial Public Offering. See "Risk
Factors -- Ability to Implement Growth Strategies".
CAPITAL EXPENDITURES
For the six months ended June 30, 1998, the Company's capital expenditures
were $27.7 million compared to $25.6 million for the six months ended June 30,
1997, an increase of $2.1 million. Bowling Centers maintenance and modernization
expenditures increased $3.3 million attributable to the higher number of the
Company's centers as a result of the Company's acquisition program, Bowling
Products expenditures increased $3.6 million as a result of expenditures on
production equipment for certain new products and equipment for international
sales offices, and other expenditures increased $2.4 million. Expenditures on
company-wide information systems decreased $3.1 million. Expenditures for the
construction of the Chelsea Piers center totaled $4.1 million in 1997.
For the year ended December 31, 1997, the Company's actual capital
expenditures were $56.7 million (excluding acquisitions) compared with $23.8
million for the year ended December 31, 1996, on a pro forma basis (capital
expenditures of the acquired business from January 1, 1996 through December 31,
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 the new 40 lane,
state-of-the-art bowling and family entertainment center at Chelsea Piers in New
York City.
For the year ended December 31, 1996, the Company's capital expenditures
were $23.8 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. The 1996 expenditures level was lower than the 1995 level in
part because in 1995 three new bowling centers were constructed.
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
approximately 3.7% of Bowling Centers revenue is adequate to cover all
modernization and maintenance capital expenditures. Management estimates that
approximately 2.0% of Bowling Centers revenue is required for nondiscretionary
capital expenditures.
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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 new product development has received the highest investment
priority and has focused on projects with projected payback periods of one to
three years.
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 opportunities arise and is
engaged in ongoing evaluations of and discussions with third parties regarding
possible acquisitions. While the Company will continue its acquisition and
consolidation program, the number of centers acquired will be reduced over the
next 12 months as the Company will become more selective in its acquisitions in
response to lower EBITDA of Bowling Products and the demands of integration of
newly acquired centers. Management plans to acquire centers with funding
provided under the Credit Agreement to the extent available, as well as
additional incurrences of indebtedness. Under the Bank Facility, as of July 31,
1998, the Company had the ability to borrow up to an additional $207.0 million
for acquisitions or to finance 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.
As of July 31, 1998, the Company has entered into purchase agreements to
acquire ten centers from unrelated sellers. The Company has committed to build a
bowling center in Chicago's Marina City Development and to build the Michael
Jordan Golf Center in Charlotte, North Carolina, each in October 1998.
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 Bank Facility, and issuances of common equity.
See "Note 15. Acquisitions" in the Notes to Consolidated Financial Statements,
"-- Liquidity" and " -- Capital Resources".
SEASONALITY AND MARKET DEVELOPMENT CYCLES
The U.S. bowling center operations are seasonal. The following table sets
forth AMF's U.S. constant centers revenue for the last four quarters:
<TABLE>
<CAPTION>
QUARTER ENDING (DOLLARS IN MILLIONS)
-----------------------------------------------------------------------
MARCH 31, 1997 JUNE 30, 1997 SEPTEMBER 30, 1997 DECEMBER 31, 1997
-------------- ------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Total Revenue......... $58.1 $41.1 $38.4 $50.6
% of Total............ 30.9% 21.8% 20.4% 26.9%
</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 eleven other countries, 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, however, 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
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<PAGE> 40
centers show strong performance. See "Note 17. Business Segments" in the Notes
to Consolidated Financial Statements.
Modernization and Consumer Products sales display seasonality. The U.S.
market, which is the largest market for Modernization and Consumer Products, is
driven by the beginning of league play 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 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.,
South Korea and Taiwan) which, in the Company's experience, last five years or
more. Current economic difficulties in certain markets of the Asia Pacific
region have resulted in the reduction in the order rate, level of shipments and
backlog for NCPs. See "-- Backlog; Recent NCP Sales".
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, tariffs and value added taxes 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.
AMF has a history of operating in a number of international markets, in
some cases, for over thirty years. As in the case of other U.S.-based
manufacturers with export sales, local currency devaluation increases the cost
of the Company's bowling equipment in that market. As a result, a strengthening
U.S. dollar exchange rate may adversely impact sales volume and profit margins
during such periods.
Current economic difficulties in certain markets of the Asia Pacific region
have resulted in a reduction in the level of shipments for NCPs. Management
believes that many Asia Pacific customers are delaying purchases of NCP and
Modernization equipment as they await the return of economic stability to their
regions. Contributing to such delays is the continuing limited availability of
financing for Asia Pacific customers to construct new centers and purchase AMF
bowling equipment. As of June 30, 1998, the NCP backlog was 1,615 units, which
represents a reduction of 28.4% compared to a backlog of 2,255 units as of June
30, 1997, and a reduction of 6.4% compared to a backlog of 1,725 units as of
December 31, 1997. See "-- Backlog; Recent NCP Sales".
NCP unit sales to China, Japan and other Asia Pacific markets represented
51.5% for the six months ended June 30, 1998 compared to 72.7% for the year
ended December 31, 1997. NCP unit backlog related to China, Japan and other Asia
Pacific markets represented 63.4% of total NCP unit backlog at June 30, 1998
compared to 70.4% at December 31, 1997.
Foreign currency exchange rates also impact the translation of operating
results from international bowling centers. For the six months ended June 30,
1998, revenue and EBITDA of international bowling centers represented 15.5% and
20.3% of consolidated results, respectively. For the six months ended June 30,
1997, revenue and EBITDA of international bowling centers represented 16.5% and
17.6% of consolidated results, respectively. For the year ended December 31,
1997,
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revenue and EBITDA of international bowling centers represented 14.6% and 16.0%
of consolidated results, respectively.
BACKLOG; RECENT NCP SALES
The total backlog of NCPs was 1,615 units as of June 30, 1998, representing
a reduction of 6.4% compared to 1,725 units as of December 31, 1997, and a
reduction of 28.4% compared to 2,255 units as of June 30, 1997. NCP orders
included in the backlog are sometimes cancelled 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 its NCP orders. NCP
shipments were 1,163 units for the six months ended June 30, 1998, representing
a reduction of 43.8% compared to shipments of 2,069 units for the six months
ended June 30, 1997, largely attributable to the recent economic difficulties in
the Asia Pacific region. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- International Operations".
NCP sales for the year ended December 31, 1997 totaled $165.1 million, a
37.1% increase over the same period in 1996. Management believes that the
significant increase was attributable to the market development and sales
programs implemented in mid-1996 which were designed to increase NCP sales
activity in certain markets around the world. While China currently represents
the largest market for NCP sales and backlog, other markets in North and South
America, Asia, Europe and the Middle East are being developed.
The 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 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.
IMPACT OF INFLATION
The Company has historically offset the impact of inflation through price
increases and expense reductions. Periods of high inflation could have a
material adverse impact on the Company to the extent that increased borrowing
costs for floating rate debt may not be offset by increases in cash flow.
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. In management's opinion, the various claims in which the Company
currently is involved are not likely to have a material adverse impact on its
financial position or results of operations. However, it is not possible to
ensure the ultimate outcome of 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective for the fiscal year ended December 31, 1998, the Company is
required to adopt Statement of Financial Accounting Standards ("SFAS") No. 130
"Reporting Comprehensive
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<PAGE> 42
Income", SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information" and SFAS No. 132 "Employers' Disclosures About Pensions and Other
Post-Retirement Benefits". Effective for the quarter ended June 30, 1999, the
Company is required to adopt SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities." 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. See "Note 2. Significant Accounting
Policies -- Comprehensive Income" in the Notes to Condensed Consolidated
Financial Statements.
YEAR 2000 ISSUE
The Company is currently developing and installing new worldwide financial,
information, retail and operational systems. Worldwide system implementation is
expected to be complete by December 31, 1999. In connection with this
implementation, system programs have been designed so that the year 2000 will be
recognized as a valid date and will not affect the processing of date-sensitive
information. As of June 30, 1998, the Company spent a total of $15.6 million on
systems installation. The Company expects to spend an additional $4.6 million to
complete the installation. In addition, the Company sells automatic scoring that
is computerized and has developed a software program for a cost to the Company
of approximately $50,000 that will address the year 2000 issue in its automatic
scoring. This software will be made available to customers with service
contracts at no cost and will be sold to customers without service contracts.
The Company believes that the year 2000 issue is being appropriately addressed
through the implementation of these new systems and software development and
does not expect the year 2000 issue to have a material adverse impact on the
financial position, results of operations or cash flows in future periods.
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<PAGE> 43
BUSINESS
GENERAL
AMF is the largest bowling company in the world. The Company owns or
operates 539 bowling centers worldwide which generate over 60 million customer
visits per year. AMF is the U.S. market leader with 419 bowling centers, and is
also the largest operator internationally, with an additional 120 bowling
centers in eleven other 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 419 centers has approximately 118 centers. The next three largest
operators collectively account for only approximately 54 of the total 5,900
centers.
AMF Bowling conducts all of its business through subsidiaries and has no
operations of its own.
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 is aggressively
consolidating the U.S. bowling center industry and building a nationally
recognized brand of bowling-based family recreation centers. In addition, the
management team seeks to capitalize on the long term demand for bowling products
and centers in global markets.
Management is utilizing the well-recognized AMF name to build the only
national branded network of bowling-based family recreation centers in the U.S.
through a series of initiatives. These include upgrading the physical appearance
of centers, improving the food and beverage offerings, implementing a
comprehensive customer appreciation and rewards system (AMF CARES!) and
introducing innovative new products, such as Durabowl(TM) bumper bowling,
Xtreme(TM) Bowling and the BOSS NT automatic scoring and operating control
system. Since May 1996, AMF's management team has grown the number of AMF's U.S.
centers from 207 to 419 (as of July 31, 1998), an increase of approximately
102%, almost exclusively through acquisitions.
AMF participates in the international demand for bowling products through
direct sales of equipment and the building of new bowling centers abroad. AMF's
NCPs include all of the equipment necessary to outfit one new bowling lane. Over
85% of the Company's NCP backlog is to international markets. Although current
economic difficulties in certain markets of the Asia Pacific region have
resulted in the reduction in the order rate, level of shipments and backlog for
NCPs, AMF's ongoing strategy is to continue capitalizing on the global demand
for bowling products and centers in global markets. AMF also seeks to accelerate
the development of bowling in key potential markets. To this end, during 1997,
AMF entered into joint ventures that opened bowling centers equipped with AMF
bowling products in China, 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> 44
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 U.S. bowling center industry is highly fragmented, and consists of two
relatively large bowling center operators, AMF (which had 419 U.S. centers as of
July 31, 1998) and Brunswick (which has approximately 118 U.S. centers), three
medium-sized chains, which together account for 54 bowling centers, and
approximately 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 10.1% 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).
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 revenue from food and beverage and other
ancillary sources. 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......................................................... 419 7.2%
Brunswick................................................... 118 2.0
Bowl America................................................ 23 0.4
Mark Voight................................................. 16 0.3
Bowl New England............................................ 15 0.2
----- -----
Subtotal.................................................. 591 10.1
Single-center and small-chain operators..................... 5,262 89.9
----- -----
Total............................................. 5,853 100.0%
===== =====
</TABLE>
- ---------------
(a) AMF estimate at July 31, 1998.
BOWLING PRODUCTS
The Bowling Products business consists of two categories: (i) NCPs (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 necessary to maintain operations of an existing center).
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".
NCP sales generally 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 majority of NCP sales have been to international markets. In recent
years, this international trend has been fueled by the growth of bowling in
several countries, particularly China and Taiwan. Current economic difficulties
in certain markets of the Asia Pacific region have adversely affected NCP order
rate, level of shipments and backlog. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
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<PAGE> 45
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 modernization equipment, both
proprietary and standard spare parts for existing equipment and other products
including pins, shoes and supplies. 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.) Since 1996, however, the
number of lanes in Korea has decreased and is expected to continue to decrease,
thereby adversely affecting the population per lane statistics. 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. Only a small
number of markets have achieved the level of development reached by the U.S. and
Korea.
BUSINESS STRATEGY
AMF believes that its future growth will depend on the continued success of
its strategy to consolidate the U.S. bowling center industry, to build a
nationally recognized AMF brand of bowling-based family recreation centers and
to 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 251 centers that AMF has acquired since May 1996, the
Company's 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 become 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 improvements are designed to generate
increased revenue and to further AMF's goal of creating a nationally recognized
brand of bowling-based family recreation centers.
BUILD A NATIONALLY RECOGNIZED BRAND OF BOWLING-BASED FAMILY RECREATION CENTERS
The Company is developing a nationally recognized brand of bowling-based
family recreation centers. These centers generally will offer state-of-the-art
bowling equipment including many of the products manufactured by AMF's Bowling
Products business, such as the Xtreme(TM) package for glow-in-the-dark bowling,
the AMF 8800 Gold pinspotter, high scoring HPL synthetic lanes, the BOSS NT
automatic scoring and operating control system with animated computer graphics,
the Options furniture package for concourse and settee areas, and Durabowl(TM)
bumpers that enable young bowlers to knock down pins.
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<PAGE> 46
In 1997, the Company launched AMF CARES!, a comprehensive customer
appreciation and rewards system, designed to deliver a consistent quality, fun
recreational experience to customers of AMF centers throughout the United
States. This start-up program concentrates on customer-focused operating
standards, employee awards and recognition, loyalty-driven marketing programs,
enhanced food and beverage operations and stronger brand identity with new
signage and employee uniforms.
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 bowling-based family recreation 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. The Company is
scheduled to open a new center in the Marina City Development in Chicago during
October 1998.
IMPROVE FOOD AND BEVERAGE REVENUE
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 GLOBAL DEMAND FOR BOWLING PRODUCTS
Management believes that AMF's well-established global brand name, the
quality of its products, its comprehensive service and strong direct sales force
and distribution network enable it to take advantage of NCP demand worldwide.
The Company is focused on sales of NCPs (which comprised approximately 55% of
AMF's Bowling Products sales in 1997) into selected countries with demonstrated
strong demand for bowling products. 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,
such as India, Poland and Brazil, which are in the early development stage, have
the potential for high growth. There can be no assurance that early stage
markets will develop to the same extent as the United States, the Company's most
mature market, as only a small number of markets have achieved such 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.
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 Durabowl(TM) bumpers, Xtreme(TM) Bowling and the BOSS NT
automatic scoring and control operating system. AMF positions its products as
high quality and technologically advanced. 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.
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<PAGE> 47
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 position AMF to increase sales
of Modernization and Consumer Products. These products, which include
modernization equipment, supplies, spare parts and consumable products,
comprised approximately 45% of AMF's Bowling Products sales in 1997.
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.
AMF BOWLING CENTERS
In the United States, AMF is the largest operator of bowling centers, with
(as of July 31, 1998) 419 bowling centers in 40 states and Puerto Rico. Outside
the United States, AMF is also the largest operator of bowling centers, with (as
of July 31, 1998) 120 bowling centers in eleven countries: Australia (43), the
United Kingdom (37), Mexico (9), Japan (4), China (including Hong Kong) (7),
Argentina (2), Brazil (11), France (3), Spain (2), Switzerland (1), and Canada
(1). Of the U.S. centers, 207 were acquired as part of the Acquisition (eleven
of which were subsequently closed), 222 were acquired thereafter and one was
constructed. Of the international centers, 78 were acquired as part of the
Acquisition, 29 were acquired thereafter, including 22 in the United Kingdom and
seven in Australia, and one was closed in Japan. The foregoing numbers include
one center in China and two centers in Argentina and 11 centers in Brazil which
are operated as part of Hong Leong Joint Venture and Playcenter Joint Venture,
respectively.
The Company's number of U.S. centers, regional clustering for U.S. centers
(59 clusters) and average size (an average of 38 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 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 geographic diversity of AMF's Bowling Centers operations across
different regions of the U.S. and across eleven other countries has historically
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. 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 1997, bowling,
food and beverage and other revenue represented 60.6%, 25.4% and 14.0% of total
Bowling Centers revenue, respectively.
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<PAGE> 48
Bowling revenue, the largest portion of a bowling center's revenue and
profitability, is derived from league, tournament 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
In 1996, AMF acquired 57 bowling centers from five unrelated sellers. The
combined purchase price, net of cash acquired, was approximately $108.0 million,
and was funded with approximately $40.0 million from the sale of equity by AMF
to its institutional stockholders and one of its directors and approximately
$68.0 million from available borrowings under the Acquisition Facility under the
Credit Agreement in effect from the closing of the Acquisition prior to the
third amendment and restatement of the Credit Agreement.
In 1997, the Company acquired 122 bowling centers from a number of
unrelated sellers. The 1997 acquisitions included seven centers in the United
Kingdom and two centers in Australia. The combined purchase price for the 1997
acquisitions, net of cash acquired, was approximately $232.7 million (including
amounts paid in 1998 for certain bowling centers included in the 1997 total),
and was funded with borrowings under the Acquisition Facility and the Bank
Facility under the Credit Agreement, from the sale of equity by AMF Bowling to
its institutional stockholders and a portion of the proceeds of the Initial
Public Offering.
From January 1, 1998 through July 31, 1998, the Company acquired 52 centers
in the U.S., including 15 bowling centers in the U.S. from Active West, 15
centers in the United Kingdom and five centers in Australia from unrelated
sellers. The aggregate purchase price for these acquisitions was approximately
$142.6 million, including $122.0 million funded with borrowings under the Bank
Facility and, with respect to the Active West acquisition, the issuance of
50,000 shares of Common Stock.
In April 1997, the Company entered into a joint venture with Hong Leong
Corporation Limited, a Singapore-based conglomerate ("Hong Leong"), to build and
operate bowling centers in the Asia Pacific region. The joint venture ("Hong
Leong Joint Venture") is owned 50% by the Company and 50% by Hong Leong. The
Hong Leong Joint Venture opened its first bowling center during November 1997 in
Tianjin, China. Due to the recent economic difficulties in the Asia Pacific
region, future development of bowling centers in that region through the Hong
Leong Joint Venture is likely to be deferred.
In August 1997, the Company entered into a joint venture with Playcenter
S.A., a Sao Paulo-based amusement and entertainment company ("Playcenter") to
build and operate bowling centers in Brazil and Argentina. The joint venture
("Playcenter Joint Venture") is owned 50% by the Company and 50% by Playcenter.
As of December 31, 1997, the Playcenter Joint Venture operated eleven centers in
Brazil and two centers in Argentina. Additional sites for the Playcenter Joint
Venture will be evaluated from time to time.
On October 20, 1997, the Company acquired Michael Jordan Golf Company,
Inc., a company formed to build and operate golf practice ranges in the U.S.
("Michael Jordan Golf Company"). Michael Jordan Golf Company currently operates
one golf practice range. The Company agreed to build or acquire two additional
golf practice ranges by the end of 1999. In this regard, the Company has
committed to build the Michael Jordan Golf Center in Charlotte, North Carolina
in October 1998.
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
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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" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Performance by Business
Segment -- Bowling Centers".
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.
FACILITIES (BOWLING CENTERS)
As of July 31, 1998, AMF operated 419 centers and related facilities in the
United States and 120 centers in eleven other countries. A regional list of
these facilities is set forth below:
U.S. CENTERS*
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
REGION CLUSTERS LOCATIONS OWNED LEASED
------ ------------- --------- ----- ------
<S> <C> <C> <C> <C>
Texas........................... 5 38 32 6
Baltimore/Washington............ 5 36 19 17
Northeast....................... 5 38 24 14
New Jersey/Long Island.......... 4 26 14 12
Mid-Atlantic.................... 6 42 30 12
Southern........................ 12 60 43 17
Great Lakes..................... 5 46 34 12
Midwest......................... 7 48 33 15
Northwest....................... 5 39 13 26
Pacific......................... 5 44 23 21
-- --- --- ---
Total................. 59 417 265 152
== === === ===
</TABLE>
- ---------------
* AMF operates two centers for an unrelated party. These centers are neither
owned nor leased by AMF and, therefore, are not included in the foregoing
table. In addition, the Company operates a golf practice range in Aurora,
Illinois.
INTERNATIONAL CENTERS*
<TABLE>
<CAPTION>
NUMBER OF
COUNTRY LOCATIONS OWNED LEASED
------- --------- ----- ------
<S> <C> <C> <C>
Australia...................................... 43 23 20
United Kingdom................................. 37 16 21
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................................ 106 45 61
=== == ==
</TABLE>
- ---------------
* The table excludes one bowling center operated by the Hong Leong Joint Venture
and thirteen bowling centers operated by the Playcenter Joint Venture. See
"Business -- General".
AMF's leases are subject to periodic renewal. Sixty of the U.S. centers
have leases which expire during the next three years. Forty-one of such leases
have renewal options. Twenty-two of the international centers have leases which
expire during the next three years. Six of such leases have renewal options. AMF
generally does not have difficulty renewing leases.
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EMPLOYEES (BOWLING CENTERS)
As of December 31, 1997, Bowling Centers operations had approximately
18,415 full- and part-time employees worldwide. The Company believes that its
relations with its Bowling Centers employees are satisfactory.
NUMBER OF EMPLOYEES
<TABLE>
<CAPTION>
NUMBER OF
COUNTRY EMPLOYEES(A)
------- ------------
<S> <C>
United States............................................... 16,226
------
International:
Australia................................................... 1,202
United Kingdom.............................................. 440
Mexico...................................................... 240
China (including Hong Kong)................................. 120
Japan....................................................... 47
France...................................................... 75
Spain....................................................... 32
Switzerland................................................. 9
Canada...................................................... 24
------
Total International............................... 2,189
------
Total Worldwide................................... 18,415
======
</TABLE>
- ---------------
(a) Numbers vary depending on the time of year.
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), 8290 pinspotters and the
BOSS NT automatic scoring and operating control system, 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.
49
<PAGE> 51
MODERNIZATION AND CONSUMER PRODUCTS
The potential customers for Modernization and Consumer Products include all
bowling centers in operation today. The number of potential customers will
continue to grow as the number of centers increases. In order for a bowling
center to remain competitive and to satisfy its customers, the center operator
must periodically make 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 bowling 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 countries with demonstrated strong demand for the
construction of new bowling centers. In addition, AMF believes that certain
markets in Asia Pacific, 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 into a market and
becomes more popular, local developers and entrepreneurs typically build new
bowling centers which drives demand for NCPs. 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 under the Renaissance and PlayMaster brand names.
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.
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 July 31, 1998, 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 29
international locations, which are used as offices or warehouses.
50
<PAGE> 52
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 (AMF Billiards and Games) 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
Toronto, Canada..................................... Office 400 Leased
Warehouse 2,100 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, South 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>
51
<PAGE> 53
EMPLOYEES (BOWLING PRODUCTS)
As of December 31, 1997, the Bowling Products business had approximately
1,125 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............................................ 760
-----
Sales
Australia.............................................. 8
Americas............................................... 48
Europe................................................. 89
Asia-Pacific........................................... 123
Japan.................................................. 97
-----
Total Sales......................................... 365
-----
Total Worldwide................................ 1,125
=====
</TABLE>
EMPLOYEES (CORPORATE)
As of December 31, 1997, the Company had approximately 170 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
actions 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 some actions, plaintiffs request punitive
or other damages that may not be covered by insurance. In management's opinion,
the claims and actions in which the Company is involved will not have a material
adverse impact on its financial position or results of operations. However, it
is not possible to assure the outcome of such claims and actions.
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 impact 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
52
<PAGE> 54
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".
53
<PAGE> 55
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....................... 40 Director and Chairman
Douglas J. Stanard........................ 51 Director; President and Chief Executive Officer
Stephen E. Hare........................... 44 Director; Executive Vice President; Chief
Financial Officer and Treasurer
Michael P. Bardaro........................ 47 Senior Vice President; Corporate Controller and
Assistant Secretary
Paul D. Barkley........................... 41 Senior Vice President, U.S. Operations of AMF
Bowling Centers
J. Simon Shearer.......................... 41 Senior Vice President, U.S. Bowling Center
Services 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 Senior Vice President of AMF Bowling Products
J. Randolph V. Daniel, IV................. 37 Vice President, Manufacturing of AMF Bowling
Products
Merrell C. Wreden......................... 48 Vice President, Marketing
Charles G. Moss........................... 36 Senior Vice President, U.S. Bowling Center
Development
Daniel M. McCormack....................... 52 Vice President and General Counsel
Terence M. O'Toole........................ 39 Director
Peter M. Sacerdote........................ 60 Director
Charles M. Diker.......................... 63 Director
Paul B. Edgerley.......................... 42 Director
Howard A. Lipson.......................... 34 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 and is the head
of the Principal Investment Area. He joined Goldman Sachs in 1981. Mr. Friedman
is on the Boards of Directors of Diamond Cable Communications PLC and Polo Ralph
Lauren Corporation.
DOUGLAS J. STANARD is the President and Chief Executive Officer of AMF
Bowling. He has served as President of certain of the Company's predecessors and
subsidiaries since 1992.
STEPHEN E. HARE is the Executive Vice President and Chief Financial Officer
of AMF Bowling and has served in that capacity for the Company's subsidiaries
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.
MICHAEL P. BARDARO is a Senior Vice President, Corporate Controller and
Assistant Secretary of AMF Bowling. Mr. Bardaro was the Chief Financial Officer
of AMF Bowling Centers from 1994 to May 1996. He joined AMF after having been
Controller at General Medical Manufacturing Co. in Richmond, Virginia between
1989 and 1994.
54
<PAGE> 56
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 Insilco Corporation, 21st Century Newspapers, Inc.,
Western Wireless Corporation and Amscan Holdings, Inc.
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, Inc.
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, Inc. since 1986. Mr. Diker also serves as a director of
BeautiControl Cosmetics, International Specialty Products, Data Broadcasting and
Chyron Corporation.
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., GS
Industries, Inc. and Sealy Mattress Company.
HOWARD A. LIPSON is Senior Managing Director of The Blackstone Group L.P.,
and has been involved in that firm's principal activities since 1988. He serves
on the Boards of Directors of Allied Waste Industries, Inc., Rose Hills Holdings
Corp., Prime Succession, Inc., VSI Acquisition II Corporation and Ritvik Toys,
Inc.
THOMAS R. WALL IV joined Kelso & Company, L.P. 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., Hillside Broadcasting of North Carolina,
Inc., IXL Holdings, Inc., Mitchell Supreme Fuel Company, Mosler Inc., Peebles,
Inc., TransDigm Inc. and 21st Century Newspapers, Inc.
OTHER OFFICERS OF AMF
PAUL D. BARKLEY was named Senior Vice President, U.S. Operations of AMF
Bowling Centers in May 1998. Mr. Barkley served as Vice President of U.S.
Operations since February 1997, and Vice President of 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.
J. SIMON SHEARER was named Senior Vice President U.S. Bowling Center
Services of AMF Bowling Centers in May 1998. Mr. Shearer was 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.
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.
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 was named Senior Vice President, Bowling Products in May
1998. Mr. Kind was Vice President of Bowling Products since February 1997. Mr.
Kind had served as a Vice President and Region Manager of AMF Bowling Centers
from 1993 to February 1997. Mr. Kind received a B.A. in Business from Long
Island University.
55
<PAGE> 57
J. RANDOLPH V. DANIEL, IV was named Vice President, Manufacturing for AMF
Bowling Products in May 1998. Mr. Daniel served as Vice President, New
Center/Modernization Products since 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.
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 was named Senior Vice President, U.S. Bowling Center
Development in May 1998. Mr. Moss was 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 has three standing committees: an Audit Committee, a Compensation
Committee and an Executive Committee. The Executive Committee is required by,
and its membership is determined pursuant to, the Stockholders Agreement. See
"Securities Owned by Management and Certain Beneficial Owners -- Stockholders
Agreement." The Audit and Compensation Committees were created in 1997 in
connection with the Initial Public Offering.
Audit Committee. The members of the Audit Committee are Howard A. Lipson
(Chairman) and Paul B. Edgerley. The Audit Committee, which is composed entirely
of independent directors, recommends to the Board the engagement of the
independent auditors of the Company and reviews with the independent auditors
the scope and results of the Company's audits, the Company's internal accounting
controls and the professional services furnished by the independent auditors to
the Company.
Compensation Committee. The members of the Compensation Committee are
Richard A. Friedman (Chairman), Charles M. Diker and Thomas R. Wall, IV. The
Compensation Committee is responsible for reviewing and approving the amount and
type of consideration to be paid to senior management. A subcommittee of the
Compensation Committee composed of independent directors (the "Stock Option Plan
Subcommittee") is authorized to grant awards under and to administer the
Company's 1996 Stock Incentive Plan (the "1996 Plan") and, if adopted by
shareholders at the Meeting, the 1998 Plan (as hereinafter defined).
Executive Committee. The members of the Executive Committee are Richard A.
Friedman (Chairman), Douglas J. Stanard and Terence M. O'Toole. Subject to the
Stockholders Agreement, the Executive Committee may exercise all the powers and
authority of the Board (subject further 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,
only after such meeting has occurred. See "Certain Relationships and Related
Transactions -- Stockholders Agreement".
56
<PAGE> 58
EXECUTIVE COMPENSATION
The following table shows for each of the three years ended December 31,
1995, 1996 and 1997, 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").
EXECUTIVE COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(A) COMPENSATION
------------------ --------------------------
AWARDS PAYOUTS
---------------- -------
SECURITIES LTIP ALL OTHER
SALARY BONUS UNDERLYING STOCK PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) (B) ($) ($)(C)
--------------------------- ---- ------- ------- ---------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Stanard.............. 1997 379,167 489,584(d) 25,000 -- 8,000
President/Chief 1996 308,333 229,167 130,000 -- 7,500
Executive Officer 1995 225,000 204,750 -- -- --
Richard A. Friedman(e).......... 1997 -- -- -- -- --
Chairman/Former President 1996 -- -- -- -- --
and Chief Executive Officer 1995 -- -- -- -- --
Stephen E. Hare(f).............. 1997 302,500 340,000(g) 15,000 -- 8,000
Executive Vice President, 1996 178,333 266,667(h) 105,000 -- --
Chief Financial Officer and 1995 -- -- -- -- --
Treasurer
Robert L. Morin................. 1997 41,668 20,000(i) -- -- 250,000(i)
Executive Vice President/ 1996 228,341 83,325 110,000 860,100(j) 7,500
Director of Worldwide 1995 180,286 60,125 -- -- --
Market Development
Michael P. Bardaro.............. 1997 133,316 105,101 10,000 -- 8,000
Senior Vice President, 1996 120,958 40,076 25,000 -- 168,338(k)
Corporate Controller and 1995 95,833 29,958 -- -- 2,327
Assistant Secretary
</TABLE>
- ---------------
(a) None of the Named Executive Officers received perquisites or other personal
benefits in excess of the lesser of $50,000 or 10% of the total of their
salary and bonus or other amounts properly reportable as other annual
compensation.
(b) Options to purchase shares of Common Stock. The Company has not granted any
stock appreciation rights or restricted stock.
(c) Unless otherwise indicated, All Other Compensation represents matching
profit-sharing contributions made by the Company under its 401(k) plan.
(d) Includes a special one-time bonus of $250,000 approved by the Compensation
Committee for services in connection with the Initial Public Offering.
(e) Mr. Friedman has received no compensation from the Company and ceased to
hold the positions of Chief Executive Officer and President of the Company
on July 31, 1997, at which time Mr. Stanard, who had been and continues to
be Chief Executive Officer of AMF Bowling's principal subsidiaries, assumed
the additional titles of President and Chief Executive Officer of AMF
Bowling.
(f) Mr. Hare's employment with the Company began on May 28, 1996.
(g) Includes a special one-time bonus of $175,000 approved by the Compensation
Committee for services in connection with the Initial Public Offering.
(h) Mr. Hare received two bonuses with respect to 1996, one for $166,667 and one
for $100,000. See "Employment Agreements".
(i) Mr. Morin resigned all positions with the Company and its subsidiaries as of
February 28, 1997. In connection with his resignation Mr. Morin was paid
$270,000 by the Company, representing $250,000 in severance and $20,000 in
bonus earned for the period from January 1, 1997 through February 28, 1997.
(j) In connection with the Acquisition, Mr. Morin received a cash payment in
exchange for his 10,000 shares of phantom stock issued by a division of the
Company's predecessor under a phantom stock plan.
(k) Includes a special one-time bonus in the amount of $161,338 paid in 1996 by
the Company's predecessor in connection with the Acquisition.
57
<PAGE> 59
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding the granting of stock
options to the Named Executive Officers in 1997 pursuant to the 1996 Plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF ANNUAL RATES OF
SECURITIES TOTAL STOCK STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
STOCK OPTIONS GRANTED TO EXERCISE OPTION TERM(4)(5)
GRANTED (#) EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME (1)(2) 1997(3) SHARE ($/SH) DATE 5% ($) 10% ($)
---- ------------- ------------ ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Douglas J. Stanard....... 25,000 3.6% $10.00 June 11, 2007 $407,223 $648,435
Richard A. Friedman...... -- -- -- -- -- --
Stephen E. Hare.......... 15,000 2.1% $10.00 June 11, 2007 $244,334 $389,061
Robert L. Morin.......... -- -- -- -- -- --
Michael P. Bardaro....... 10,000 1.4% $10.00 June 11, 2007 $162,889 $259,374
</TABLE>
- ---------------
(1) All stock options listed in this table were granted under the 1996 Plan. The
Company did not grant any stock appreciation rights in 1997.
(2) The stock options listed in this table that remain outstanding will become
20% vested on each anniversary of the date on which the options were granted
until all have vested. Upon an optionee's termination of employment, the
portion of an option that has not yet vested will be forfeited. The first
anniversary of each option described above will be June 11, 1998. All
options were granted at 100% of the fair market value of the Common Stock on
the date of grant.
(3) In 1997, options to purchase 703,500 shares of Common Stock were granted
under the 1996 Plan.
(4) Potential realizable value is calculated based on $10.00, the grant price
per share due to the lack of a public trading market on the date of grant
for the securities underlying the stock options.
(5) The dollar amounts under these columns use the 5% and 10% rates of
appreciation prescribed by the Commission. The 5% and 10% rates of
appreciation would result in per share prices of $16.2889 and $25.9374. The
Company expresses no opinion regarding whether this level of appreciation
will be realized and expressly disclaims any representation to that effect.
AGGREGATED STOCK OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE
The following table provides information regarding the number and value of
unexercised stock options at December 31, 1997 for the Named Executive Officers.
No Named Executive Officer exercised any stock options in fiscal year 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED STOCK OPTIONS AT MONEY STOCK OPTIONS AT
DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Douglas J. Stanard.......................... 26,000 129,000 $390,000 $1,935,000
Richard A. Friedman......................... 0 0 -- --
Stephen E. Hare............................. 21,000 99,000 $315,000 $1,485,000
Robert L. Morin(2).......................... 0 0 -- --
Michael P. Bardaro.......................... 5,000 30,000 $ 75,000 $ 450,000
</TABLE>
- ---------------
(1) Based on the last sales price of the Common Stock on the NYSE as of December
31, 1997 of $25.00 per share, minus the exercise price.
(2) In connection with the termination of his employment with the Company on
February 28, 1997, Mr. Morin forfeited all of his stock options.
EMPLOYMENT AGREEMENTS
Messrs. Stanard and Hare each have an employment agreement (collectively,
the "Executive Employment Agreements") with AMF Bowling and Bowling Worldwide.
Mr. Stanard's Executive 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
58
<PAGE> 60
salary and an incentive bonus if certain operational and financial targets are
met. Mr. Stanard's annual base salary under his Executive Employment Agreement
is $350,000. On June 1, 1997, the Board raised his salary to $400,000. Mr.
Hare's annual base salary under his Executive Employment Agreement is $300,000.
On December 1, 1997 the Board raised his salary to $330,000. 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 may earn
a smaller annual bonus if less than 100% but more than 90% of the Targets are
attained.
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 1996
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.
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.
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Prior to February 28, 1997, when his employment terminated and he resigned
all positions with AMF Bowling and its affiliates, Mr. Morin was employed by AMF
Bowling 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. 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. In addition, AMF Bowling repurchased Mr. Morin's Common Stock for
$500,000 in cash plus the cancellation of a promissory note, including interest
thereon. The Stock Options granted to Mr. Morin were forfeited upon his
resignation.
AMF BOWLING, INC. 1996 STOCK INCENTIVE PLAN
In connection with the Acquisition, AMF Bowling adopted the 1996 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 ("Plan
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 was 1,767,151. As of June 30, 1998, Stock Options to purchase
1,464,450 shares of Common Stock were outstanding under the 1996 Plan, at an
exercise price of $10.00 per share, and Stock Options to purchase 46,450 shares
of Common Stock have been exercised at a per share exercise price of $10.00. The
Compensation Committee or the Stock Option Plan Subcommittee thereof is
authorized to make grants and various other decisions under the 1996 Plan and to
make determinations as to certain terms of awards granted under the 1996 Plan.
Unless otherwise determined by the Compensation Committee or the Stock Option
Plan Subcommittee, any Plan Participant granted an award under the 1996 Plan
must become a party to, and agree to be bound by, the Stockholders Agreement.
Stock Option awards under the 1996 Plan may include incentive Stock
Options, non-qualified Stock Options, or both, 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 or the Stock Option Plan Subcommittee, have a term of ten
years. Upon a Plan Participant's death or when the Plan Participant's employment
with AMF Bowling or the applicable affiliate of AMF Bowling is terminated for
any reason, such Plan Participant's previously unvested Stock Options are
forfeited and the Plan 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 Plan 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. To date, the Company has not
granted any Stock Appreciation Rights.
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 1996 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 1996 Plan will terminate on May 1, 2006; however, awards outstanding as
of such date will not be affected or impaired by such termination. The Board has
authority to amend the 1996 Plan and awards granted thereunder, subject to the
terms of the 1996 Plan.
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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 1996 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 will vest on May 1, 1998. 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.
AMF BOWLING, INC. 1998 STOCK INCENTIVE PLAN
AMF Bowling has adopted the 1998 Stock Incentive Plan (the "1998 Plan")
under which AMF Bowling may grant incentive awards in the form of Restricted
Stock Awards, Stock Options and Stock Appreciation Rights (the "Awards") in
substantially the same manner as provided in the 1996 Plan. This summary is
qualified in its entirety by reference to the full text of the 1998 Plan, filed
as Exhibit 10.30 to the Registration Statement. Terms used and not otherwise
defined in this summary have the meanings set forth in the 1998 Plan.
The Company believes that the 1998 Plan gives the Company a competitive
advantage in attracting, retaining and motivating employees. The 1998 Plan links
employee incentives to the financial results of the Company and increases in
stockholder value, consistent with the compensation philosophy of the Company.
In addition, the 1998 Plan permits the Company to maximize its tax deduction for
incentive compensation paid to its most highly paid officers under Section
162(m) of the Code.
ADMINISTRATION OF THE 1998 PLAN; ELIGIBILITY
The 1998 Plan is administered by the Compensation Committee or a
subcommittee of the Compensation Committee. In order to meet the requirements of
Section 162(m) of the Code and Rule 16b-3 of the Exchange Act, the Board
established the Stock Option Plan Subcommittee of the Compensation Committee and
delegated to it responsibility for administering the 1998 Plan. The subcommittee
is referred to as the "Committee" for purposes of this summary.
Employees who have directly affected or are expected to directly affect the
management, growth and profitability of the Company are eligible to receive
Awards under the 1998 Plan. The Committee has the power and complete discretion
to select eligible employees to receive Awards, and to determine the type, terms
and conditions of the Awards. The Committee may delegate to the Chief Executive
Officer of AMF Bowling the power to select which employees will receive Awards,
the type of Award, the time the Award is granted, the number of shares of Common
Stock allocated to the Award and the terms of the Award, except to the extent
that such a delegation would prevent compliance with Rule 16b-3, Section 162(m)
or any other provisions of the Code, or other applicable law or regulation.
Actions taken by the Chief Executive Officer pursuant to such a delegation must
be ratified by the Committee. The Company has approximately 100 employees who
would currently be eligible to receive Awards under the 1998 Plan.
AMOUNT OF STOCK AVAILABLE FOR AWARDS
Two million shares of Common Stock have been reserved and are available for
issuance under the 1998 Plan. As of June 30, 1998, Stock Options to purchase
78,400 shares of Common Stock were outstanding under the 1998 Plan at an
exercise price of $25 13/16. None of the Stock Options outstanding under the
1998 Plan have been exercised as of June 30, 1998. In addition, shares of Common
Stock that have been reserved but not issued under the 1996 Plan, and shares
which are
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subject to awards under the 1996 Plan that expire or otherwise terminate, may be
allocated to Awards under the 1998 Plan. As of June 30, 1998, there were 256,251
shares of Common Stock under the 1996 Plan which had not yet been allocated to
awards under that plan.
Shares allocated to Awards under the 1998 Plan which are later forfeited,
expire or otherwise terminate (including shares subject to Stock Appreciation
Rights that are exercised for cash) may again be used for Awards under the 1998
Plan. No more than 200,000 shares of Common Stock may be allocated to the Awards
granted under the 1998 Plan to a participant in any one year.
The Board or the Committee will adjust the number or kind of shares which
may be issued under the 1998 Plan in the event of a merger, reorganization,
consolidation, recapitalization, spinoff, stock dividend, stock split, reverse
stock split, extraordinary distribution with respect to the Common Stock or
other change in corporate structure affecting the Common Stock.
Awards under the 1998 Plan are contingent on compliance with federal or
state securities law requirements. Therefore, participants cannot exercise Stock
Options or Stock Appreciation Rights that may be granted under the 1998 Plan
until such conditions are met. Unless the Board sooner terminates it, the 1998
Plan will terminate ten years after the date on which the Board approved it.
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SECURITIES OWNED BY MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The table below reflects the number of shares of Common Stock beneficially
owned as of June 30, 1998 by (i) each director of the Company, (ii) each Named
Executive Officer, (iii) the directors and executive officers as a group and
(iv) each person who is known by the Company to own beneficially more than five
percent of the Company's outstanding equity securities. Unless otherwise noted,
each individual has sole voting power and sole investment power with respect to
securities beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
OWNED AS OF
JUNE 30, PERCENT OF
NAME OF BENEFICIAL OWNER 1998(1) CLASS(2)
------------------------ ------------ ----------
<S> <C> <C>
Directors:
Richard A. Friedman(3).................................... -- *
Terence M. O'Toole(4)..................................... -- *
Peter M. Sacerdote(5)..................................... -- *
Charles M. Diker(6)....................................... 238,184 *
Paul B. Edgerley(7)....................................... -- *
Howard A. Lipson(8)....................................... -- *
Thomas R. Wall, IV(9)..................................... -- *
Douglas J. Stanard**(10).................................. 207,000 *
Stephen E. Hare**(11)..................................... 195,000 *
Named Executive Officers:
Michael P. Bardaro(12).................................... 12,200 *
All directors and executive officers as a group (10
persons)(13)........................................... 652,384 1.1%
Beneficial Owners of More Than 5%:
The Goldman Sachs Group(14)............................... 30,836,593 50.9%
Blackstone Group (as defined below)(15)................... 5,762,805 9.6%
Kelso (as defined below)(16).............................. 5,762,805 9.6%
Baron Capital Group, Inc. and certain affiliates(17)...... 12,868,600 21.5%
</TABLE>
- ---------------
* Less than 1%
** Messrs. Stanard and Hare are also Named Executive Officers
(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 are exercisable within 60 days 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 59,726,450 shares of Common Stock outstanding and warrants (with
respect to Goldman Sachs) to purchase 870,000 shares of Common Stock
outstanding as of June 30, 1998.
(3) 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.
(4) 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.
(5) 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.
(6) Includes 100,000 shares which may be acquired upon the exercise of Stock
Options within 60 days.
(7) 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.
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(8) 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.
(9) Mr. Wall, who is (i) a general partner of Kelso Partners V, L.P., the
general partner of Kelso Investment Associates V, L.P. ("KIA V") and (ii) a
general partner of Kelso Equity Partners V, L.P. ("KEP V," and together
with KIA V, "Kelso"), disclaims beneficial ownership of the shares owned by
KIA V and KEP V.
(10) Includes 57,000 shares which may be acquired upon the exercise of Stock
Options within 60 days.
(11) Includes 45,000 shares which may be acquired upon the exercise of Stock
Options within 60 days.
(12) Includes 12,000 shares which may be acquired upon the exercise of Stock
Options within 60 days.
(13) Includes an aggregate of 214,000 shares which may be acquired upon the
exercise of Stock Options within 60 days.
(14) Of the total number of shares which may be deemed to be beneficially 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) C.L.P., 451,922 shares are
owned by Stone Street Fund 1995, L.P., 772,646 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.
(collectively, "GSCP"). In addition, The Goldman Sachs Group beneficially
owns 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 such partnerships and have
full voting and investment power with respect to the holding of such
partnerships. Excludes certain shares of Common Stock in client accounts
managed by Goldman Sachs (the "Managed Accounts"). Each of Goldman Sachs
and The Goldman Sachs Group disclaims beneficial ownership of the Common
Stock (i) owned by investment partnerships to the extent of partnership
interests in the investment partnerships held by persons other than The
Goldman Sachs Group or its affiliates and (ii) held in the Managed
Accounts. The address of The Goldman Sachs Group is 85 Broad Street, New
York, New York 10004.
(15) 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.
(16) Of the total number of shares beneficially owned by Kelso, 5,409,974 shares
are owned by KIA V and 352,831 are owned by KEP V. The address of each such
shareholder is c/o Kelso & Company, Inc., 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.
(17) Based solely on information provided in a Schedule 13D and Form 4 filed
with the Commission by Baron Capital Group, Inc. ("BCG"), BAMCO, Inc.
("BAMCO"), Baron Capital Management, Inc. ("BCM"), Baron Asset Fund ("BAF")
and Ronald Baron. BAMCO and BCM are subsidiaries of BCG. BAF is an
investment advisory client of BAMCO. Ronald Baron owns a controlling
interest in BCG. Of the total number of shares beneficially owned by Baron,
895,000 shares are owned by BCG, 895,000 shares are owned by BCM and
895,000 shares are owned by Ronald Baron. BCG and Ronald Baron disclaim
beneficial ownership of shares held by their controlled entities (or the
investment advisory clients thereof) to the extent such shares are held by
persons other than BCG and Ronald Baron. BAMCO and BCM disclaim beneficial
ownership of shares held by their investment advisory clients to the extent
such shares are held by persons other than BAMCO, BCM and their affiliates.
The address of Baron Capital Group, Inc. is 767 Fifth Avenue, 24th floor,
New York, New York 10153.
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 the Stockholders Agreement, which
regulates the relationship among AMF Bowling and the Stockholders. Subsequently,
Mr. Hare
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and other members of management who have received Stock Option awards under the
1996 Plan have become parties to the Stockholders Agreement as additional
Management Investors and Stockholders. The following discussion summarizes the
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 and the amendments thereto, which
are filed as Exhibits 10.4 to 10.11 to the Registration Statement.
The Stockholders Agreement confers on GSCP the right to increase or
decrease the Board from its initial size of nine members. GSCP has the right to
nominate five directors and to nominate a majority (not limited to a simple
majority) of the members of the Board, so long as GSCP and its 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, 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 shareholders. 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 shareholders. In the event of death, removal or
resignation of a director nominated by a Governance Investor, so long as the
Governance Investor continues to have the right to nominate a director for such
position, the Governance Investor has the right to nominate (subject to GSCP
consent) a director to fill the vacancy created. A quorum may be constituted by
a majority of the number of directors then in office, but not less than
one-third of the whole Board, including at least one GSCP director.
Pursuant to the "overcall" provisions of the Stockholders Agreement, each
of GSCP and the Investors (other than Mr. Diker) 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. 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. GSCP and the funding Investors have fully
performed their "overcall" obligations under the Stockholders Agreement, the
proceeds of which were used in part to fund certain acquisitions and for other
corporate purposes. The parties 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 GSCP-nominated directors and AMF
Bowling's President and Chief Executive Officer. The Executive Committee may
exercise all the powers and authority of the Board (subject to any restrictions
under Delaware law) except with respect to those actions requiring a Special
Vote and, in the case of matters which under the Stockholders Agreement require
a prior meeting of the Board, only after such meeting has occurred. A "Special
Vote" is required for (i) the issuance of capital stock below fair market value,
(ii) the grant or issuance of options or warrants exercisable or exchangeable
for more than 2,877,151 shares, (iii) entering into certain transactions with
affiliates of GSCP and (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
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Kelso; provided, that any amendment affecting a Stockholder differently from any
other Stockholder requires such Stockholder's approval. A Special Vote was
obtained in connection with the approval of the 1998 Plan by the Board and the
Executive Committee. 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.
The Stockholders Agreement provides that in the event a Stockholder
determines to sell its shares of Common Stock (subject to certain exceptions,
including sales of shares made through a broker pursuant to Rule 144 under the
Exchange Act), 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 will terminate 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.
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, (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
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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 and the amendments thereto,
which are filed as Exhibits 10.12 to 10.17 to the Registration Statement.
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 a majority of the outstanding Common Stock.
See "Securities Owned by Management and Certain Beneficial Owners". Goldman
Sachs and their 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 Subsidiary Senior Subordinated Notes and the
Subsidiary Senior Subordinated Discount Notes, respectively. 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. In 1997, total fees paid to
Goldman Sachs Credit Partners, L.P. for services under the Credit Agreement were
approximately $900,000. Such entity was also reimbursed for expenses incurred in
connection with its services.
Goldman Sachs acted as the Company's lead underwriter in connection with
the Initial Public Offering. Underwriting discounts paid to the entire
underwriting syndicate in the Initial Public Offering totaled $18,940,500.
Goldman Sachs was an Initial Purchaser of the Debentures in the Private
Placement. The aggregate discount paid to Goldman Sachs and the other Initial
Purchasers in the Private Placement totaled $8,527,500.
Bowling Worldwide and Goldman Sachs are parties to an engagement letter
pursuant to which Goldman Sachs was retained as Bowling Worldwide's financial
advisor to provide investment
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<PAGE> 69
banking and financial advisory services, including in connection with
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.
The Company also entered into three interest rate cap agreements with
Goldman Sachs Capital Markets, L.P. ("GSCM"), an affiliate of Goldman Sachs, all
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 capped 3-month LIBOR on $500 million
principal amount of debt at 6.5% until April 1998 and 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 capped 3-month LIBOR on $100 million
in debt at 7.0% until March 31, 1998. The Company paid a fee of $50,000 to GSCM
in respect of the third transaction executed on March 31, 1998, which capped
3-month LIBOR on $200 million in debt at 7.0% until March 31, 1999.
The Company retained Michael Stanard Design, Inc. ("MSD"), a consultant, to
provide marketing and related services in 1997 for an aggregate of $580,603. A
majority owner of MSD is H. Michael Stanard, who is Douglas J. Stanard's
brother. A substantial portion of such amounts were reimbursement of costs for
materials, travel, printing and other out-of-pocket expenses.
In 1997, the Company paid a fee of $300,000 to Goldman Sachs for its
representation of the Company in connection with the Company's lease of its new
bowling center at Chelsea Piers in New York.
See "Executive Compensation -- Employment Agreements" for a discussion of
arrangements under which the Company made loans to Messrs. Standard and Hare on
a non-recourse basis to enable them to purchase shares of Common Stock.
AMF and the Stockholders have entered into the Stockholders Agreement and
the Registration Rights Agreement. See "Securities Owned by Management and
Certain Beneficial Owners -- Stockholders Agreement" and " -- Registration
Rights Agreement".
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<PAGE> 70
DESCRIPTION OF DEBENTURES
As used in this "Description of Debentures", the "Company" refers to AMF
Bowling and does not, unless the context otherwise indicates, include its
subsidiaries.
The Debentures were issued under an indenture dated as of May 12, 1998 (the
"Indenture"), between the Company and The Bank of New York, as trustee (the
"Trustee"). The Indenture will be qualified under the Trust Indenture Act of
1939, as amended. The Indenture and the Debenture Registration Rights Agreement
are filed as Exhibits 4.7 and 4.8, respectively, to the Registration Statement.
The following summaries of certain provisions of the Debentures, the Indenture
and the Debenture Registration Rights Agreement do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Debentures (the form of which is included in the Indenture),
the Indenture and the Debenture Registration Rights Agreement, including the
definitions therein of certain terms that are not otherwise defined in this
Prospectus. Wherever particular provisions or defined terms of the Indenture (or
of the form of Debenture included in the Indenture) or Debenture Registration
Rights Agreement are referred to, such provisions or defined terms are
incorporated herein by reference.
GENERAL
The Debentures are unsecured obligations of the Company, limited to
$1,125,000,000 aggregate principal amount at maturity, and will mature on May
12, 2018.
The Debentures were offered at a substantial discount from their principal
amount at maturity. See "Certain Federal Income Tax Considerations". There are
not and will not be any periodic payments of interest on the Debentures. The
calculation of the accrual of Original Issue Discount (the difference between
the Issue Price of the Debentures and the principal amount of a Debenture at
maturity) in the period during which a Debenture remains outstanding is on a
semi-annual bond equivalent basis using a 360-day year composed of twelve 30-day
months. Such accrual commenced on May 12, 1998. Maturity, conversion, purchase
by the Company at the option of a Holder or redemption of a Debenture will cause
Original Issue Discount and interest and Liquidated Damages, if any, to cease to
accrue on such Debenture, under the terms and subject to the conditions of the
Indenture. The Company may not reissue a Debenture that has matured or been
converted, purchased by the Company at the option of a Holder, redeemed or
otherwise canceled (except for a cancellation for purposes of registration of
transfer, exchange or replacement of a Debenture).
The principal amount at maturity of each Debenture will be payable at the
office or agency of the paying agent, initially the Trustee, in the Borough of
Manhattan, The City of New York, or any other office of the paying agent
maintained for such purpose. Debentures may be presented for conversion or
exchange into Common Stock at the office of the conversion agent and Debentures
in definitive form may be presented for exchange for other Debentures of any
authorized denomination or for registration of transfer at the office of the
registrar, each such agent initially being the Trustee. The Company does not
charge a service charge for any registration of transfer or exchange of
Debentures; however, the Company may require payment by a Holder of a sum
sufficient to cover any tax, assessment or other governmental charge payable in
connection therewith.
FORM, DENOMINATION AND REGISTRATION
The Debentures were issued in fully registered form, without coupons, in
denominations of $1,000 principal amount at maturity and integral multiples
thereof.
GLOBAL DEBENTURES; BOOK-ENTRY FORM
The Debentures are evidenced by global Debentures in definitive, fully
registered form without interest coupons (collectively, the "Global
Debentures"), which have been deposited with The Bank
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<PAGE> 71
of New York, as custodian for DTC, and registered in the name of Cede & Co.
("Cede"), as nominee for DTC. Except as set forth below, record ownership of the
Global Debentures may be transferred, in whole or in part, only to another
nominee of DTC or to a successor of DTC or its nominee.
Holders may beneficially own interests in the Global Debentures held by DTC
only through participants in DTC ("Participants") or certain banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a Participant either directly or indirectly
("Indirect Participants"). A Holder may hold its interest in the Global
Debentures directly through DTC if it is a Participant in DTC or indirectly
through organizations that are Participants. Transfers between Participants will
be effected in the ordinary way in accordance with DTC's rules and will be
settled in same-day funds. The laws of some states require that certain persons
take physical delivery of securities in definitive form. Consequently, the
ability to transfer beneficial interests in the Global Debentures to such
persons may be limited.
So long as the Debentures are held in book-entry form, cash payment of
principal of, premium, if any, and interest and Liquidated Damages, if any, on,
the Global Debentures will be made to Cede, the nominee for DTC, as the
registered Holder of the Global Debentures, by wire transfer of immediately
available funds on each relevant payment date. Neither the Company nor the
Trustee has any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Global Debentures, including for any delay by DTC or any Participant or Indirect
Participant in identifying the beneficial ownership interests, and the Company
and the Trustee may conclusively rely on, and are protected in relying on,
instructions from DTC for all purposes.
The Company has been informed that, with respect to any cash payment of
principal of, premium, if any, and interest and Liquidated Damages, if any, on
the Global Debentures, DTC's practice is to credit Participants' accounts on the
applicable payment date with payments in amounts proportionate to their
respective beneficial interests in the Debentures represented by the Global
Debentures as shown on the records of DTC (adjusted as necessary so that such
payments are made with respect to whole Debentures only), unless DTC has reason
to believe that it will not receive payment on such payment date. Payments by
Participants to owners of beneficial interests in Debentures represented by the
Global Debentures held through such Participants are the responsibility of such
Participants, as is the case with securities held for the accounts of customers
registered in "street name".
The Company will send redemption notices to Cede, as the registered holder
of the Global Debentures. If less than all the Debentures are being redeemed,
DTC's practice is to determine by lot the amount of the holdings of each
Participant in such issue to be redeemed.
Neither DTC or Cede will consent or vote with respect to the Debentures.
Under its usual procedures, DTC mails an omnibus proxy (the "Omnibus Proxy") to
the issuer as soon as possible after the record date. The Omnibus Proxy assigns
Cede's consenting or voting rights to those Participants to whose accounts the
Debentures are credited on the record date identified in a listing attached to
the Omnibus Proxy.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, the ability of a person having a beneficial
interest in the principal amount represented by the Global Debentures to pledge
such interest to persons or entities that do not participate in the DTC
book-entry system, or otherwise take actions in respect of such interest, may be
limited by the lack of a physical certificate evidencing such interest.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Debentures (including the presentation of Debentures for
exchange as described below) only at the direction of one or more Participants
to whose account with DTC interests in the Global Debentures are credited and
only in respect of such portion of the principal amount of the Debentures
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<PAGE> 72
represented by the Global Debentures as to which such Participant or
Participants has or have given such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. The rules applicable to DTC and its
Participants are on file with the Commission.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the Global Debentures among
Participants, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time.
If DTC is at any time unwilling, unable or ineligible to continue as
depository and a successor depository is not appointed by the Company within 90
days, the Company will issue Debentures in definitive registered form, without
coupons, in denominations of $1,000 principal amount at maturity and integral
multiples thereof, in exchange for the Global Debentures representing such
Debentures. In addition, the Company may at any time and in its sole discretion
determine not to have any Debentures represented by the Global Debentures and,
in such event, will issue Debentures in definitive registered form, without
coupons, in exchange for the Global Debentures representing such Debentures. In
any such instance, an owner of a beneficial interest in the Global Debentures
will be entitled to physical delivery in definitive form of Debentures
represented by such Global Debentures equal in principal amount at maturity to
such beneficial interest and to have such Debentures registered in its name.
So long as DTC, or its nominee, is the registered owner of the Global
Debentures, DTC or its nominee, as the case may be, will be considered the sole
legal owner or Holder of the Debentures represented by the Global Debentures for
all purposes under the Indenture. Except as set forth above, owners of
beneficial interests in such Global Debentures are not entitled to have
Debentures represented by the Global Debentures registered in their names, do
not receive and are not entitled to receive physical delivery of Debentures in
definitive form and are not considered the legal owners or Holders thereof under
the Indenture. Accordingly, each person owning a beneficial interest in the
Global Debentures must rely on the procedures of DTC and, if such person is not
a Participant, those of the Participant and any Indirect Participant through
which such person owns its interest, in order to exercise any rights of a Holder
under the Indenture or such Debenture.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof. None of the Company,
the Trustee nor any of their respective agents has any responsibility for the
performance by DTC, the Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in the Global
Debentures.
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CONVERSION OF DEBENTURES
A Holder of a Debenture may convert it into Common Stock of the Company at
any time prior to the close of business on May 12, 2018; provided, that if a
Debenture is called for redemption, the Holder may convert it only until the
close of business on the applicable Redemption Date unless the Company defaults
in the payment of the Redemption Price. A Debenture in respect of which a Holder
has delivered a Purchase Notice (as hereinafter defined) exercising the option
of such Holder to require the Company to purchase such Debenture may be
converted only if such notice is withdrawn in accordance with the terms of the
Indenture. Similarly, a Debenture in respect of which a Holder is exercising its
option to require redemption upon a Debenture Change of Control may be converted
only if such Holder withdraws its election to exercise its option in accordance
with the terms of the Indenture. A Holder may convert such Holder's Debentures
in part so long as such part is $1,000 principal amount at maturity and integral
multiples thereof.
"Trading Day" means, in respect of any securities exchange or securities
market, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day
on which securities are not traded on the applicable securities exchange or in
the applicable securities market.
The initial Conversion Rate is 8.6734 shares of Common Stock per $1,000
principal amount at maturity of Debentures, subject to adjustment upon the
occurrence of certain events, as described below. A Holder entitled to a
fractional share of Common Stock will receive cash equal to the then Current
Market Price of that fractional share.
On conversion of a Debenture, a Holder will not receive any cash payment
representing accrued Original Issue Discount. The Company's delivery to the
Holder of the fixed number of shares of Common Stock into which the Debenture is
convertible (together with the cash payment, if any, in lieu of fractional
shares of Common Stock) will be deemed to satisfy the Company's obligation to
pay the principal amount of the Debenture including the accrued Original Issue
Discount attributable to the period from the Issue Date to the Conversion Date.
Thus, the accrued Original Issue Discount is deemed to be paid in full rather
than canceled, extinguished or forfeited. The Conversion Rate will not be
adjusted at any time during the term of the Debentures for such accrued Original
Issue Discount. Because the number of shares of Common Stock issuable upon
conversion of each Debenture does not increase even though the accreted value of
the Debentures (i.e., the Issue Price plus accrued Original Issue Discount)
increases over time, the implied effective conversion price will increase over
time.
For so long as the Debentures are held in the form of a Global Debenture,
Holders who desire to convert their Debentures into Common Stock should contact
their brokers or other Participants or Indirect Participants to obtain
information on procedures, including proper forms and cut-off times, for
submitting such request.
To convert a definitive Debenture into Common Stock, a Holder must (i)
complete and manually sign the conversion notice on the back of the Debenture
(or complete and manually sign a facsimile thereof) and deliver such notice to
the conversion agent, (ii) surrender the Debenture to the conversion agent,
(iii) if required, furnish appropriate endorsements and transfer documents, and
(iv) if required, pay all transfer or similar taxes. Pursuant to the Indenture,
the date on which all of the foregoing requirements have been satisfied is the
"Conversion Date".
The Conversion Rate is subject to adjustment in certain events, including
(a) dividends (and other distributions) payable in Common Stock on shares of
capital stock of the Company, (b) the issuance to all holders of Common Stock of
certain rights, options or warrants entitling them to subscribe for or purchase
Common Stock at less than the then current market price (determined as provided
in the Indenture) of Common Stock as of the record date for holders entitled to
receive such rights, options or warrants, (c) subdivisions, combinations and
reclassifications of Common Stock, (d) distributions to all holders of Common
Stock of evidences of indebtedness of the Company, shares of capital stock or
other property (including securities, but excluding those dividends, rights,
options, warrants and distributions referred to in clauses (a) and (b) above,
dividends and distributions paid exclusively in cash and distributions upon
mergers or consolida-
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tions to which the second succeeding paragraph applies), (e) distributions
consisting exclusively of cash (excluding any cash portion of distributions
referred to in (d) above, or cash distributed upon a merger or consolidation to
which the second succeeding paragraph applies) to all holders of Common Stock in
an aggregate amount that, together with (i) other such all-cash distributions
made within the preceding 12 months in respect of which no adjustment has been
made and (ii) any cash and the fair market value of other consideration payable
in respect of any tender offer by the Company or any of its subsidiaries for
Common Stock, to the extent that the cash and value of any other consideration
included in such payment per share of Common Stock exceeds the closing market
price per share of Common Stock on the Trading Day next succeeding the date of
payment (the "Current Market Price"), concluded within the preceding 12 months
in respect of which no adjustment has been made, exceeds 12.5% of the Company's
market capitalization (being the product of the then current market price of the
Common Stock and the number of shares of Common Stock then outstanding) on the
record date for such distribution and (f) the successful completion of a tender
offer made by the Company or any of its subsidiaries for Common Stock, to the
extent that the cash and value of any other consideration included in such
payment per share of Common Stock exceeds the Current Market Price at such time,
the aggregate amount of which, together with (i) any cash and other
consideration in excess of the then Current Market Price paid in a tender offer
by the Company or any of its subsidiaries for Common Stock expiring within the
12 months preceding the expiration of such tender offer in respect of which no
adjustment has been made and (ii) the aggregate amount of any such all-cash
distributions referred to in (e) above to all holders of Common Stock within the
12 months preceding the expiration of such tender offer in respect of which no
adjustments have been made, exceeds 12.5% of the Company's market capitalization
on the expiration of such tender offer.
No adjustment in the Conversion Rate is required unless such adjustment
would require a change of at least 1% in the rate then in effect; provided that
any adjustment that would otherwise be required to be made is carried forward
and taken into account in any subsequent adjustment. Except as stated above, the
Conversion Rate is not adjusted for the issuance of Common Stock or any
securities convertible into or exchangeable for Common Stock or carrying the
right to purchase any of the foregoing.
In the case of (i) any reclassification of the Common Stock or (ii) a
consolidation or merger involving the Company or a sale or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, in each case as a result of which holders of
Common Stock shall be entitled to receive stock, securities, other property or
assets (including cash) with respect to or in exchange for such Common Stock,
the Holders of the Debentures then outstanding will be entitled thereafter to
convert such Debentures into the kind and amount of shares of stock, securities
or other property or assets (including cash) which they would have owned or been
entitled to receive upon such reclassification, consolidation, merger, sale or
conveyance had such Debentures been converted immediately prior to such
reclassification, consolidation, merger, sale or conveyance assuming that a
Holder of Debentures would not have exercised any rights of election as to the
stock, securities or other property or assets (including cash) receivable in
connection therewith.
In the event of a taxable distribution to holders of Common Stock or in
certain other circumstances requiring an adjustment to the Conversion Rate, the
Holders of Debentures may, in certain circumstances, be deemed to have received
a distribution subject to U.S. federal income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations".
The Company from time to time may, to the extent permitted by law, increase
the Conversion Rate by any amount for any period of at least 20 days if the
Board has made a determination, in its sole discretion, that such increase would
be in the best interests of the Company, which determination shall be
conclusive. The Company will give notice of such increase at least 15 days'
prior to the increase. The Company may, at its option, make such increases in
the Conversion Rate, in addition
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to and subject to those set forth above, as the Board deems advisable to avoid
or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. See "Certain Federal Income Tax
Considerations".
REDEMPTION OF DEBENTURES AT THE OPTION OF THE COMPANY
Prior to May 12, 2003, the Debentures are not redeemable at the option of
the Company. Beginning on May 12, 2003, the Company may redeem the Debentures
for cash as a whole at any time, or from time to time in part, upon not less
than 30 days' nor more than 60 days' notice of redemption given by mail to
Holders of Debentures, at a Redemption Price equal to the Issue Price of the
Debentures plus accrued Original Issue Discount through the date of redemption.
The Debentures will be redeemable in integral multiples of $1,000 principal
amount at maturity.
The table below shows the Redemption Price of the Debentures per $1,000
principal amount at maturity at May 12, 2003 and at each May 12 thereafter prior
to maturity and at maturity on May 12, 2018, which prices reflect the accrued
Original Issue Discount calculated to each such date. The Redemption Price of a
Debenture redeemed between such dates would include an additional amount
reflecting the additional Original Issue Discount accrued since the next
preceding date in the table to the actual date of redemption.
<TABLE>
<CAPTION>
(2)
ACCRUED (3)
(1) ORIGINAL REDEMPTION
DEBENTURE ISSUE DISCOUNT PRICE
ISSUE PRICE AT 7.0% (1) + (2)
----------- -------------- ----------
<S> <C> <C> <C>
May 12, 2003......................................... $252.57 $103.71 $ 356.28
May 12, 2004......................................... 252.57 129.08 381.65
May 12, 2005......................................... 252.57 156.27 408.84
May 12, 2006......................................... 252.57 185.39 437.96
May 12, 2007......................................... 252.57 216.58 469.15
May 12, 2008......................................... 252.57 250.00 502.57
May 12, 2009......................................... 252.57 285.79 538.36
May 12, 2010......................................... 252.57 324.14 576.71
May 12, 2011......................................... 252.57 365.21 617.78
May 12, 2012......................................... 252.57 409.21 661.78
May 12, 2013......................................... 252.57 456.35 708.92
May 12, 2014......................................... 252.57 506.84 759.41
May 12, 2015......................................... 252.57 560.93 813.50
May 12, 2016......................................... 252.57 618.87 871.44
May 12, 2017......................................... 252.57 680.94 933.51
May 12, 2018......................................... 252.57 747.43 1,000.00
</TABLE>
Debentures registered in the name of DTC or its nominee will be redeemed as
described under "-- Global Debentures; Book-Entry Form". If less than all of the
outstanding Debentures are to be redeemed when the Debentures are held in
definitive form, the Trustee shall select the Debentures to be redeemed in
principal amounts at maturity of $1,000 or integral multiples thereof by lot,
pro rata or by any other method the Trustee considers fair and appropriate (as
long as such method is not prohibited by the rules of any stock exchange on
which the Debentures are then listed). If a portion of a Holder's certificated
Debentures is selected for partial redemption and such Holder converts a portion
of such Debentures, such converted portion shall be deemed to be the portion
selected for redemption.
No sinking fund is provided for the Debentures.
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REDEMPTION AT THE OPTION OF THE HOLDER UPON A DEBENTURE CHANGE OF CONTROL
If a Debenture Change of Control occurs, each Holder has the right, at the
Holder's option, to require the Company to repurchase any or all of such
Holder's Debentures, on the date (the "Repurchase Date") that is 45 days after
the date of the Change of Control Company Notice (as defined below), at a price
(the "Debenture Change of Control Redemption Price") equal to the Issue Price
plus accrued Original Issue Discount to the Repurchase Date. The Debentures are
redeemable in integral multiples of $1,000 principal amount at maturity.
The Company may, at its option, in lieu of paying the Debenture Change of
Control Redemption Price in cash, pay the Debenture Change of Control Redemption
Price or a portion thereof in Common Stock. If the Company elects to pay the
Debenture Change of Control Redemption Price, in whole or in part in Common
Stock, the number of shares to be delivered in respect of the portion of the
Debenture Change of Control Redemption Price to be paid in Common Stock shall be
equal to such portion of the Debenture Change of Control Redemption Price
divided by 95% of the Market Price of the Common Stock. However, no fractional
shares of Common Stock will be delivered upon any purchase of Debentures by the
Company through the delivery of Common Stock in payment, in whole or in part, of
the Debenture Change of Control Redemption Price. Instead, the Company will pay
cash based on the Market Price for all fractional shares of Common Stock. The
Company may elect to pay the Debenture Change of Control Redemption Price in
Common Stock only if the information necessary to calculate the Market Price is
reported in a daily newspaper of national circulation.
Within 30 days after the occurrence of a Debenture Change of Control, the
Company is obligated to give to all Holders notice, as provided in the Indenture
(the "Change of Control Company Notice"), of the occurrence of such Debenture
Change of Control and of the repurchase right arising as a result thereof. The
Change of Control Company Notice shall be sufficiently given to Holders if in
writing and mailed, first class postage prepaid, to each Holder affected by such
event, at the address of such Holder. The Company must also deliver a copy of
the Change of Control Company Notice to the Trustee. To exercise the repurchase
right, a Holder must deliver on or before the 30th day after the date of the
Change of Control Company Notice written notice to the Trustee of the Holder's
exercise of such right, together with the Debentures with respect to which the
right is being exercised. At least two business days prior to the Repurchase
Date, the Company must publish a notice in the manner described above specifying
whether the Company will pay the Debenture Change of Control Redemption Price in
cash or in Common Stock, or combination thereof (specifying the percentage of
each). Any such notice by the Holder may be withdrawn by the Holder by a written
notice of withdrawal delivered to the paying agent prior to the close of
business on the Repurchase Date. The notice of withdrawal shall state the
principal amount at maturity and the certificate numbers of the Debentures as to
which the withdrawal notice relates and the principal amount at maturity, if
any, which remains subject to the Holder's notice.
A Debenture Change of Control shall be deemed to have occurred at such time
as there shall occur:
(i) the acquisition by any Person other than the Permitted Holders and
their Related Parties of beneficial ownership, directly or indirectly,
through a purchase, merger or other acquisition transaction or series of
transactions, of shares of capital stock of the Company entitling such
Person to exercise 50% or more of the total voting power of all shares of
capital stock of the Company entitled to vote generally in elections of
directors, other than any such acquisition by the Company, any subsidiary
of the Company or any employee benefit plan of the Company, and such Person
beneficially owns more of such voting stock than the Permitted Holders and
their Related Parties; or
(ii) any consolidation of the Company with, or merger of the Company
into, any other Person other than the Permitted Holder and their Related
Parties, any merger of another Person other than the Permitted Holder and
their Related Parties into the Company, or any sale or
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transfer of all or substantially all of the assets of the Company to
another Person other than the Permitted Holder and their Related Parties
(other than (a) any such transaction (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock and (y) pursuant to which holders of Common Stock
immediately prior to such transaction have the entitlement to exercise,
directly or indirectly, 50% or more of the total voting power of all shares
of capital stock entitled to vote generally in the election of directors of
the continuing or surviving Person immediately after such transaction and
(b) any merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock solely into shares of
common stock);
provided, however, that a Debenture Change of Control shall not be deemed to
have occurred if either (a) the closing price per share of the Common Stock for
any five Trading Days within the period of 10 consecutive Trading Days ending
immediately after the later of the Debenture Change of Control or the public
announcement of the Debenture Change of Control (in the case of a Debenture
Change of Control under clause (i) above) or ending immediately before the
Debenture Change of Control (in the case of a Debenture Change of Control under
clause (ii) above) shall equal or exceed 105% of the effective conversion price
in effect on each such Trading Day (i.e., the Issue Price plus the accrued
Original Issue Discount through such Trading Day, divided by the Conversion Rate
in effect on such Trading Day), or (b) all of the consideration (excluding cash
payments for fractional shares) in the transaction or transactions constituting
the Debenture Change of Control consists of common stock traded on a national
securities exchange or quoted on the Nasdaq National Market and as a result of
such transaction or transactions the Debentures become convertible solely into
such common stock. "Beneficial ownership" shall be determined in accordance with
Rule 13d-3 promulgated by the Commission under the Exchange Act, as in effect on
the date of original execution of the Indenture.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meaning, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Permitted Holders" means Goldman Sachs and any of its Affiliates.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Related Parties" means any Person controlled by the Permitted Holders,
including any partnership of which any of the Permitted Holders or their
Affiliates is a general partner.
If the paying agent holds, in accordance with the terms of the Indenture,
money or securities sufficient to pay the Debenture Change of Control Redemption
Price on the Business Day following the Repurchase Date, then, on and after such
date, such Debenture will cease to be outstanding and Original Issue Discount
and interest, if any, on such Debenture will cease to accrue whether or not
book-entry transfer of such Debenture is made or such Debenture is delivered to
the paying agent, and all other rights of the Holder shall terminate (other than
the right to receive the Debenture Change of Control Redemption Price upon
delivery of the Debenture).
The Company will comply with the provisions of Rule 13e-4 of the Exchange
Act and any other tender offer rules under the Exchange Act which may then be
applicable in connection with the redemption rights of Holders of the Debentures
in the event of a Debenture Change of Control.
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The redemption rights of the Holders of Debentures could discourage a
potential acquiror of the Company. The Debenture Change of Control redemption
feature, however, is not the result of management's knowledge of any specific
effort to obtain control of the Company by means of a merger, tender offer,
solicitation or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions.
The term "Debenture Change of Control" is limited to certain specified
transactions and may not include other events that might adversely affect the
financial condition of the Company, nor would the requirement that the Company
offer to repurchase the Debentures upon a Debenture Change of Control
necessarily afford the Holders of the Debentures protection in the event of a
highly leveraged transaction, reorganization, merger or similar transaction
involving the Company. Moreover, at the time a Debenture Change of Control
occurs, AMF Bowling may not have cash available to repurchase the Debentures for
cash. See "Risk Factors -- Risks with respect to a Debenture Change of Control
or Change of Control" and "Description of Certain Indebtedness".
No Debentures may be redeemed at the option of Holders upon a Debenture
Change of Control if there has occurred and is continuing an Event of Default
described under "-- Events of Default; Notice and Waiver" below (other than a
default in the payment of the Debenture Change of Control Redemption Price with
respect to such Debentures). In the event of a Debenture Change of Control and
exercise by Holders of the Debentures of their associated rights to require the
Company to redeem all or a portion of their Debentures, there can be no
assurance that the Company would have sufficient funds to pay the redemption
price in cash for all the Debentures tendered by the Holders thereof. Any future
credit agreements or other agreements relating to other indebtedness to which
the Company or its subsidiaries become a party may contain similar default
provisions and may provide that the maturing of any obligation to redeem the
Debentures upon a Debenture Change of Control would constitute an event of
default thereunder and may restrict or prohibit the redemption of the
Debentures. A Debenture Change of Control may also constitute a Change of
Control under the Subsidiary Indentures and an event of default under the Credit
Agreement. If a Debenture Change of Control occurs at a time when the Company is
prohibited from redeeming the Debentures, the Company could seek the consent of
its then existing lenders to redeem the Debentures or could attempt to refinance
the borrowings that contain such prohibition. If the Company does not obtain
such a consent or repay such borrowings, the Company would remain prohibited
from redeeming the Debentures. In such case, the Company's failure to redeem
Debentures required to be redeemed under the terms of the Indenture would
constitute an Event of Default under the Indenture.
PURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER
On May 12, 2003, May 12, 2008 and May 12, 2013 (each, a "Purchase Date"),
the Company will become obligated to purchase, at the option of the Holder
thereof, any outstanding Debenture for which a written Purchase Notice has been
delivered by the Holder to the office of the paying agent (initially the
Trustee) at any time from the opening of business on the date that is 20
Business Days (as hereinafter defined) prior to such Purchase Date until the
close of business on such Purchase Date and for which such Purchase Notice has
not been withdrawn, subject to certain additional conditions.
The Purchase Notice shall state (i) the certificate numbers of the
Debentures to be delivered by the Holder thereof for purchase by the Company;
(ii) the portion of the principal amount at maturity of Debentures to be
purchased, which portion must be $1,000 or an integral multiple thereof; (iii)
that such Debentures are to be purchased by the Company pursuant to the
applicable provisions of the Debentures; and (iv) if the Company elects,
pursuant to the Company Notice (as hereinafter defined), to pay the Purchase
Price to be paid as of such Purchase Date in Common Stock, in whole or in part,
but such Purchase Price is ultimately to be paid to such Holder entirely in cash
because any of the conditions to payment of the Purchase Price (or portion
thereof) in Common Stock is not satisfied by the Purchase Date, as described
below, whether such Holder
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elects (x) to withdraw such Purchase Notice as to some or all of the Debentures
to which it relates (stating the principal amount at maturity and certificate
numbers of the Debentures as to which such withdrawal shall relate), or (y) to
receive cash in respect of the entire Purchase Price for all Debentures subject
to such Purchase Notice. If the Holder fails to indicate, in the Purchase Notice
and in any written notice of withdrawal relating to such Purchase Notice, such
Holder's choice with respect to the election described in clause (iv) above,
such Holder shall be deemed to have elected to receive cash in respect of the
entire Purchase Price for all Debentures subject to such Purchase Notice in such
circumstances. For a discussion of the tax treatment of a Holder receiving cash
or Common Stock pursuant to its election to tender its Debentures to the Company
on a Purchase Date, see "Certain Federal Income Tax Considerations".
Any Purchase Notice may be withdrawn by the Holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
Purchase Date. The notice of withdrawal shall state the principal amount at
maturity and the certificate numbers of the Debentures as to which the
withdrawal notice relates and the principal amount at maturity, if any, which
remains subject to the Purchase Notice.
The Purchase Price payable in respect of a Debenture shall be equal to the
Issue Price plus accrued Original Issue Discount to the Purchase Date. The table
below shows the Purchase Prices of a Debenture as of the specified Purchase
Dates. The Company may elect to pay the Purchase Price payable as of any
Purchase Date in cash or Common Stock or any combination thereof.
<TABLE>
<CAPTION>
PURCHASE DATE PRICE
- ------------- -------
<S> <C>
May 12, 2003................................................ $356.28
May 12, 2008................................................ 502.57
May 12, 2013................................................ 708.92
</TABLE>
If the Company elects to pay the Purchase Price, in whole or in part, in
Common Stock, the number of shares to be delivered in respect of the portion of
the Purchase Price to be paid in Common Stock shall be equal to such portion of
the Purchase Price divided by the Market Price (as hereinafter defined) of the
Common Stock. However, no fractional Common Stock will be delivered upon any
purchase by the Company of Debentures through the delivery of Common Stock in
payment, in whole or in part, of the Purchase Price. Instead, the Company will
pay cash based on the Market Price for all fractional Common Stock.
The Company will give notice (the "Company Notice") not less than 20
Business Days prior to the Purchase Date (the "Company Notice Date") to all
Holders at their addresses shown in the register of the registrar stating, among
other things, whether the Company will pay the Purchase Price of the Debentures
in cash or Common Stock, or a combination thereof (specifying the percentage of
each) and, if the Company elects to pay in Common Stock, in whole or in part,
the method of calculating the Market Price of the Common Stock.
The "Market Price" means the average of the Sale Prices (as hereinafter
defined) of the Common Stock for the five Trading Day period ending on the third
Business Day prior to the applicable Purchase Date if the third Business Day
prior to the applicable Purchase Date is a Trading Day or, if it is not a
Trading Day, then on the last Trading Day prior to such third Business Day. The
Market Price will be appropriately adjusted to take into account the occurrence
during the period commencing on the first of such Trading Days during such five
Trading Day period and ending on such Purchase Date of certain events that would
result in an adjustment of the Conversion Rate under the Indenture with respect
to the Common Stock. The "Sale Price" of the Common Stock on any date means the
closing per share sale price (or if no closing sale price is reported, the
average bid and ask prices or, if more than one in either case, the average of
the average bid and average ask prices) on such date as reported in the
composite transactions for the principal United States securities exchange on
which the Common Stock is traded or, if the Common Stock is not listed on a
United States national or regional stock exchange, as reported by
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<PAGE> 80
the Nasdaq National Market. Because the Market Price of the Common Stock is
determined prior to the applicable Purchase Date, Holders of Debentures bear the
market risk with respect to the value of the Common Stock to be received from
the date of determination of such Market Price to such Purchase Date. The
Company may elect to pay the Purchase Price in Common Stock only if the
information necessary to calculate the Market Price is reported in a daily
newspaper of national circulation.
Upon determination of the actual number of shares of Common Stock in
accordance with the foregoing provisions, the Company will publish such
determination in a daily newspaper of national circulation.
The Company's right to purchase Debentures with Common Stock is subject to
the satisfaction of various conditions, including compliance with applicable
federal and state securities laws, if any. If such conditions are not satisfied
by a Purchase Date, the Company will pay the Purchase Price of the Debentures to
be purchased on such Purchase Date entirely in cash. See "Certain Federal Income
Tax Considerations". The Company will comply with the provisions of Rule 13e-4
of the Exchange Act and any other tender offer rules under the Exchange Act
which may then be applicable and will file a Schedule 13E-4 or any other
schedule required thereunder in connection with any offer by the Company to
purchase Debentures at the option of Holders.
Payment of the Purchase Price for a Debenture for which a Purchase Notice
has been delivered and not withdrawn is conditioned upon book-entry transfer or
delivery of such Debenture (together with necessary endorsements) to the paying
agent (initially, the Trustee) at its office in the Borough of Manhattan, The
City of New York, or any other office of the paying agent maintained for such
purpose, at any time (whether prior to, on or after the Purchase Date) after
delivery of such Purchase Notice. Payment of the Purchase Price for such
Debenture will be made promptly following the later of the Purchase Date or the
time of book-entry transfer or delivery of such Debenture. If the paying agent
holds, in accordance with the terms of the Indenture, money or securities
sufficient to pay the Purchase Price of such Debenture on the Business Day
following the Purchase Date, then, on and after such date, such Debenture will
cease to be outstanding and Original Issue Discount on such Debenture will cease
to accrue whether or not book-entry transfer of such Debenture is made or such
Debenture is delivered to the paying agent, and all other rights of the Holder
shall terminate (other than the right to receive the Purchase Price upon
delivery of the Debenture).
No Debentures may be purchased at the option of the Holder for cash if
there has occurred (prior to, on or after the giving by the Holders of such
Debentures of the required Purchase Notice) and is continuing an Event of
Default described under "-- Events of Default; Notice and Waiver" below (other
than a default in the payment of the Purchase Price with respect to such
Debentures).
If the Company becomes obligated to purchase any outstanding Debenture on a
Purchase Date, there can be no assurance that the Company would have sufficient
funds to pay the Purchase Price on that Purchase Date (in which case, the
Company could be required to issue shares of Common Stock to pay the Purchase
Price at valuations based on then prevailing market prices) for all the
Debentures tendered by the Holders thereof. Bowling Worldwide is prohibited
under both the Credit Agreement and the Subsidiary Indenture from upstreaming
funds by dividends, loans or otherwise, to redeem or repurchase the Debentures.
See "Risk Factors -- Holding Company Structure". Although the Credit Agreement
does not currently prohibit the purchase of Debentures on a Purchase Date, any
future credit agreements (including an extension of the Credit Agreement) or
other agreements relating to other indebtedness to which the Company or its
Subsidiaries become a party may provide that the maturing of any obligation to
purchase the Debentures would constitute an event of default thereunder and may
restrict or prohibit the repurchase of the Debentures. If a Purchase Date occurs
at a time when the Company is prohibited from repurchasing the Debentures, the
Company could seek the consent of its then existing lenders to repurchase the
Debentures or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not
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<PAGE> 81
obtain such a consent or repay such borrowings, the Company would remain
prohibited from repurchasing the Debentures. The Company's failure to repurchase
Debentures required to be repurchased under the terms of the Indenture would
constitute an Event of Default under the Indenture.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other person or
convey, transfer or lease its properties and assets substantially as an entirety
to another person, unless, among other items, (i) the resulting, surviving or
transferee person (if other than the Company) is organized and existing under
the laws of the United States, any state thereof or the District of Columbia,
(ii) such successor person assumes all obligations of the Company under the
Debentures and the Indenture and (iii) the Company or such successor person
shall not immediately thereafter be in default under the Indenture. Upon the
assumption of the Company's obligations by such person in such circumstances,
subject to certain exceptions, the Company shall be discharged from all
obligations under the Debentures and the Indenture. Certain such transactions
that would constitute a Debenture Change of Control would permit each Holder to
require the Company to redeem the Debentures of such Holder as described under
"-- Redemption at the Option of the Holder Upon a Debenture Change of Control".
EVENTS OF DEFAULT; NOTICE AND WAIVER
The Indenture provides that, if an Event of Default specified therein has
occurred and is continuing, either the Trustee or the Holders of not less than
25% in aggregate principal amount at maturity of the Debentures then outstanding
may declare the Issue Price of the Debentures plus the Original Issue Discount
on the Debentures, interest, if any, and any Liquidated Damages under the
Debenture Registration Rights Agreement accrued to the date of such declaration
to be immediately due and payable. In the case of certain events of bankruptcy
or insolvency, the Issue Price of the Debentures plus the Original Issue
Discount, interest, if any, or any Liquidated Damages accrued thereon to the
occurrence of such event shall automatically become and be immediately due and
payable. Under certain circumstances, the Holders of a majority in aggregate
principal amount at maturity of the outstanding Debentures may rescind any such
acceleration with respect to the Debentures and its consequences. Upon a default
in the payment of the Issue Price, accrued Original Issue Discount, accrued
Liquidated Damages, if any, or any Redemption Price, Purchase Price or Debenture
Change of Control Redemption Price, interest shall accrue at the rate of 7% per
annum and be payable on demand on any such unpaid amount to the extent that
payment of such interest shall be legally enforceable.
Under the Indenture, Events of Default are defined as: (i) default in
payment of the principal amount at maturity, Issue Price, accrued Original Issue
Discount, accrued Liquidated Damages, if any, interest, if any, Redemption
Price, Purchase Price or Debenture Change of Control Redemption Price with
respect to any Debenture when such becomes due and payable, provided that in the
case of any failure to pay Liquidated Damages, such failure continues for a
period of 30 days; (ii) failure by the Company to comply with any of its other
agreements in the Debentures or the Indenture upon the receipt by the Company of
notice of such default by the Trustee or by Holders of not less than 25% in
aggregate principal amount at maturity of the Debentures then outstanding and
the Company's failure to cure such default within 60 days after receipt by the
Company of such notice (plus an additional 60 days in the case of defaults
subject to cure, provided the Company commences such cure within the initial 60
days, and is diligently pursuing such cure); (iii) default which results in
acceleration of any indebtedness for money borrowed by the Company or any of its
subsidiaries in an aggregate principal amount of $25 million or more; or (iv)
certain events of bankruptcy or insolvency.
The Trustee shall give notice to Holders of the Debentures of any
continuing default known to the Trustee within 90 days after the occurrence
thereof, provided that the Trustee may withhold
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such notice (except with respect to a default in payment) if it determines in
good faith that withholding the notice is in the interests of the Holders.
The Holders of a majority in aggregate principal amount at maturity of the
outstanding Debentures may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided that such direction shall not be in
conflict with any law or the Indenture and subject to certain other limitations.
Before proceeding to exercise any right or power under the Indenture at the
direction of such Holders, the Trustee shall be entitled to receive from such
Holders reasonable security or indemnity satisfactory to it against the costs,
expenses and liabilities which might be incurred by it in complying with any
such direction. No Holder of any Debenture will have any right to pursue any
remedy with respect to the Indenture or the Debentures, unless (i) such Holder
shall have previously given the Company and the Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount at maturity of the outstanding Debentures shall have made a
written request to the Trustee to pursue such remedy; (iii) such Holder or
Holders have offered to the Trustee reasonable indemnity satisfactory to the
Trustee; (iv) the Holders of a majority in aggregate principal amount at
maturity of the outstanding Debentures have not given the Trustee a direction
inconsistent with such request within 60 days after receipt of such request; and
(v) the Trustee shall have failed to comply with the request within such 60-day
period.
The right of any Holder (x) to receive payment of the principal amount at
maturity, Issue Price, accrued Original Issue Discount, accrued Liquidated
Damages, if any, Redemption Price, Purchase Price, Debenture Change of Control
Redemption Price and any interest in respect of a default in the payment of any
such amounts on a Debenture, on or after the due date expressed in such
Debenture, (y) to institute suit for the enforcement of any such payments or
conversion, or (z) to convert Debentures into Common Stock shall not be impaired
or adversely affected without such Holder's consent. The Holders of at least a
majority in aggregate principal amount at maturity of the outstanding Debentures
may waive an existing default and its consequences, other than (i) any default
in any payment on the Debentures, (ii) any default with respect to the
conversion rights of the Debentures or (iii) any default in respect of certain
covenants or provisions in the Indenture which may not be modified without the
consent of the Holder of each Debenture as described in "-- Modification" below.
The Company is required to furnish to the Trustee annually a statement as to any
default by the Company in the performance and observance of its obligations
under the Indenture.
REGISTRATION RIGHTS
The Company has agreed, pursuant to the Debenture Registration Rights
Agreement, to keep the Registration Statement effective until the earlier of (i)
the sale pursuant to the Registration Statement of all the securities registered
thereunder or (ii) the expiration of the holding period applicable to such
securities held by persons that are not affiliates of the Company under Rule
144(k) under the Securities Act, or any successor provision. After the end of
this period, the Company will not be required to file or maintain the
effectiveness of any registration statement with respect to the Debentures or
the Common Stock issuable upon conversion, redemption or repurchase thereof. The
Company will be permitted to suspend the use of the Prospectus that is a part of
the Registration Statement under certain circumstances relating to pending
corporate developments, public filings with the Commission and similar events
for a period not to exceed 30 days in any three-month period or not to exceed an
aggregate of 90 days in any 12-month period; provided, however, that the Company
will be permitted to suspend the use of the Prospectus for a period not to
exceed 60 days in any 3-month period or 90 days in any 12-month period under
certain circumstances relating to acquisitions or similar transactions. The
Company has agreed to pay predetermined liquidated damages as described herein
("Liquidated Damages") to Holders of Debentures and Holders of Common Stock
issued upon conversion of the Debentures if the
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Prospectus is unavailable for periods in excess of those permitted above. Such
Liquidated Damages shall accrue until such unavailability is cured, (i) in
respect of any Debenture, at a rate per annum equal to 0.25% for the first 90
day period after the occurrence of such event and 0.5% thereafter of the
Applicable Principal Amount (as hereinafter defined), and (ii) in respect of any
shares of Common Stock, at a rate per annum equal to 0.25% for the first 90 day
period and 0.5% thereafter of the then Applicable Conversion Price (as
hereinafter defined).
A Holder who sells Debentures and Common Stock issued upon conversion of
the Debentures pursuant to the Registration Statement generally will be required
to be named as a selling stockholder in this Prospectus (or an amendment or
supplement hereto), deliver this Prospectus (as amended or supplemented) to
purchasers and be bound by certain provisions of the Debenture Registration
Rights Agreement that are applicable to such Holder (including certain
indemnification provisions). The Company has agreed to pay all fees and expenses
incident to the filing of the Registration Statement and maintaining its
effectiveness for resales of the Securities. In addition, in the event of an
underwritten offering, the Company will pay the fees and expenses incurred by it
in connection with such offering including those of its independent counsel and
accountants, and will also pay up to a maximum of $75,000 for the fees and
expenses of a single counsel selected by a plurality of all Holders of the
Debentures holding an aggregate of not less than 25% of the Securities included
in such offering to represent them in connection with such offering. The Holders
participating in such offering will be responsible (on a pro rata basis based on
the principal amount of the Securities included in such offering) for all fees
and expenses of such counsel in excess of $75,000. Except as provided in the
preceding two sentences, each Holder of Securities included in the Registration
Statement will be responsible for all underwriting discounts and commissions
payable in connection with the sale of such Holder's Securities and any other
fees and expenses incurred by it in connection with the Registration Statement.
The Company will provide to each registered Holder copies of this Prospectus,
notify each registered Holder when the Registration Statement has become
effective and take certain other actions as are required to permit, subject to
the foregoing, unrestricted resales of the Debentures and the Common Stock
issued upon conversion, redemption or repurchase of the Debentures. The plan of
distribution of the Prospectus permits resales of the Securities by Selling
Securityholders through brokers and dealers. See "Plan of Distribution".
The term "Applicable Principal Amount" means, as of any date of
determination, with respect to each $1,000 principal amount at maturity of
Debentures, the Issue Price of such Debentures plus accrued Original Issue
Discount with respect to such Debentures through such date of determination or,
if no Debentures are then outstanding, such sum calculated as if such Debentures
were then outstanding. The term "Applicable Conversion Price" means, as of any
date of determination, the Applicable Principal Amount per $1,000 principal
amount at maturity of Debentures as of such date of determination divided by the
Conversion Rate in effect as of such date of determination or, if no Debentures
are then outstanding, the Conversion Rate that would be in effect were
Debentures then outstanding.
The Company has agreed in the Debenture Registration Rights Agreement to
give notice (a "Filing Notice") to all Holders of the filing and effectiveness
of the Registration Statement by release made to Reuters Economic Services and
Bloomberg Business News. A notice and questionnaire in the form attached to the
Debenture Registration Rights Agreement (the "Questionnaire") must be completed
and delivered by a holder to the Company within 30 days of such Filing Notice.
Any person that acquires any Securities from an electing holder (excluding any
Securities that were not identified in the Questionnaire delivered by such
electing holder) will be entitled to have such Securities included in the
Registration Statement so long as such transferee provides the Company with an
updated Questionnaire. If a Holder's or such transferee's Questionnaire is
received on or prior to the 10th day prior to the effective time of the
Registration Statement, such Holder or transferee will be entitled to have such
Holder's or transferee's Securities included in the Registration Statement at
the effective time. If any such Holder's or transferee's updated Questionnaire
is received subsequent to such 10th day, the Securities covered by such
Questionnaire will be included in the Registration Statement reasonably promptly
after receipt (which date of inclusion
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may be subsequent to the effective time of the Registration Statement). Holders
are required to complete and deliver the Questionnaire prior to the
effectiveness of the Registration Statement so that such Holders may be named as
selling securityholders in the related prospectus at the time of effectiveness.
Upon receipt of such a completed Questionnaire, together with such other
information as may be reasonably requested by the Company, from a Holder
following the effectiveness of the Registration Statement, the Company will, as
promptly as practicable but in any event within five business days of such
receipt, file such amendments to the Registration Statement or supplements to
the related prospectus as are necessary to permit such Holder to deliver such
prospectus to purchasers of the Securities (subject to the Company's right to
suspend the use of the prospectus as described above). The Company has agreed to
pay Liquidated Damages in the amount set forth above to such Holder if the
Company fails to make such filing in the time required or, if such filing is a
post-effective amendment to the Registration Statement required to be declared
effective under the Securities Act, if such amendment is not declared effective
within 45 days of the filing thereof. Any Holder that does not complete and
deliver a Questionnaire or provide such other information will not be named as a
selling securityholder in the prospectus and therefore will not be permitted to
sell any Securities pursuant to the Registration Statement.
The summary herein of certain provisions of the Debenture Registration
Rights Agreement is subject to, and is qualified in its entirety by reference
to, all the provisions of the Debenture Registration Rights Agreement, which has
been filed as Exhibit 4.8 to the Registration Statement.
MODIFICATION
Modification and amendment of the Indenture or the Debentures may be
effected by the Company and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount at maturity of the Debentures
then outstanding. Notwithstanding the foregoing, no such amendment may, without
the consent of each Holder affected thereby: (i) reduce the principal amount at
maturity, Issue Price, Purchase Price, Debenture Change of Control Redemption
Price or Redemption Price, or extend the stated maturity of any Debenture or
alter the manner or rate of accrual of Original Issue Discount, interest or
Liquidated Damages, or make any Debenture payable in money or securities other
than that stated in the Debenture; (ii) make any change to the principal amount
at maturity of Debentures whose Holders must consent to an amendment or any
waiver under the Indenture or modify the Indenture provisions relating to such
amendments or waivers; (iii) make any change that adversely affects the right to
convert any Debenture or the right to require the Company to purchase a
Debenture or the right to require the Company to repurchase a Debenture upon a
Debenture Change of Control; or (iv) impair the right to institute suit for the
enforcement of any payment with respect to, or conversion of, the Debentures.
The Indenture also provides for certain modifications of its terms without the
consent of the Holders.
TAXATION OF DEBENTURES
See "Certain Federal Income Tax Considerations" for a discussion of certain
tax aspects which will apply to a Holder of Debentures.
INFORMATION CONCERNING THE TRUSTEE
The Bank of New York, as Trustee under the Indenture, has been appointed by
the Company as paying agent, conversion agent, registrar and custodian with
regard to the Debentures.
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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, filed as Exhibits 3.1 and 3.2, respectively, to the Registration
Statement.
The authorized capital stock of the Company consists of (i) 200,000,000
shares of Common Stock, par value $.01 per share, of which 59,744,544 shares
were outstanding as of August 3, 1998, and (ii) 50,000,000 shares of Preferred
Stock, of which no shares are 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. As a result of
its ownership of 50.9% of the outstanding Common Stock and the terms of the
Stockholders Agreement, GSCP has the ability to control the election of a
majority of the Board, 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 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 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 of Common Stock issuable upon conversion or repurchase of the Debentures
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.
The Common Stock is listed on the NYSE under the symbol "PIN".
PREFERRED STOCK
The Board 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 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".
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RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Certificate of Incorporation authorizes the Board 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 and set forth in the contracts or other instruments that
evidence such rights. The authority of the Board 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 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 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 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.
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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.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
Bowling Worldwide is party to a Credit Agreement amended and restated as of
November 3, 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 $455.3 million (the "Term Facilities"), and (ii) a senior
secured revolving credit facility of up to $355.0 million (the "Bank Facility",
and together with the Term Facilities, 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 a predecessor of the Credit Agreement were used to partially
fund the Acquisition.
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 has been filed as Exhibit 10.2 to the
Registration Statement.
THE FACILITIES
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $130.0 million, (ii) an Amortization Extended Loan
("AXELs(SM)") Series A Facility of $187.5 million and (iii) an AXELs(SM) Series
B Facility of $137.8 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.
Until November 7, 1998, (i) the margin applicable to loans bearing interest
based on the base rate will range from 0.750% to 0.875%, for advances under the
Term Loan Facility, 1.000% to 1.125%, for advances under the AXELsSM Series A
Facility, and 1.250% to 1.375%, for advances under the AXELsSM Series B
Facility, and (ii) the margin applicable to loans bearing interest based on the
Eurodollar rate will range from 1.750% to 1.875%, for advances under the Term
Loan Facility, 2.000% to 2.125%, for advances under the AXELsSM Series A
Facility, and 2.250% to 2.375%, for advances under the AXELsSM Series B
Facility. Thereafter, (i) the margin applicable to loans bearing interest based
on the base rate will range from 0.000% to 0.875%, for advances under the Term
Loan Facility, 0.875% to 1.125%, for advances under the AXELsSM Series A
Facility, and 1.125% to 1.375%, for advances under the AXELsSM Series B
Facility, and (ii) the margin applicable to loans bearing interest based on the
Eurodollar rate will range from 0.750% to 1.875%, for
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advances under the Term Loan Facility, 1.875% to 2.125%, for advances under
AXELsSM Series A Facility, and 2.125% to 2.375%, for advances under the AXELsSM
Series B Facility.
The final maturity of the Term Loan Facility will occur on March 31, 2002,
the final maturity of the AXELsSM Series A Facility will be March 31, 2003 and
the final maturity of the AXELsSM Series B Facility will be March 31, 2004.
Average amounts outstanding and average borrowing rates for the period
ended June 30, 1998, were as follows (dollars in millions):
<TABLE>
<CAPTION>
OUTSTANDING AVERAGE AVERAGE
JUNE 30, AMOUNTS BORROWING
DESCRIPTION MATURITY DATES 1998 OUTSTANDING RATES
----------- -------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Term Loan Facility................. March 31, 2002 $111,875 $118,729 7.57%
AXELs(SM) Series A Facility........ March 31, 2003 $185,750 $186,373 7.81%
AXELs(SM) Series B Facility........ March 31, 2004 $135,874 $136,575 8.06%
Bank Facility...................... March 31, 2002 $128,003 $182,856 7.67%
</TABLE>
As most recently amended and restated, the Credit Agreement will require
Bowling Worldwide 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.................................. $ 7.5 $ 0.7 $ 0.8 $ 9.0
1998.................................. 23.1 2.0 2.3 27.4
1999.................................. 28.1 2.0 2.2 32.3
2000.................................. 30.0 2.0 2.3 34.3
2001.................................. 30.0 50.8 2.2 83.0
2002.................................. 11.3 92.5 2.3 106.1
2003.................................. -- 37.5 78.9 116.4
2004.................................. -- -- 46.8 46.8
------ ------ ------ ------
$130.0 $187.5 $137.8 $455.3
====== ====== ====== ======
</TABLE>
The Bank Facility has an aggregate amount of $355.0 million, will mature on
March 31, 2002, 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/EBITDA Ratio (as hereinafter defined) for the Rolling Period (as
hereinafter defined) then most recently ended. Until November 7, 1998, the
margin applicable to advances under the Bank Facility bearing interest based on
the base rate will range from 0.750% to 0.875% and the margin applicable to
advances under the Bank Facility bearing interest based on the Eurodollar rate
will range from 1.750% to 1.875%. Thereafter, the margin applicable to advances
under the Bank Facility bearing interest based on the base rate will range from
0.000% to 0.875% and the margin applicable to advances under the Bank Facility
bearing interest based on the Eurodollar rate will range from 0.750% to 1.875%.
In addition, 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 and issuances of debt by
Bowling Worldwide and its subsidiaries and public issuance of equity securities
of AMF Bowling. Bowling Worldwide will also be required to make prepayments that
permanently reduce the availability under the Term Facilities in an amount equal
to up to 50% of Excess Cash Flow for any fiscal year of Bowling Worldwide if the
Total Debt to EBITDA Ratio for that fiscal year is greater than or equal to 5.50
to 1.0 (except that for the fiscal year ending December 31, 1998, such payment
would be the lesser of (x) 50% of the Excess Cash Flow (as defined in the Credit
Agreement) for that fiscal year or (y) the amount by which such Excess Cash Flow
exceeds $20 million). If the Total Debt to EBITDA Ratio for that fiscal year is
less than 5.50 to 1.0, then Bowling Worldwide is required to prepay the Bank
Facility in an amount equal to up to 50% of the Excess Cash
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Flow for such fiscal year (except that for the fiscal year ending December 31,
1998, such payment would be the lesser of (x) 50% of the Excess Cash Flow for
that fiscal year or (y) the amount by which such Excess Cash Flow exceeds $20
million), but Bowling Worldwide would be permitted to reborrow such amounts,
subject to the conditions of the Credit Agreement. The Credit Agreement also
provides that at least $100 million of the net cash proceeds of the Initial
Public Offering be used to repay borrowings under the Bank Facility (and thus
would be available for reborrowing), and the remaining net cash proceeds from
the Initial Public Offering be used, at Bowling Worldwide's option, to redeem a
portion of the Subsidiary Senior Subordinated Notes and/or the Subsidiary Senior
Subordinated Discount Notes and/or to repay borrowings under the Bank Facility.
Using the net proceeds of the Initial Public Offering, the Company repaid $150.8
million of borrowings under the Credit Agreement and redeemed $118.9 million in
principal of the Subsidiary Senior Subordinated Discount Notes. See "Note 9.
Long-Term Debt" in the Notes to the Consolidated Financial Statements.
The Senior Facilities are 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 Worldwide's and its present and future domestic
Subsidiaries' present and future property and assets.
The Company incurred after-tax extraordinary charges totaling $23.4 million
in the fourth quarter of 1997 as a result of entering into the third amendment
and restatement of the Credit Agreement, the premium paid to redeem a portion of
the Subsidiary Senior Subordinated Discount Notes with the proceeds of the
Initial Public Offering and the write-off of the portion of deferred financing
costs attributable to the Subsidiary Senior Subordinated Discount Notes
redeemed. See "Note 9. Long-Term Debt" in the Notes to Consolidated Financial
Statements and "Selected Quarterly Data" included elsewhere herein.
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
Modified Consolidated EBITDA (as hereinafter defined) of not less than the sum
of (i) an amount ranging from $150 million for the "Rolling Period" (as 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 September 30, 2003 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 (as
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 2.75 for the Rolling Period ending September 30, 2002 and
thereafter. Bowling Worldwide is required to maintain a Fixed Charge Coverage
Ratio (as 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 under the Term
Facilities payable by Bowling Worldwide and its Subsidiaries during such Rolling
Period) at an amount
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ranging from not less than 1.05 for the Rolling Period ending June 30, 1997, to
not less than 1.20 for the Rolling Period ending June 30, 2001 and declining to
1.00 for the Rolling Period ending March 31, 2002 and thereafter. A Senior Debt
to EBITDA Ratio (as 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 2.50 for the Rolling Period ending March
31, 2002 and thereafter. A Total Debt to EBITDA Ratio (as 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 4.50 for the Rolling Period ending March
31, 2002 and thereafter. In each case, the above-mentioned ratios are calculated
on a quarterly basis.
The following chart summarizes the financial covenants described in the
preceding paragraph.
<TABLE>
<CAPTION>
ROLLING 12-MONTH PERIOD(1)
--------------------------------------------------------------------------------
7/1/96 7/1/97 7/1/98 7/1/99 7/1/00 7/1/01 7/1/02 7/1/03
THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH AND
FINANCIAL ESTIMATIONS 6/30/97 6/30/98 6/30/99 6/30/00 6/30/01 6/30/02 6/30/03 THEREAFTER
- --------------------- ------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MODIFIED CONSOLIDATED EBITDA(2)
Not less than the following amounts (in
$ millions) plus the then applicable
EBITDA Adjustment Amount(3)........... 150 150 155 165 175 185 195 200
CASH INTEREST COVERAGE RATIO(4)
Not less than:.......................... 2.00 2.25 2.35 2.75 2.75 2.50 2.75 2.75
FIXED CHARGE COVERAGE RATIO(5)
Not less than:.......................... 1.05 1.10 1.15 1.20 1.20 1.00 1.00 1.00
SENIOR DEBT TO EBITDA RATIO(6)
Not less than:.......................... 3.75 3.60 3.60 3.25 3.00 2.50 2.50 2.50
TOTAL DEBT TO EBITDA RATIO(7)
Not less than:.......................... 6.50 6.00 6.00 5.50 5.00 4.50 4.50 4.50
</TABLE>
- ---------------
(1) The levels specified with respect to each covenant may vary within the
periods specified below. When the level varies within a period, the level as
in effect at the end of the period is specified in the table.
(2) Defined as, for any Rolling Period, Consolidated EBITDA (as defined in the
Credit Agreement) of Bowling Worldwide and its Subsidiaries in such Rolling
Period, provided, however, that at any time of determination, (i) solely
with respect to any constructed New Center (as hereinafter defined),
Modified Consolidated EBITDA shall be calculated using Adjusted EBITDA (as
hereinafter defined) of such New Center and (ii) solely with respect to any
New Center acquired within the immediately preceding 15 months, Modified
Consolidated EBITDA shall be calculated using the actual EBITDA of such New
Center for such Rolling Period (as hereinafter defined). "Adjusted EBITDA"
means, at any time, in the case of a New Center, the product of (a) the
Average EBITDA Margin calculated as of the end of the fiscal quarter
immediately preceding the fiscal quarter in which the acquisition or the
construction of the New Center occurs and (b) the Specified Revenues (as
hereinafter defined) of such new center. "Average EBITDA Margin" means, at
any time of determination, an amount equal to (a) the sum of Consolidated
EBITDA of AMF Bowling Centers, Inc. and its subsidiaries and Consolidated
EBITDA of AMF Worldwide Bowling Centers Holdings Inc. and its subsidiaries
("AMF Worldwide") divided by (b) the sum of consolidated revenues of AMF
Bowling Centers and its subsidiaries and consolidated revenues of AMF
Worldwide and its subsidiaries, in each case for the 12-month period
reflected in the most recent financial statements. "Specified Revenues"
means at any time (a) in the case of any acquisition of a New Center,
aggregate revenues of such New Center for the immediately preceding 12-month
period, and (b) in the case of any construction of a New Center, an amount
equal to (i) at any time during its first 12 full months of operations, the
aggregate revenues of such New Center for each full month it has operated
times twelve divided by the number of full months such New Center has
operated and (ii) at any time thereafter, aggregate revenues of such New
Center for the immediately preceding 12-month period. "New Center" means, at
any time of determination, any bowling center acquired (whether by means of
a stock or asset acquisition) or constructed by Bowling Worldwide or any of
its Subsidiaries after the closing date of the Credit Agreement and less
than 15 months prior to such date of determination, provided that the time
of any such acquisition shall be the date of consummation of such
acquisition and the time of any such construction shall be the date of the
opening of such bowling center for business.
(3) Defined as 80% of the aggregate amount of 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.
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(4) The ratio of Modified Consolidated EBITDA to cash interest payable on all
debt of Bowling Worldwide and its Subsidiaries on a consolidated basis.
(5) Ratio of (A) Modified Consolidated EBITDA during the Rolling Period less the
sum of (1) cash taxes paid plus (2) Capital Expenditures made, in each case,
by Bowling Worldwide and its Subsidiaries during such Rolling Period to (B)
the sum of (i) cash interest payable on all debt plus (ii) principal amounts
of all debt payable (other than the principal amount of debt to the extent
it has been refinanced), in each case, by Bowling Worldwide and its
Subsidiaries during such Rolling Period.
(6) Ratio of Consolidated debt (other than Subordinated Debt and Hedge
Agreements) of Bowling Worldwide and its Subsidiaries to Modified
Consolidated EBITDA.
(7) Ratio of Consolidated total debt (other than Hedge Agreements (as defined in
the Credit Agreement)) of Bowling Worldwide and its Subsidiaries to Modified
Consolidated EBITDA.
Affirmative covenants under the Credit Agreement oblige Bowling Worldwide
and its Subsidiaries to comply with all laws and regulations, as well as to pay
all taxes not being contested in good faith, to comply with environmental laws
and permits, to maintain insurance coverage, preserve its corporate existence,
permit the examination of its records and books of account by the agents or any
of the Lenders, to prepare environmental reports upon the reasonable request of
the administrative agent (in the case of a Default under (and as defined in) the
Credit Agreement or based on the belief that hazardous materials contamination
not otherwise disclosed may be present on any property described in the
mortgages), to keep proper books of record and account, to maintain its
properties in good working condition, to comply with the terms of leaseholds and
to perform and observe all terms and provisions of each Related Document
(defined as the Stock Purchase Agreement, the Indentures and any related
agreements, a tax agreement, the Stockholders Agreement and a support agreement
relating to the Acquisition). Bowling Worldwide is also required to conduct, and
cause each of its Subsidiaries to conduct, all transactions permitted under the
loan documents with any affiliates on fair and reasonable terms, to maintain
cash concentration accounts with Citibank into which substantially all proceeds
of collateral are to be paid, and to guarantee obligations and give security
(upon the request of Citicorp USA, Inc. (together with any successor appointed
pursuant to the Credit Agreement, the "Collateral Agent") following the
occurrence and during the continuance of a Default, at such time as any new
direct or indirect Subsidiary of Bowling Worldwide is formed or acquired by
Bowling Worldwide and the Guarantors (each, a "Loan Party"), or when any
property is acquired by any Loan Party). Bowling Worldwide has entered into, and
must maintain until the aggregate outstanding amount under the Term Facilities
is less than $400 million, interest rate hedge agreements, covering a notional
amount of not less than 50% of the commitments under all the facilities and the
other floating rate debt of the Loan Parties.
Negative covenants under the Senior Facilities prohibit 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 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
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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 Subsidiary 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.
Bowling Worldwide is also 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 owners 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, 1998, Bowling
Worldwide is in compliance with all of its covenants.
EVENTS OF DEFAULT
The Credit Agreement contains customary Events of Default for
highly-leveraged financings. These include:
(a) the failure of Bowling Worldwide to pay the principal of, interest
on, or other amounts payable in connection with, any advance under the
Senior Facilities when they become due (in the case of principal) or within
three days after they become due;
(b) the incorrectness in any material respect of any representation or
warranty of a Loan Party under or in connection with any loan document;
(c) the failure of any Loan Party to perform or observe any term,
covenant or agreement with regard to the use of proceeds covenant, certain
affirmative covenants, any negative covenants, the obligation of Bowling
Worldwide to give notice to the administrative agent and the Lenders of any
default or any event likely to have a materially adverse effect and any
financial covenants under the Credit Agreement;
(d) the failure of any Loan Party to perform any other term, covenant
or agreement in any loan document, if such failure remains unremedied for
15 days after knowledge by an officer of any Loan Party or its Subsidiaries
or notice by the administrative agent or any Lender;
(e) the failure by any Loan Party or any material subsidiary to pay
any principal of, premium or interest on or any other amount payable in
respect of any debt outstanding in a principal amount of at least $25
million or any other event shall occur that would permit the acceleration
of any such debt or such debt is accelerated;
(f) the failure of any Loan Party or any material subsidiaries to
generally pay debts as they become due, or its seeking of liquidation,
reorganization, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization, or such a proceeding
instituted against it remains undismissed and unstayed for a period of 30
days;
(g) the rendering of any judgment or order for the payment of money in
excess of $25 million against any Loan Party or any material subsidiary and
either any enforcement proceedings shall have commenced or 15 days shall
have passed during which no stay shall be in place;
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(h) the rendering of any non-monetary judgment or order against any
Loan Party or any material subsidiary that could reasonably be likely to
have a material adverse effect, and there is a period of 15 days during
which no stay of such judgment or order is in effect;
(i) any provision of any loan document after delivery for any reason
ceases to be valid and binding on or enforceable against any Loan Party
which is a party to it;
(j) any provision relating to the subordination of the debt under the
Exchange Notes and any other debt of any Loan Party or any material
subsidiary that is subordinated to the obligations of such Loan Party to
the Lenders or the agents for any reason ceases to be valid and binding on
or enforceable against any Loan Party which is a party to it;
(k) any collateral document (excluding mortgages covering collateral
which, in the aggregate, is immaterial) after delivery ceases to create a
valid and perfected first priority lien on and security interest in the
collateral purported to be protected thereby;
(l) AMF Bowling ceases to own and control legally and beneficially all
of the outstanding shares of capital stock of AMF Group Holdings;
(m) AMF Group Holdings ceases to own and control legally and
beneficially all of the outstanding shares of capital stock of Bowling
Worldwide;
(n) a change of control (as defined in the Credit Agreement) occurs;
(o) an ERISA event (as defined in the Credit Agreement) occurs with
respect to a single or multiple employer plan, and the sum of insufficiency
as to such plan, aggregated with the insufficiency of any other plans as to
which an ERISA event occurred, exceeds $25 million;
(p) any Loan Party or any ERISA affiliate (as defined in the Credit
Agreement) is notified by the sponsor of a multiemployer plan that it has
incurred withdrawal liability with respect to such plan, which, aggregated
with other amounts required to be paid to multiemployer plans by the Loan
Parties and ERISA affiliates, exceeds $25 million (or requires payments
exceeding $7.5 million per annum); or
(q) any Loan Party or ERISA affiliate is notified by the sponsor of a
multiemployer plan that such plan is in reorganization or being terminated,
within the meaning of Title IV of ERISA, resulting in an increase of
aggregate annual contributions in specified amounts.
Upon the occurrence of an Event of Default, the administrative agent may
declare the commitment of the Lenders terminated and may declare the Senior
Facilities and all interest thereon and all other amounts payable under the
Credit Agreement and the other loan documents due, and may also take certain
actions in respect of any outstanding letters of credit. In the event of an
actual or deemed entry of an order of relief with respect to any Loan Party or
any of its subsidiaries under the federal bankruptcy code, the commitment of the
Lenders will automatically terminate, and the Senior Facilities and all interest
thereon will automatically become due and payable.
OTHER SENIOR DEBT
A mortgage having a principal amount of approximately $2.0 million as of
June 30, 1998, secured by a bowling center in Independence, Missouri, remains
outstanding as an obligation of AMF. The original obligation was for
approximately $1.7 million, with interest at a rate of 8.81% through October 1,
2013.
AMF is obligated to make future payments under a noncompetition agreement
that provides that such obligation will be secured by AMF's bowling center in
Hickory, North Carolina. The amount remaining to be paid as of June 30, 1998 was
$0.1 million, and the final payment is due in 1999. This obligation is reflected
in other liabilities on the balance sheet of Holdings.
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SUBSIDIARY NOTES
At June 30, 1998, Bowling Worldwide had outstanding $250.0 million in
principal amount of 10 7/8% Subsidiary Senior Subordinated Notes due 2006 and
$200.8 million principal amount of 12 1/4% Subsidiary Senior Subordinated
Discount Notes due 2006. The following description of the Subsidiary Notes and
the Subsidiary Indentures is a summary and is qualified in its entirety by the
provisions of the Subsidiary Notes, which have been filed as Exhibits 4.4 and
4.5 to the Registration Statement, and the Subsidiary Indentures, which have
been filed as Exhibits 4.1 and 4.2 to the Registration Statement.
The Subsidiary 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.
Prior to December 15, 1997, the Subsidiary Senior Subordinated Discount
Notes had a fully-accreted value of $452.0 million based on a maturity date of
March 15, 2006. On December 15, 1997, the Company redeemed $118.9 million in
principal which represented a fully-accreted value of $175.0 million using a
portion of a capital contribution received from AMF Bowling attributable to
proceeds received by AMF Bowling from the Initial Public Offering. The remaining
balance of Subsidiary Senior Subordinated Discount Notes will mature on March
15, 2006, at a fully-accreted value of $277.0 million. The Subsidiary 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 is 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.
Bowling Worldwide's payment obligations under the Subsidiary 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 Subsidiary Notes are subordinated to the guarantees
of the indebtedness under the Credit Agreement and certain other indebtedness
(collectively, the "Senior Debt"). The Subsidiary 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
Subsidiary 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 Subsidiary 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 Subsidiary Senior Subordinated Notes remains outstanding after such
redemption. Similarly, prior to March 15, 1999, the Subsidiary 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 Subsidiary
Senior Subordinated Discount Notes, so long as at least $150 million in accreted
value of Subsidiary Senior Subordinated Discount Notes remains outstanding after
such redemption.
The Subsidiary Indentures contain certain covenants that, among other
things, limit the ability of the Company and its Restricted Subsidiaries (as
defined in the applicable Subsidiary Indenture) to
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incur additional indebtedness and issue Disqualified Stock (as defined in the
applicable Subsidiary Indenture), pay dividends or distributions or make
investments or make certain other Restricted Payments (as defined in the
applicable Subsidiary 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 March 31, 1998, Bowling Worldwide is in compliance with
all of its covenants under the Subsidiary Indentures.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income tax
considerations relevant to holders of the Debentures and Common Stock into which
the Debentures may be converted. This discussion is based upon the Code,
Treasury Regulations, Internal Revenue Service ("IRS") rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. There can be no assurance that
the IRS will not challenge one or more of the tax consequences described herein,
since the Company has not obtained, and does not intend to obtain, a ruling from
the IRS with respect to the U.S. federal income tax consequences of acquiring,
holding or disposing of the Debentures or Common Stock.
This discussion does not purport to address all aspects of U.S. federal
income taxation that may be relevant to a particular holder in light of the
holder's circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). Also, it is not intended to be wholly applicable to
all categories of investors, some of which (such as dealers in securities,
banks, insurance companies, tax-exempt organizations, and persons holding
Debentures or Common Stock as part of a hedging or conversion transaction or
straddle, persons deemed to sell Debentures or Common Stock under the
constructive sale provisions of the Code, U.S. Holders (as hereinafter defined)
whose functional currency is not the U.S. dollar and persons who have ceased to
be U.S. citizens or to be taxed as resident aliens) may be subject to special
rules. The discussion also does not discuss any aspect of state, local or
foreign law as applicable to either or both U.S. Holders (as hereinafter
defined) and non-U.S. Holders (as hereinafter defined), or U.S. federal estate
and gift tax law as applicable to U.S. Holders (as hereinafter defined). In
addition, this discussion is limited to purchasers of Debentures who hold the
Debentures and any Common Stock into which the Debentures are converted as
"capital assets" within the meaning of Section 1221 of the Code.
ALL PROSPECTIVE PURCHASERS OF THE DEBENTURES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP, CONVERSION AND DISPOSITION OF THE
DEBENTURES AND THE COMMON STOCK.
U.S. HOLDERS
As used herein, the term "U.S. Holder" means the beneficial holder of a
Debenture or Common Stock that for United States federal income tax purposes is
(i) a citizen or resident of the United States, (ii) a corporation formed under
the laws of the United States or any political subdivision thereof, (iii) an
estate the income of which is subject to U.S. federal income taxation regardless
of its source, or (iv) a trust, if a court within the United States is able to
exercise primary jurisdiction over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. A "Non-U.S. Holder" is any holder other than a U.S.
Holder.
ORIGINAL ISSUE DISCOUNT ON THE DEBENTURES
The Debentures were issued at a substantial discount from their stated
redemption price at maturity. For federal income tax purposes, the excess of the
stated redemption price at maturity of each Debenture over its issue price
constitutes original issue discount ("Original Issue Discount").
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The issue price of the Debentures equals the initial price at which a
substantial amount of the Debentures is sold (not including sales to the
underwriters or placement agents, including the Initial Purchasers). U.S.
Holders of the Debentures will be required to include Original Issue Discount in
income as it accrues, in accordance with the constant yield method described
below, before receipt of the cash attributable to such income, regardless of
such U.S. Holder's regular method of accounting for United States federal income
tax purposes. A U.S. Holder of a Debenture must include in gross income for
federal income tax purposes the sum of the daily portions of Original Issue
Discount with respect to the Debenture for each day during the taxable year or
portion of a taxable year on which such U.S. Holder holds the Debenture. The
daily portion is determined by allocating to each day of each accrual period a
pro rata portion of an amount equal to the adjusted issue price of the Debenture
at the beginning of the accrual period multiplied by the yield to maturity of
the Debenture (determined by compounding at the close of each accrual period and
adjusted for the length of the accrual period). The adjusted issue price of a
Debenture at the start of any accrual period will be the issue price of the
Debenture increased by the accrued Original Issue Discount for each prior
accrual period. Under these rules, U.S. Holders will have to include in gross
income increasingly greater amounts of Original Issue Discount in each
successive accrual period. A U.S. Holder's original tax basis for determining
gain or loss on the sale or other disposition of a Debenture will be increased
by any accrued Original Issue Discount includible in such U.S. Holder's gross
income.
There are several circumstances under which the Company could make a
payment that would affect the yield to maturity of a Debenture, including (as
described under "Description of Debentures"), the payment of Liquidated Damages
due to failure to effect the registration of the Debentures pursuant to the
Registration Statement and the redemption or repurchase of Debentures. According
to Treasury Regulations, the possibility of a change in yield will not be
treated as affecting the amount of Original Issue Discount required to be
realized by a holder (or the timing of such recognition) if the likelihood of
the change, as of the date the debt obligation is issued, is remote. The Company
intends to report on the basis that the likelihood of any change in the yield on
the Debentures is remote. The Company also intends to report on the basis that
there is no alternative payment schedule that would minimize the yield on the
Debentures to the Company.
MARKET DISCOUNT
A U.S. Holder acquiring a Debenture at a "market discount" (as hereinafter
defined) must generally treat as ordinary income any gain realized on the
disposition or retirement of the Debenture (among other events) to the extent
that the market discount has accrued during the U.S. Holder's period of
ownership. Any accrued market discount not previously taken into income prior to
a conversion of a Debenture may carry over to the Common Stock received upon
conversion of the Debenture and be treated as ordinary income upon a subsequent
disposition of such Common Stock to the extent of any gain recognized on such
disposition.
A "market discount" exists if (i) the amount for which a U.S. Holder
purchased the Debenture is less than the Debenture's Issue Price and (ii) the
Debenture's adjusted issue price exceeds the amount for which the U.S. Holder
purchased the Debenture by at least 1/4 of 1 percent of such Debenture's revised
issue price multiplied by the number of complete years to the Debenture's
maturity. The Code provides that, for these purposes, the "revised issue price"
of a Debenture generally equals its Issue Price, increased by the amount of any
Original Issue Discount that has accrued on the Debenture. The market discount
accrued during the U.S. Holder's period of ownership will generally equal a
ratable portion of the Debenture's market discount, based on the number of days
the U.S. Holder has held the Debenture at the time of such disposition or
retirement, as a percentage of the number of days from the date the U.S. Holder
acquired the Debenture to its date of maturity.
Subject to certain limitations, a U.S. Holder may elect to include the
market discount in gross income during the period of ownership (rather than upon
disposition, retirement or certain other
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events) based on a constant yield method, taking into account compounding of
interest. Any such election will also constitute an election to include market
discount in income currently on all other bonds and notes acquired by such U.S.
Holder on or after the first day of the first taxable year to which the election
applies, and once made such an election may be terminated only with the consent
of the IRS. A U.S. Holder who purchases a Debenture at a market discount and who
does not elect to include market discount in income as it accrues may be
required to defer the deduction of all or a portion of the interest expense on
any indebtedness incurred or maintained to purchase or carry the Debenture.
ACQUISITION PREMIUM
A U.S. Holder will be considered to have "acquisition premium" to the
extent the U.S. Holder's initial tax basis in a Debenture is greater than (x)
the adjusted issue price of such Debenture but less than (y) the stated
redemption price at maturity of such Debenture. Acquisition premium may offset
the amount of Original Issue Discount received on such Debenture that the U.S.
Holder is required to include in income.
CONVERSION OF DEBENTURES INTO COMMON STOCK
In general, no gain or loss will be recognized for U.S. federal income tax
purposes on a conversion of Debentures into Common Stock. However, cash paid in
lieu of a fractional share of Common Stock will result in taxable gain (or
loss), which will be capital gain (or loss), to the extent that the amount of
such cash exceeds (or is exceeded by) the portion of the adjusted basis of the
Debenture allocable to such fractional share. The adjusted basis of shares of
Common Stock received on conversion will equal the adjusted basis of the
Debenture converted, reduced by the portion of adjusted basis allocated to any
fractional share of Common Stock exchanged for cash. The holding period of the
Common Stock received on conversion will generally include the period during
which the converted Debentures were held.
ADJUSTMENT OF CONVERSION RATE
The Conversion Rate of the Debentures is subject to adjustment under
certain circumstances. If at any time the Company makes a distribution of
property to stockholders that would be taxable to such stockholders as a
dividend for federal income tax purposes (for example, distributions of
evidences of indebtedness or assets of the Company) and, pursuant to the
anti-dilution provisions of the Indentures, the Conversion Rate of the
Debentures is increased, such increase may be deemed to be the payment of a
taxable dividend to U.S. Holders of Debentures. If the Conversion Rate is
increased at the discretion of the Company or in certain other circumstances,
such increase also may be deemed to be the payment of a taxable dividend to U.S.
Holders of Debentures.
SALE, EXCHANGE OR RETIREMENT OF THE DEBENTURES
Upon the sale, exchange or retirement of a Debenture, including as a result
of a tender upon the occurrence of a Debenture Change of Control, and, except as
discussed in the next paragraph on a Purchase Date, a holder will recognize gain
or loss equal to the difference between the sale or redemption proceeds and the
U.S. Holder's adjusted tax basis in the Debenture.
If a U.S. Holder elects to exercise its option to tender the Debentures to
the Company on a Purchase Date and the Company issues Common Stock in
satisfaction of all or part of the Purchase Price, the exchange of the
Debentures for Common Stock should qualify as a reorganization for federal
income tax purposes. If the Purchase Price is paid solely in Common Stock,
except in the case of a fractional share described below, a U.S. Holder will not
be required to recognize any gain realized and will not be permitted to
recognize any loss. If the Purchase Price is paid in a combination of Common
Stock and cash (other than cash received in lieu of a fractional share), gain
(but not loss) realized by the U.S. Holder would be recognized, but only to the
extent of the
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cash received. A U.S. Holder's initial tax basis in the Common Stock received
would be equal to such U.S. Holder's adjusted tax basis in the Debenture
tendered (except for any portion allocable to a fractional share of Common
Stock), increased by the amount of gain recognized (other than with respect to a
fractional share) and decreased by the amount of any cash received (except cash
received in lieu of fractional share). The holding period for Common Stock
received in the exchange will include the holding period of the Debenture
tendered to the Company in exchange therefor. The receipt of cash in lieu of a
fractional share of Common Stock should generally result in capital gain or
loss, measured by the difference between the amount of cash received for the
fractional share and the U.S. Holder's tax basis in the fractional share
interest.
A U.S. Holder's adjusted tax basis in a Debenture generally will equal such
U.S. Holder's initial investment in the Debenture increased by any original
issue discount the U.S. Holder has included in income and decreased by any
payments received. Except to the extent of any accrued market discount, any such
gain or loss recognized on the sale, exchange, redemption, retirement or other
disposition of a Debenture should be capital gain or loss and will generally be
long-term capital gain or loss if the Debenture is a capital asset and has been
held or deemed held for more than one year at the time of the sale or exchange.
Under current law, gain on most capital assets held by an individual for more
than 12 months is subject to tax at a maximum rate of 20%.
THE COMMON STOCK
Distributions, if any, paid on the Common Stock received on a conversion of
the Debentures, to the extent made from current or accumulated earnings and
profits of the Company, as determined for U.S. federal income tax purposes, will
be included in a U.S. Holder's income as ordinary income (subject to a possible
dividends received deduction in the case of a corporate holder). Distributions
of stock received by a holder of Common Stock generally will not be taxable,
except where the distribution of stock is in lieu of a distribution of money,
results in a distribution of common stock to some holders and preferred stock to
other holders, is a distribution of convertible preferred stock, or otherwise
has the effect of increasing the proportionate interests of some or all of the
holders of Common Stock in the assets or earnings and profits of the Company. If
there is a distribution of stock or other event that increases the proportionate
interest of the holders of Common Stock in the assets or earnings and profits of
the Company, and there is not a full adjustment to the conversion ratio of the
outstanding Debentures to reflect such dividend or other event, then such
increase in the proportionate interest of the holders of Common Stock generally
will be treated as a taxable dividend to such holders to the extent of the
Company's current or accumulated earnings and profits.
Gain or loss realized on the sale or exchange of that Common Stock will
equal the difference between the amount realized on such sale or exchange and
the U.S. Holder's adjusted tax basis in such Common Stock. Except to the extent
of any accrued market discount not previously taken into account, such gain or
loss will generally be long-term capital gain or loss if the U.S. Holder has
held or is deemed to have held the Common Stock for more than one year. Under
current law, gain on most capital assets held by an individual for more than 12
months is subject to tax at a maximum rate of 20%.
INFORMATION REPORTING AND BACKUP WITHHOLDING
A U.S. Holder of Debentures or Common Stock may be subject to "backup
withholding" at a rate of 31% with respect to certain "reportable payments,"
including interest and dividend payments. These backup withholding rules apply
if the holder (i) fails to furnish a social security number or other taxpayer
identification number ("TIN") certified under penalties of perjury within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) fails to report properly interest or dividends, or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to backup withholding. A U.S. Holder who does not provide the
Company
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with a correct TIN also may be subject to penalties imposed by the IRS. Any
amount withheld from a payment to a U.S. Holder under the backup withholding
rules is creditable against the U.S. Holder's federal income tax liability,
provided that the required information is furnished to the IRS. Backup
withholding will not apply, however, with respect to payments made to certain
holders, including corporations, tax-exempt organizations and certain foreign
persons, provided their exemptions from backup withholding are properly
established.
The Company will report to the U.S. Holders of Debentures and Common Stock
and to the IRS the amount of any "reportable payments" for each calendar year
and the amount of tax withheld, if any, with respect to such payments.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. Holder.
For purposes of the following discussion, Original Issue Discount,
dividends and gain on the sale, exchange or other disposition of a Debenture or
Common Stock will be considered to be "U.S. trade or business income" if such
income or gain is (i) effectively connected with the conduct of a U.S. trade or
business or (ii) in the case of a treaty resident, attributable to a permanent
establishment (or, in the case of an individual, a fixed base) in the United
States.
ORIGINAL ISSUE DISCOUNT
Generally any Original Issue Discount paid to a Non-U.S. Holder of a
Debenture that is not U.S. trade or business income will not be subject to U.S.
tax if (i) the Non-U.S. Holder (A) does not actually or constructively own 10%
or more of the total voting power of all voting stock of the Company and (B) is
not a "controlled foreign corporation" with respect to which the Company is a
"related person" within the meaning of the Code, and (ii) either (A) the
beneficial owner, under penalty of perjury, certifies that it is not a U.S.
person and provides its name and address on IRS Form W-8 (or a suitable
substitute form), or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business (a "financial institution") and holds the Debenture
certifies under penalties of perjury that such certificate has been received
from the beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof.
The payment of Original Issue Discount to a Non-U.S. Holder that does not
qualify for the exemption set forth above and that is not U.S. trade or business
income ("Non-Qualifying Original Issue Discount") will be subject to U.S.
federal income tax at the rate of 30%, unless a U.S. income tax treaty applies
to reduce or eliminate withholding. U.S. trade or business income will be taxed
at regular U.S. rates rather than the 30% gross rate. In the case of a Non-U.S.
Holder that is a corporation, such U.S. trade or business income may also be
subject to the branch profits tax (which is generally imposed on a foreign
corporation on the actual or deemed repatriation from the United States of
earnings and profits attributable to U.S. trade or business income) at a 30%
rate. The branch profits tax may not apply (or may apply at a reduced rate) if a
recipient is a qualified resident of certain countries with which the United
States has an income tax treaty.
To claim the benefit of a tax treaty or to claim exemption from withholding
because the income is U.S. trade or business income, the Non-U.S. Holder must
provide a properly executed Form 1001 or 4224 (or such successor forms as the
IRS designates), as applicable, prior to the payment of interest. These forms
must be periodically updated. Under regulations issued by the Treasury
Department on October 6, 1997 (the "New Regulations"), generally effective with
respect to payments made after December 31, 1999, the Forms 1001 and 4224 will
be replaced by Form W-8. Under the New Regulations, a Non-U.S. Holder who is
claiming the benefits of a treaty may be required to obtain a U.S. taxpayer
identification number, which may require providing certain documentary evidence
issued by foreign governmental authorities to prove residence in the foreign
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country. Certain special procedures are provided in the New Regulations for
payments through qualified intermediaries.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate unless such rate
is reduced by an applicable income tax treaty. Dividends that are connected with
such holder's conduct of a trade or business in the United States (U.S. trade or
business income) are generally subject to U.S. federal income tax at regular
rates, but are not generally subject to the 30% withholding tax if the Non-U.S.
Holder files the appropriate form with the payor, as discussed above. Any U.S.
trade or business income received by a Non-U.S. Holder that is a corporation may
also, under certain circumstances, be subject to an additional "branch profits
tax" at a 30% rate or such lower rate as may be applicable under an income tax
treaty. Dividends paid to an address in a foreign country generally are presumed
(absent actual knowledge to the contrary) to be paid to a resident of such
country for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. Under the New Regulations,
not generally in effect until after December 31, 1999, however, a Non-U.S.
Holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate would be required to satisfy applicable certification and other
requirements.
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income treaty may obtain a refund of any
amounts currently withheld by filing an appropriate claim for a refund with the
IRS.
CONVERSION
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on the conversion of Debentures into Common Stock. However, a Non-U.S. Holder
will be subject to U.S. federal income tax on the amounts of any (i)
Non-Qualifying Original Issue Discount that has not previously been included in
income and (ii) cash received in lieu of fractional shares, to the extent that
such Non-U.S. Holder would be subject to U.S. federal income taxation on the
sale of the Debenture under the rules described in "Sale, Exchange or Redemption
of Debentures or Common Stock" below.
SALE, EXCHANGE OR REDEMPTION OF DEBENTURES OR COMMON STOCK
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a Debenture generally will not be subject to U.S. federal income
tax, unless (i) such gain is U.S. trade or business income, (ii) subject to
certain exceptions, the Non-U.S. Holder is an individual who holds the Debenture
as a capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition, (iii) the Non-U.S. Holder is subject to tax
pursuant to the provisions of U.S. tax law applicable to certain U.S.
expatriates (including certain former citizens or residents of the United
States), or (iv) in the case of the disposition of Common Stock, the Company is
a U.S. real property holding corporation. The Company does not believe that it
is currently a "United States real property holding corporation", or that it
will become one in the future.
FEDERAL ESTATE TAX
A Debenture held (or treated as held) by an individual who is not a citizen
or resident of the United States (for federal estate tax purposes) at the time
of his or her death will not be subject to U.S. federal estate tax if the
individual did not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company and, at the time of
the individual's death, payments with respect to such Debenture would not have
been effectively connected with the conduct by such individual of a trade or
business in the United States. Common Stock owned or treated as owned by an
individual who is not a citizen or resident of the United States (for federal
99
<PAGE> 101
estate tax purposes) will be included in such individual's estate for U.S.
federal income tax purposes unless an applicable estate tax treaty otherwise
applies.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder any
dividend that is subject to withholding or is exempt from U.S. withholding tax
pursuant to a tax treaty. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S. Holder resides.
Treasury Regulations provide that backup withholding and additional
information reporting will not apply to payments of principal, including cash
payments in respect of Original Issue Discount, on the Debentures by the Company
to a Non-U.S. Holder if the holder certifies as to its Non-U.S. Holder status
under penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor its Paying Agent has actual knowledge that the holder is
a U.S. person or that the conditions of any other exemption are not, in fact,
satisfied).
The payment of the proceeds on the disposition of Debentures or Common
Stock to or through the U.S. office of any broker, U.S. or foreign, will be
subject to information reporting and possible backup withholding unless the
owner certifies as to its Non-U.S. Holder status under penalty of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a U.S. person or that the conditions of any
other exemption are not, in fact, satisfied. The payment of the proceeds from
the disposition of a Debenture to or through a non-U.S. office of a non-U.S.
broker that is not a U.S. related person will not be subject to information
reporting or backup withholding. For this purpose, a "U.S. related person" is
(i) a "controlled foreign corporation" for U.S. federal income tax purposes or
(ii) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
U.S. trade or business.
In the case of the payment of proceeds from the disposition of Debentures
or Common Stock to or through a non-U.S. office of a broker that is either a
U.S. person or a U.S. related person, information reporting is required on the
payment unless the broker has documentary evidence in the files that the owner
is a Non-U.S. Holder and the broker has no actual knowledge to the contrary.
Backup withholding will not apply to payments made through foreign offices of a
broker that is not a U.S. person or a U.S. related person (absent actual
knowledge that the payee is a U.S. person).
The New Regulations, not currently in effect, make certain modifications to
the withholding, backup withholding and information reporting rules described
above. The New Regulations generally attempt to unify certification requirements
and modify reliance standards. Prospective investors are urged to consult their
own tax advisors regarding the New Regulations.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is provided to the IRS.
THE PRECEDING DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE
TAX CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISER AS TO PARTICULAR
TAX CONSEQUENCES TO IT OF PURCHASING, HOLDING AND DISPOSING OF THE DEBENTURES
AND THE COMMON STOCK OF THE COMPANY, INCLUDING THE APPLICABILITY AND EFFECT OF
ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE
LAWS.
100
<PAGE> 102
SHARES ELIGIBLE FOR FUTURE SALE
Of the 59,744,544 shares of Common Stock outstanding as of August 3, 1998,
15,639,344 are available for resale in the public market without restriction or
further registration under the Securities Act, unless owned by an affiliate of
AMF Bowling. The remaining 44,105,200 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.
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
(597,445 shares) 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.
Since the Private Placement, certain of the Initial Purchasers have made a
market in the Debentures. Such Initial Purchasers are not obligated to do so,
however, and any market-making with respect to the Debentures may be interrupted
or discontinued at any time without notice. There can be no assurance as to the
liquidity of any trading market of the Debentures, if any develops, or that an
active public market for the Debentures will develop or, if one does develop,
that it will be maintained. If an active market for the Debentures fails to
develop or be sustained, the trading price of the Debentures could be adversely
affected. No prediction can be made as to the effect, if any, that future sales
of shares of Common Stock that are restricted securities or the availability of
such shares for future sale will have on the market price of the Debentures or
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 Debentures and
the Common Stock issuable upon conversion or repurchase thereof and could impair
AMF Bowling's future ability to raise capital through an offering of securities.
AMF Bowling has filed registration statements on Form S-8 to register (i)
1,767,151 shares of Common Stock reserved for issuance or sale under the 1996
Plan and (ii) 2,000,000 shares of Common Stock reserved for issuance or sale
under the 1998 Plan.
101
<PAGE> 103
SELLING SECURITYHOLDERS
The Selling Securityholders may from time to time offer and sell pursuant
to this Prospectus (or an amendment or supplement thereto) any or all of the
Debentures and the Common Stock issued upon conversion, redemption or repurchase
thereof. The term Selling Securityholder includes the holders listed below and
the beneficial owners of the Debentures and their respective transferees,
pledgees, donees or their successors.
Each of the Selling Securityholders listed below is either an Initial
Purchaser or a transferee of an Initial Purchaser and has agreed to be bound by
the terms applicable to the transferor under the Debenture Registration Rights
Agreement. Pursuant to the Debenture Registration Rights Agreement, the Company
has filed the Registration Statement of which this Prospectus forms a part and
has also agreed to bear certain expenses related thereto and to indemnify each
Selling Securityholder against certain liabilities, including certain
liabilities arising under the federal securities laws. See "Plan of
Distribution".
The Company has filed with the Commission the Registration Statement of
which this Prospectus forms a part with respect to the sale by the Selling
Securityholders of the Securities from time to time through the facilities of
any national securities exchange or U.S. inter-dealer quotation system of a
registered national securities association on which the Securities may be listed
or quoted at the time of such sale, in the over-the-counter market, in
transactions otherwise than on such exchanges or systems or in the
over-the-counter market, or through the writing of options, in privately
negotiated transactions or otherwise, as more fully described under "Plan of
Distribution".
The table below sets forth information with respect to the Selling
Securityholders and the respective principal amounts of the Debentures and
Common Stock into which such Debentures are convertible beneficially owned by
each Selling Securityholder as of , 1998. Such information has been
obtained from the Selling Securityholders. To the Company's knowledge, none of
the Selling Securityholders has, or within the past three years has had, any
position, office or other material relationship with the Company (or its
predecessors) or any of its affiliates. Although the Selling Securityholders may
offer for sale from time to time all or a portion of the Securities pursuant to
this Prospectus (or an amendment or supplement thereto), the table below assumes
that all of the Securities will be offered and sold by the Selling
Securityholders. In addition, the Selling Securityholders identified below may
have sold, transferred or otherwise disposed of all or a portion of their
Securities since the date on which they provided the Company with information
regarding their Securities in transactions exempt from the registration
requirements of the Securities Act. Information concerning Selling
Securityholders may change from time to time and, to the extent required, will
be set forth in supplements or amendments to this Prospectus. The Securities are
102
<PAGE> 104
being registered hereby to permit secondary trading of the Securities without
restriction under the Securities Act. See "Plan of Distribution".
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP AT ,
1998(1) SHARES OF PRINCIPAL AMOUNT
----------------------------------- COMMON STOCK AT MATURITY
PRINCIPAL AMOUNT COVERED BY OF DEBENTURES
AT MATURITY PERCENTAGE OF THIS COVERED BY THIS
SELLING SECURITYHOLDERS OF DEBENTURES DEBENTURES PROSPECTUS(2) PROSPECTUS
----------------------- ------------------ ------------- ------------- -----------------
<S> <C> <C> <C> <C>
$ * $
Unnamed holders of
Securities or any future
transferees, pledgees,
donees or successors of
or from such unnamed
holders..................
-------------- --- --------- --------------
Total...................... $1,125,000,000 100% 9,757,575 $1,125,000,000
</TABLE>
- ---------------
* Less than one percent.
(1) The information contained in this table reflects "beneficial" ownership of
the Debentures within the meaning of Rule 13d-3 under the Exchange Act. With
respect to all holders listed in the table above, the Company has not
conducted any independent inquiry or investigation to ascertain such
information and has relied exclusively on written questionnaires furnished
to the Company by the Selling Securityholders for the express purpose of
including the information set forth therein in this Prospectus.
(2) Includes shares of Common Stock issuable upon conversion, redemption or
repurchase of the Debentures only. Represents the number of shares of Common
Stock into which the Debentures listed for such Selling Securityholder in
this table are convertible as of the date of this Prospectus.
The Conversion Rate and, therefore, the number of shares of Common Stock
issuable upon conversion, redemption or repurchase of the Debentures is subject
to adjustment in certain events. Accordingly, the number of shares of Common
Stock issuable upon conversion, redemption or repurchase of the Debentures may
increase or decrease. In addition, the Selling Securityholders identified above
may have sold, transferred or otherwise disposed of all or a portion of their
Debentures since the date on which they provided the information regarding their
Debentures, in transactions exempt from the registration requirements of the
Securities Act.
Because the Selling Securityholders may, pursuant to this Prospectus (or an
amendment or supplement hereto), offer all or some portion of the Debentures or
Common Stock issuable upon conversion, redemption or repurchase of the
Debentures, no estimate can be given as to the amount of the Debentures or
shares of Common Stock that will be held by the Selling Securityholders upon
termination of any such sales.
103
<PAGE> 105
PLAN OF DISTRIBUTION
The Common Stock is listed on the NYSE under the symbol "PIN". The Common
Stock issuable upon conversion, redemption or repurchase of the Debentures will
be listed, upon notice of issuance, on the NYSE. The Debentures are designated
for trading in PORTAL and certain of the Initial Purchasers currently make a
market in the Debentures. The Company has not applied and does not intend to
apply for listing of the Debentures on any securities exchange or for inclusion
of the Debentures on any automated inter-dealer quotation system. The Selling
Securityholders have advised the Company that the Securities may be sold from
time to time directly by the Selling Securityholders or, alternatively, through
underwriters, broker-dealers or agents, in one or more transactions (which may
involve crosses or block transactions) effected (i) on any national securities
exchanges or U.S. inter-dealer quotation system of a registered national
securities association on which any of the Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
other than on such exchanges or systems or in the over-the-counter market, or
(iv) through the writing of options, in each case, at fixed prices, at
prevailing market prices at the time of sale, at varying prices determined at
the time of sale, or at negotiated prices. The Securities may also be sold in a
single underwritten public offering if the holders of at least 33 1/3% in
aggregate principal amount at maturity of the Securities so elect. See
"Description of Debentures -- Registration Rights". The Selling Securityholders
have advised the Company that in connection with sales of the Securities or
otherwise, the Selling Securityholders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the Securities in the
course of hedging the positions they assume, and that the Selling
Securityholders may sell the Securities short and deliver Securities to close
out such short positions, or loan or pledge Securities to broker-dealers that in
turn may sell such Securities. At the time a particular offer is made, a
supplement to this Prospectus, if required, will be distributed that sets forth
the name or names of agents or broker-dealers, any commissions, discounts,
concessions or allowances and other terms constituting selling compensation and
any other required information. Moreover, in effecting sales, broker-dealers
engaged by any Selling Securityholder and/or the purchasers of the Securities
may arrange for other broker-dealers to participate in the sale process.
Broker-dealers will receive discounts, concessions, allowances or commissions
from the Selling Securityholders and/or the purchasers of the Securities in
amounts which will be negotiated prior to the time of sale. Sales will be made
only through broker-dealers registered as such in a subject jurisdiction or in
transactions exempt from such registration. The Company has not been advised of
any definitive selling arrangement at the date hereof between any Selling
Securityholder and any broker-dealer or agent.
Any broker-dealer participating in any distribution of Securities in
connection with the offering made hereby may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act and may be required to
deliver a copy of this Prospectus, including a Prospectus Supplement, to any
person who purchases any of the Securities from or through such broker-dealer.
The Company has agreed to pay certain expenses incident to the filing of
the Registration Statement and the maintenance of its effectiveness for resales,
from time to time, of the Securities. The Selling Securityholders will be
indemnified by the Company against certain liabilities, including certain
liabilities under the Securities Act, or, to the extent such indemnification is
unavailable or otherwise limited, will be entitled to contribution in connection
therewith. The Company will not receive any of the proceeds from the sale of the
Securities by the Selling Securityholders.
Upon sale pursuant to the Registration Statement, the Securities will be
transferrable, other than by affiliates of the Company, without restrictions
under the Securities Act.
104
<PAGE> 106
VALIDITY OF DEBENTURES AND COMMON STOCK
The validity of the Debentures and the Common Stock issuable upon the
conversion, redemption or repurchase of the Debentures is being passed upon for
the Company by McGuire, Woods, Battle & Boothe LLP, Richmond, Virginia and
Wachtell, Lipton, Rosen & Katz, New York, New York.
EXPERTS
The consolidated balance sheets of AMF Bowling and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year ended December 31, 1997 and
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 the year ended December 31, 1995, included in this Prospectus, have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
AMF Bowling has agreed to indemnify PricewaterhouseCoopers LLP for the
payment of all legal costs and expenses incurred in PricewaterhouseCoopers LLP's
successful defense of any legal action or proceeding that arises as a result of
inclusion of PricewaterhouseCoopers LLP's audit reports on the combined
financial statements of AMF Bowling Group included 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 & Sheiffer,
independent auditors, as stated in their report 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.
105
<PAGE> 107
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMF BOWLING, INC. AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-3
Consolidated Statements of Income for the Year Ended
December 31, 1997, and the Period Ended December 31,
1996...................................................... F-4
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1997, and the Period Ended December 31,
1996...................................................... F-5
Consolidated Statements of Stockholders' Equity for the
Year Ended December 31, 1997, and 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,
1998...................................................... F-38
Condensed Consolidated Statements of Income for the Six
Months Ended June 30, 1998 and 1997....................... F-39
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997................... F-40
Notes to Condensed Consolidated Financial Statements...... F-41
AMF BOWLING GROUP (PREDECESSOR COMPANY)
Report of Independent Accountants......................... F-50
Combined Balance Sheets as of April 30, 1996, and December
31, 1995.................................................. F-51
Combined Statements of Operations for the Four Months
Ended April 30, 1996, and the Year Ended December 31,
1995...................................................... F-52
Combined Statements of Cash Flows for the Four Months
Ended April 30, 1996, and the Year Ended December 31,
1995...................................................... F-53
Combined Statements of Changes in Stockholders' Equity for
the Four Months Ended April 30, 1996, and the Year Ended
December 31, 1995......................................... F-54
Notes to Combined Financial Statements.................... F-55
SELECTED QUARTERLY DATA (UNAUDITED)......................... F-86
BCA & AFFILIATES
Report of Independent Auditors............................ F-87
Balance Sheet as of August 31, 1996....................... F-88
Statement of Income for the Year Ended August 31, 1996.... F-89
Statement of Cash Flows for the Year Ended August 31,
1996................................................... F-90
Notes to Financial Statements............................. F-91
</TABLE>
F-1
<PAGE> 108
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of AMF Bowling, Inc.:
We have audited the accompanying consolidated balance sheets of AMF
Bowling, Inc. (a Delaware corporation, formerly named AMF Holdings Inc.) and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year ended
December 31, 1997, and 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 audits.
We conducted our audits 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 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 AMF Bowling, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the year ended December 31, 1997, and the
period from inception (January 12, 1996) through December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia
February 20, 1998
F-2
<PAGE> 109
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 35,790 $ 43,568
Accounts and notes receivable, net of allowance for
doubtful accounts of $5,012 and $4,492, respectively... 73,991 42,625
Inventories............................................... 56,568 41,001
Deferred taxes and other.................................. 17,049 11,178
---------- ----------
TOTAL CURRENT ASSETS.............................. 183,398 138,372
Property and equipment, net................................. 750,885 579,308
Leasehold interests, net.................................... 47,180 51,488
Deferred financing costs, net............................... 18,911 40,595
Goodwill, net............................................... 772,348 771,146
Investments in and advances to joint ventures............... 19,999 --
Other assets................................................ 39,331 13,101
---------- ----------
TOTAL ASSETS...................................... $1,832,052 $1,594,010
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 41,583 $ 31,563
Accrued expenses.......................................... 64,865 54,357
Income taxes payable...................................... 5,644 2,276
Long-term debt, current portion........................... 27,376 42,376
---------- ----------
TOTAL CURRENT LIABILITIES......................... 139,468 130,572
Long-term debt, less current portion........................ 1,033,223 1,048,877
Other long-term liabilities................................. 5,333 1,851
Deferred income taxes....................................... -- 3,895
---------- ----------
TOTAL LIABILITIES................................. 1,178,024 1,185,195
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock (par value $.01 per share, 200,000,000 shares
authorized, 59,630,000 issued and outstanding at
December 31, 1997, 42,375,000 issued and outstanding at
December 31, 1996)..................................... 596 424
Paid-in capital........................................... 748,053 429,026
Retained deficit.......................................... (75,048) (19,484)
Equity adjustment from foreign currency translation....... (19,573) (1,151)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY........................ 654,028 408,815
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,832,052 $1,594,010
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 110
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996(A)
------------ ------------
<S> <C> <C>
Operating revenue........................................... $713,668 $384,809
-------- --------
OPERATING EXPENSES:
Cost of goods sold........................................ 212,544 130,542
Bowling center operating expenses......................... 251,206 123,673
Selling, general, and administrative expenses............. 64,546 35,070
Depreciation and amortization............................. 102,447 49,386
-------- --------
Total operating expenses.......................... 630,743 338,671
-------- --------
Operating income.................................. 82,925 46,138
-------- --------
NONOPERATING EXPENSES (INCOME):
Interest expense.......................................... 118,385 77,990
Other expenses, net....................................... 10,106 1,912
Interest income........................................... (1,954) (5,748)
-------- --------
Total nonoperating expenses....................... 126,537 74,154
-------- --------
Loss before income taxes.................................. (43,612) (28,016)
Benefit for income taxes.................................. (12,776) (8,532)
-------- --------
Net loss before equity in loss of joint ventures and
extraordinary items.................................... (30,836) (19,484)
Equity in loss of joint ventures.......................... (1,362) --
-------- --------
Net loss before extraordinary items....................... (32,198) (19,484)
Extraordinary items, net of tax of $12,778................ (23,366) --
-------- --------
Net loss.................................................. $(55,564) $(19,484)
======== ========
NET LOSS PER SHARE, BASIC AND DILUTED:
Net loss per share before extraordinary items............. $ (0.71) $ (0.49)
Per share effect of extraordinary items................... (0.52) --
-------- --------
Net loss per share........................................ $ (1.23) $ (0.49)
======== ========
Weighted average shares outstanding....................... 45,249 39,713
======== ========
</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.
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 111
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996(A)
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (55,564) $ (19,484)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 102,447 49,386
Equity in loss of joint ventures....................... 1,362 --
Extraordinary items, net of tax........................ 23,366 --
Deferred income taxes.................................. (20,221) (14,040)
Amortization of bond discount.......................... 33,562 24,731
Loss on the sale of property and equipment, net........ 4,446 408
Changes in assets and liabilities:
Accounts and notes receivable, net................... (26,093) (6,504)
Inventories.......................................... (16,971) 1,862
Other assets......................................... (12,897) (4,010)
Accounts payable and accrued expenses................ 17,782 21,930
Income taxes payable................................. 602 417
Other long-term liabilities.......................... (4,089) 19,135
--------- -----------
Net cash provided by operating activities......... 47,732 73,831
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of operating units, net of cash acquired..... (214,761) (1,450,928)
Investments in and advances to joint ventures............. (21,361) --
Purchases of property and equipment....................... (56,703) (16,941)
Proceeds from the sale of property and equipment.......... 4,180 754
--------- -----------
Net cash used in investing activities............. (288,645) (1,467,115)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt, net of deferred financing
costs.................................................. 240,406 1,059,277
Payments on long-term debt................................ (304,621) (38,875)
Prepayment penalty........................................ (14,571) --
Capital contributions..................................... 36,600 420,750
Net proceeds from initial public offering of shares....... 279,071 --
Repurchase of shares...................................... (500) --
Noncompete obligations.................................... (647) (2,892)
--------- -----------
Net cash provided by financing activities......... 235,738 1,438,260
--------- -----------
Effect of exchange rates on cash.......................... (2,603) (1,408)
--------- -----------
NET (DECREASE) INCREASE IN CASH............................. (7,778) 43,568
Cash and cash equivalents at beginning of period............ 43,568 --
--------- -----------
Cash and cash equivalents at end of period.................. $ 35,790 $ 43,568
========= ===========
</TABLE>
- ---------------
(a) For the period from the inception date of January 12, 1996, through December
31, 1996, which includes the cash flows of the acquired business from May 1,
1996 through December 31, 1996.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 112
AMF BOWLING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
COMMON FROM FOREIGN TOTAL
SHARES PAID-IN RETAINED CURRENCY STOCKHOLDERS'
OUTSTANDING COMMON STOCK CAPITAL DEFICIT TRANSLATION EQUITY
----------- ------------ -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 12, 1996........... -- $ -- $ -- $ -- $ -- $ --
Initial capitalization............. 38,375,000 384 389,066 -- -- 389,450
Capital contribution by
stockholders..................... 4,000,000 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.......... 42,375,000 424 429,026 (19,484) (1,151) 408,815
----------- ---- -------- -------- -------- --------
Capital contribution by
stockholders..................... 1,780,000 18 35,582 -- -- 35,600
Issuance of stock and stock options
(Note 14)........................ 100,000 1 5,027 -- -- 5,028
Initial public offering of common
stock............................ 15,525,000 155 278,916 -- -- 279,071
Repurchase of common stock......... (150,000) (2) (498) -- -- (500)
Net loss........................... -- -- -- (55,564) -- (55,564)
Equity adjustment from foreign
currency translation............. -- -- -- -- (18,422) (18,422)
----------- ---- -------- -------- -------- --------
BALANCE DECEMBER 31, 1997.......... 59,630,000 $596 $748,053 $(75,048) $(19,573) $654,028
=========== ==== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 113
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 370 U.S. bowling centers and 100 international
bowling centers ("Bowling Centers"), including fourteen joint venture centers
described in "Note 16. Joint Ventures", as of December 31, 1997, and (ii) the
manufacture and sale 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. The principal 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 price 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 The Goldman Sachs
Group, L.P., an affiliate of Goldman Sachs. See "Note 9. Long-Term Debt". See
also "Note 14. Supplemental Disclosures to the Consolidated Statements 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 year ended December 31, 1997, reflect the
results of the Company from January 1, 1997 ("1997"). 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,
F-7
<PAGE> 114
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the subsidiaries acquired as of May 1, 1996, from the Predecessor Company
("1996"). All significant intercompany balances and transactions have been
eliminated in the accompanying consolidated financial statements. Certain
amounts in the prior year's financial statements have been reclassified to
conform to the current year presentation. All dollar amounts are in thousands,
except where otherwise indicated.
Joint Ventures
Investments in joint ventures are accounted for under the equity method.
These investments are managed as part of the Company's Bowling Centers segment
operations, and the Company's share of joint venture earnings is included in
earnings for the Bowling Centers segment. (See "Note 16. Joint Ventures".)
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 dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. 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 Bowling Products' 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 a
significant portion of 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 also offers
customers the option to purchase extended warranties on certain products.
Warranty expense aggregated $3,007 for 1997 and $4,471 for 1996, and is included
in cost of goods sold in the accompanying consolidated statements 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.
F-8
<PAGE> 115
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 equipment, 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 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 subsequent purchases of bowling centers
discussed in "Note 15. Acquisitions", and in accordance with the purchase method
of accounting used for all acquisitions, 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 $19,827 in 1997 and $13,070 in 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. Amounts charged against income were approximately $922 in 1997 and
$1,312 in 1996, and are included in cost of goods sold in the accompanying
consolidated statements of income.
F-9
<PAGE> 116
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising Costs
Costs incurred for producing and communicating advertising are expensed
when incurred. The amounts charged against income were approximately $21,642 in
1997 and $9,299 in 1996, with $12,768 and $5,932, respectively, included in
bowling center operating expenses for Bowling Centers, and $8,856 and $3,367,
respectively, included in selling, general and administrative expenses for
Bowling Products and Corporate in the accompanying consolidated statements of
income.
Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128 "Earnings per Share" which requires the calculation and
presentation of basic and diluted earnings per share. Basic and diluted net loss
per share for 1997 and 1996 is calculated based on the actual weighted average
shares outstanding. Outstanding stock options and warrants are not considered as
their effect is antidilutive. See "Note 12. Stockholders' Equity" and "Note 13.
Employee Benefit Plans".
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,
except those of Mexico which has a highly inflationary economy. 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 sheets. Revenue
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. Net
losses from transactions in foreign currencies of $3,537 for 1997 and $488 for
1996 are included in other expenses in the accompanying consolidated statements
of income.
Fair Value of Financial Instruments
The carrying value of financial instruments including cash and cash
equivalents and short-term debt approximate fair value at December 31, 1997 and
1996, because of the short maturity of these instruments. At December 31, 1997
and 1996, fair value of the interest rate cap agreements (to reduce the interest
rate risk of the Company's floating rate debt) was approximately zero and $577,
respectively. The interest rate cap agreements are valued using the estimated
amount that the Company would receive to terminate the cap agreements as of
December 31, 1997 and 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 agreements. The fair value
of the Term Facilities under the Senior Debt, as defined in "Note 9. Long-Term
Debt," at December 31, 1997 and 1996, was approximately $467,361 and $623,520,
respectively, based on the fair 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, 1997 and 1996, was approximately $493,551 and $560,315,
respectively, based on the trading value at December 31, 1997 and 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 sheets and are amortized on a
F-10
<PAGE> 117
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
straight-line basis over the terms of the agreements. Noncompete obligations at
December 31, 1997 and 1996, net of accumulated amortization, totaled
approximately $3,171 and $2,498, respectively.
Annual maturities on noncompete obligations as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998........................................................ $1,019
1999........................................................ 512
2000........................................................ 243
2001........................................................ 228
2002........................................................ 185
Thereafter.................................................. 984
------
$3,171
======
</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, 1997 and 1996, which is included in accrued expenses in the
accompanying consolidated balance sheets.
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 operations for the four-month period ending April 30,
1996, reported elsewhere in this report, 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 report 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> 118
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PREDECESSOR AMF
AMF COMPANY BOWLING, INC.
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 (income):
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 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> 119
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA RESULTS OF OPERATIONS (IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
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 (income):
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 cancelled.
(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> 120
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INVENTORIES
Inventories at December 31, 1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Bowling Products, at FIFO:
Raw materials................................ $15,283 $11,683
Work in progress............................. 2,279 2,335
Finished goods and spare parts............... 33,082 23,195
Bowling Centers, at average cost:
Merchandise inventory........................ 5,924 3,788
------- -------
$56,568 $41,001
======= =======
</TABLE>
NOTE 5. DEFERRED TAXES AND OTHER CURRENT ASSETS
The components of deferred taxes and other current assets at December 31,
1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred income taxes.......................... $ 5,547 $ 4,847
Advances or deposits........................... 3,288 2,018
Other.......................................... 8,214 4,313
------- -------
$17,049 $11,178
======= =======
</TABLE>
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment, net at December 31, 1997 and 1996, consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Land......................................... $113,629 $ 90,512
Buildings and improvements................... 280,046 210,298
Equipment, furniture, and fixtures........... 444,437 304,067
Other........................................ 7,282 2,631
-------- --------
845,394 607,508
Less: accumulated depreciation and
amortization............................... (94,509) (28,200)
-------- --------
$750,885 $579,308
======== ========
</TABLE>
Depreciation and amortization expense related to property and equipment was
$64,480 for 1997 and $28,200 for 1996.
NOTE 7. OTHER LONG-TERM ASSETS
Other long-term assets are primarily composed of deferred income taxes,
long-term rent deposits, long-term portion of noncompete assets, and notes
receivable.
F-14
<PAGE> 121
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accrued compensation........................... $ 9,523 $ 9,141
Accrued interest............................... 8,253 8,640
League bowling accounts........................ 14,237 7,676
Accrued installation costs..................... 4,868 4,451
Other.......................................... 27,984 24,449
------- -------
$64,865 $54,357
======= =======
</TABLE>
NOTE 9. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Bank debt................................. $ 619,362 $ 564,625
Senior subordinated notes................. 250,000 250,000
Senior subordinated discount notes........ 189,261 274,663
Mortgage and equipment note............... 1,976 1,965
---------- ----------
Total debt...................... 1,060,599 1,091,253
Current maturities........................ (27,376) (42,376)
---------- ----------
Total long-term debt............ $1,033,223 $1,048,877
========== ==========
</TABLE>
Bank Debt
The bank debt (the "Senior Debt") was incurred pursuant to a credit
agreement dated as of May 1, 1996, and amended and restated as of November 3,
1997 (the "Credit Agreement"), between Bowling Worldwide and its lenders. The
Credit Agreement provides for (i) senior secured term loan facilities
aggregating $455.3 million (the "Term Facilities") and (ii) a senior secured
revolving credit facility of up to $355.0 million (the "Bank Facility", and
together with the Term Facilities, the "Senior Facilities").
The Term Facilities consist of the following three tranches: (i) a Term
Loan Facility of $130.0 million, (ii) an Amortization Extended Loans
("AXELs(SM)") Series A Facility of $187.5 million, and (iii) an AXELs(SM) Series
B Facility of $137.8 million. Maturity dates of the three tranches and scheduled
amortization payments are included in tables below.
The Term Facilities bear interest, at the Company's option, at Citibank's
customary base rate or at Citibank's Eurodollar rate, in each case, plus a
margin that varies in accordance with a performance pricing grid that is based
on the ratio of total debt to EBITDA (defined as earnings before net interest
expense, income taxes, depreciation and amortization, and other income and
expenses) for the rolling period (defined as the four most recent quarters) then
most recently ended. Until November 7, 1998, the margin applicable to advances
under the Term Loan Facility bearing interest based on Citibank's customary base
rate will range from 0.75% to 0.875%, and the margin applicable to advances
under the Term Loan Facility bearing interest based on Citibank's Eurodollar
rate will range from 1.75% to 1.875%. Thereafter, the margin applicable to
advances under the Term Loan Facility bearing interest based on Citibank's
customary base rate will range from 0.00% to 0.875% and the margin applicable to
advances under the Term Loan Facility bearing interest based on Citibank's
Eurodollar rate will range from 0.75% to 1.875%. At December 31, 1997, the
applicable margin for advances under the Term Loan Facility bearing interest
based on
F-15
<PAGE> 122
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Citibank's customary base rate was 0.75% and the applicable margin for advances
under the Term Loan Facility bearing interest based on Citibank's Eurodollar
rate was 1.75%. At December 31, 1997, the interest rate for advances under the
Term Loan Facility was 7.6875%.
Until November 7, 1998, the margin applicable to advances under the
AXELs(SM) Series A Facility bearing interest based on Citibank's customary base
rate will range from 1.00% to 1.125% and the margin applicable to advances under
the AXELs(SM) Series A Facility bearing interest based on Citibank's Eurodollar
rate will range from 2.00% to 2.125%. Thereafter, the margin applicable to
advances under the AXELs(SM) Series A Facility bearing interest based on
Citibank's customary base rate will range from 0.875% to 1.125% and the margin
applicable to advances under the AXELs(SM) Series A Facility bearing interest
based on Citibank's Eurodollar rate will range from 1.875% to 2.125%. At
December 31, 1997, the applicable margin for advances under the AXELs(SM) Series
A Facility bearing interest based on Citibank's customary base rate was 1.00%
and the applicable margin for advances under the AXELs(SM) Series A Facility
bearing interest based on Citibank's Eurodollar rate was 2.00%. At December 31,
1997, the interest rate for advances under the AXELs(SM) Series A Facility was
7.9375%.
Until November 7, 1998, the margin applicable to advances under the
AXELs(SM) Series B Facility bearing interest based on Citibank's customary base
rate will range from 1.25% to 1.375% and the margin applicable to advances under
the AXELs(SM) Series B Facility bearing interest based on Citibank's Eurodollar
rate will range from 2.25% to 2.375%. Thereafter, the margin applicable to
advances under the AXELs(SM) Series B Facility bearing interest based on
Citibank's customary base rate will range from 1.125% to 1.375% and the margin
applicable to advances under the AXELs(SM) Series B Facility bearing interest
based on Citibank's Eurodollar rate will range from 2.125% to 2.375%. At
December 31, 1997, the applicable margin for advances under the AXELs(SM) Series
B Facility bearing interest based on Citibank's customary base rate was 1.25%
and the applicable margin for advances under the AXELs(SM) Series B Facility
bearing interest based on Citibank's Eurodollar rate was 2.25%. At December 31,
1997, the interest rate for advances under the AXELs(SM) Series B Facility was
8.1875%
The Bank Facility has an aggregate amount available of $355.0 million, and
will mature on March 31, 2002. The Bank Facility is fully revolving until its
final maturity and bears interest, at the Company'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 ratios of total debt to EBITDA (defined above). Until November 7, 1998,
the margin applicable to advances under the Bank Facility bearing interest based
on Citibank's customary base rate will range from 0.75% to 0.875% and the margin
applicable to advances under the Bank Facility bearing interest based on
Citibank's Eurodollar rate will range from 1.75% to 1.875%. Thereafter, the
margin applicable to advances under the Bank Facility bearing interest based on
Citibank's customary base rate will range from 0.00% to 0.875% and the margin
applicable to advances under the Bank Facility bearing interest based on
Citibank's Eurodollar rate will range from 0.75% to 1.875%. At December 31,
1997, the applicable margin for advances under the Bank Facility bearing
interest based on Citibank's customary base rate was 0.75% and the applicable
margin for advances under the Bank Facility bearing interest based on Citibank's
Eurodollar rate was 1.75%. At December 31, 1997, the interest rate for advances
under the Bank Facility was 7.6875%.
The 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 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
F-16
<PAGE> 123
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
things, the declaration or payment of dividends, distributions of assets, amount
of debt and issuance or sale of capital stock.
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 of
approximately $0.15 million in May 1997 and, to the extent necessary, to make
payments of approximately $0.15 million due in May 1998 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, 1997, Bowling Worldwide was in compliance with all of
its covenants.
The lenders (the "Senior Lenders") of the Senior Debt are secured by
collateral described in the Senior Debt security agreement, intellectual
property security agreement, mortgages and any other agreements with the Senior
Lenders that create a lien in favor of the Senior Lenders. The collateral
includes, but is not limited to stock in subsidiaries of AMF Bowling Worldwide,
cash and cash equivalents, equipment, inventory, investments, intellectual
property and mortgages.
Mortgage and Equipment Note
At December 31, 1997 and 1996, a mortgage and equipment note relating 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.
Prior to December 15, 1997, the senior subordinated discount notes had a
fully-accreted value of $452.0 million based on a maturity date of March 15,
2006. On December 15, 1997, the Company redeemed $118.9 million in principal
which represented a fully-accreted value of $175.0 million using a portion of
the proceeds received from an initial public offering of AMF Bowling common
stock. See "Note 12. Stockholders' Equity". The remaining balance of senior
subordinated discount notes will mature on March 15, 2006, at a fully-accreted
value of $277.0 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 is 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 21. Condensed
Consolidating Financial Statements" (collectively, the "Guarantors").
The guarantees of the Notes are subordinated to the guarantees of the
Senior Debt and the mortgage and equipment note outstanding at December 31,
1997, referred to above. 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 21. Condensed Consolidating Financial Statements."
F-17
<PAGE> 124
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1997, Bowling Worldwide was 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, 1997, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------
<S> <C>
1998.................................................... $ 27,376
1999.................................................... 32,376
2000.................................................... 34,251
2001.................................................... 83,001
2002.................................................... 279,110
Thereafter.............................................. 692,246
----------
$1,148,360
==========
</TABLE>
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 $300.0 million at December
31, 1997. Under the terms of this agreement, Bowling Worldwide receives payment
if the three-month LIBOR rises above 5.75% through April 1997, above 6.50% from
May 1997 through April 1998 and above 7.5% from May 1998 through October 1998.
No amounts were received under this agreement during 1996 or 1997. During 1997,
Bowling Worldwide entered into a second interest rate cap agreement with Goldman
Sachs Capital Markets, L.P. to further reduce the interest rate risk of its
Senior Debt. The notional amount of this cap was $100.0 million at December 31,
1997. Under the terms of this agreement, Bowling Worldwide receives payment if
the three-month LIBOR rises above 7.00% from July 7, 1997 through March 31,
1998. No amounts were received under this agreement during 1997.
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.
F-18
<PAGE> 125
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Average amounts outstanding and average borrowing rates for 1997 were as
follows:
<TABLE>
<CAPTION>
OUTSTANDING AT AVERAGE AVERAGE
DECEMBER 31, AMOUNTS BORROWING
DESCRIPTION MATURITY DATES 1997 OUTSTANDING RATES
----------- --------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Term Loan Facility................ March 31, 2002 $122,500 $205,587 8.27%
AXELs(SM) A Facility.............. March 31, 2003 186,750 190,085 8.56
AXELs(SM) B Facility.............. March 31, 2004 137,000 138,314 8.73
Bank Facility..................... March 31, 2002 173,112 32,669 8.75
Mortgage and Equipment Notes...... October 1, 2013 1,976 1,970 9.18
</TABLE>
Prior to the Credit Agreement, the Company had borrowings under an
acquisition facility (the "Acquisition Facility") which was included in the
Senior Debt. Average amounts outstanding under the Acquisition Facility between
January 1, 1997 and November 7, 1997 were $77,197, at an average borrowing rate
of 8.72%.
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, which were incurred to obtain bank
financing for the Acquisition, have been amortized over eight years and were
entirely written off in the fourth quarter of 1997 in connection with the Credit
Agreement. Bank financing costs associated with the Credit Agreement are
amortized using the effective interest rate method over approximately 6.5 years.
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 $4,856 in
1997 and $3,252 in 1996. Interest expense for interest rate cap agreements was
$1,823 in 1997 and $304 in 1996.
Extraordinary Charges
The Company recorded after-tax extraordinary charges totaling $23,366 in
the fourth quarter of 1997 as a result of entering into the Credit Agreement,
the premium paid to redeem a portion of the senior subordinated discount notes
and the write-off of the portion of bond financing costs attributable to the
senior subordinated discount notes redeemed.
Other
The Company is highly leveraged as a result of 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, 1997 and 1996, consists
of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
U.S. ........................................ $(55,695) $(28,427)
International................................ 12,083 411
-------- --------
$(43,612) $(28,016)
======== ========
</TABLE>
F-19
<PAGE> 126
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provision (benefit) at December 31, 1997 and 1996, consists
of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CURRENT INCOME TAX EXPENSE
U.S. Federal................................. $ -- $ --
State and local.............................. -- --
International................................ 6,965 5,508
-------- --------
Total current provision............ 6,965 5,508
DEFERRED TAX BENEFIT
U.S. Federal................................. (18,039) (12,274)
State and local.............................. (1,702) (1,766)
International................................ -- --
-------- --------
Total deferred benefit............. (19,741) (14,040)
-------- --------
Total benefit...................... $(12,776) $ (8,532)
======== ========
</TABLE>
The tax effects of temporary differences and carryforwards which give rise
to deferred tax assets and liabilities at December 31, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
DEFERRED INCOME TAX ASSETS
Current assets
Reserves not deductible for tax purposes............. $ 5,547 $ 4,847
------- -------
Noncurrent assets
Net operating losses................................. 38,460 8,225
Foreign tax credits.................................. 12,417 5,452
Interest expense on high-yield debt.................. 12,266 8,533
Financing costs...................................... 7,549 --
Translation effects.................................. 1,069 --
Other................................................ 104 --
------- -------
Total noncurrent deferred tax assets................... 71,865 22,210
------- -------
Total deferred tax assets.............................. 77,412 27,057
------- -------
DEFERRED INCOME TAX LIABILITIES
Goodwill amortization................................ 14,670 5,840
Depreciation on property and equipment............... 41,569 20,265
------- -------
Total noncurrent deferred tax liabilities.............. 56,239 26,105
------- -------
Net deferred tax assets................................ $21,173 $ 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 IRC. The effect of this election is the revaluation of the assets and
liabilities 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 $110,007. The NOLs may be carried forward for fifteen
years until expiration. Foreign tax credits eligible for carry forward total
$12,417, and expire in five years. The Company had no valuation allowance
related to income tax assets as of December 31, 1997 and 1996, and there was
F-20
<PAGE> 127
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
no change in the valuation allowance during 1997. Management believes that it is
more likely than not that the tax benefits will be realized.
The provision for income taxes differs from the amount computed by applying
the statutory rate of 35 percent for 1997 and 1996 to loss before taxes. The
principal reasons for these differences are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
U.S. Federal, at statutory rate....................... $(15,264) $(9,806)
Increase resulting from:
Meals and entertainment............................. 275 159
Goodwill relating to acquisition of international
bowling centers.................................. 1,658 1,093
Disallowance of certain high yield debt............. 260 192
Other, net.......................................... 295 (170)
-------- -------
Total................................................. $(12,776) $(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 2012. 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 $1,200 in 1997 and $912 in 1996. Total rent
expense under operating leases aggregated approximately $24,117 in 1997 and
$13,737 in 1996.
Future minimum rental payments under the operating lease agreements as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998..................................................... $ 23,845
1999..................................................... 19,960
2000..................................................... 17,350
2001..................................................... 14,904
2002..................................................... 12,857
Thereafter............................................... 82,721
--------
$171,637
========
</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 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-21
<PAGE> 128
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. STOCKHOLDERS' EQUITY
Stockholders Agreement
On April 30, 1996, AMF Bowling and the institutional 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 in order 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 (this
right described in this clause (c) terminated pursuant to the terms of the
Stockholders Agreement upon the consummation of the Initial Public Offering (as
hereinafter defined)); and (d) guidance in the event a Stockholder determines to
sell its shares of Common Stock. The foregoing rights and obligations described
in clauses (a), (b) and (d) 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 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.
In September 1997, AMF Bowling's institutional stockholders purchased an
aggregate of 1,780,000 shares of Common Stock for $20.00 per share. The
aggregate proceeds of $35.6 million were used to fund acquisitions and for other
corporate purposes.
On August 21, 1997, AMF Bowling filed a registration statement with the
Securities and Exchange Commission for an initial public offering (the "Initial
Public Offering") of Common Stock. On November 7, 1997, AMF Bowling issued
15,525,000 shares of its common stock at $19.50 per share pursuant to the
Initial Public Offering. The net proceeds of the Initial Public Offering were
approximately $279.1 million after deducting the underwriting discount and
expenses payable by AMF Bowling, and were used to repay $150.8 million of
indebtedness under the Credit Agreement and to redeem $118.9 million in
principal of the senior subordinated discount notes of Bowling Worldwide. See
"Note 9. Long-Term Debt".
F-22
<PAGE> 129
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 amounts charged to expense under
this plan were $1,779 in 1997 and $1,060 in 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 $814 in 1997 and $506 in
1996.
Bowling Worldwide has entered into employment agreements with two
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 two executives were also granted options to purchase a total of
235,000 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 approximated the fair value of the Common
Stock at the date of the grants.
On February 28, 1997, an executive resigned from all positions with the
Company. As part of the severance arrangement, AMF Bowling repurchased all of
the shares of Common Stock owned by the executive and all options held by the
executive were cancelled.
In connection with the Acquisition, AMF Bowling adopted a stock incentive
plan (the "1996 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 reserved and available
for grant under the 1996 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 1996 Plan and to make determinations as to a number of the
terms of awards granted under the 1996 Plan. In 1997 and 1996, the Committee
granted Stock Options to Participants to purchase a total of 703,500 and
1,119,000 shares of Common Stock, respectively. All such Stock Options were
granted 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 dates. Stock Options
are nontransferable (except under certain limited circumstances) and, unless
otherwise determined by the Committee, have a term of ten years.
The number of Stock Options outstanding to senior management, other
employees, and directors at December 31, 1997 and 1996, total 1,573,500 and
1,096,500, respectively. 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, 1997 and 1996. Of the total Stock
Options awarded under the 1996 Plan, 265,966 were exercisable during 1997. None
of these were exercised. Of the 130,000 Stock Options granted to Mr. Stanard,
26,000 were exercisable during 1997 and none of these were exercised. None of
the Stock Options awarded under the 1996
F-23
<PAGE> 130
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Plan and to Mr. Stanard were exercisable during 1996. Forfeited Stock Options
totaled 226,500 and 22,500 in 1997 and 1996, respectively.
The 1996 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 1996 Plan and awards granted thereunder, subject to the terms of
the 1996 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 losses for 1997 and 1996 would have been increased to $56,503 and
$19,858, respectively and the Company's net losses per share for 1997 and 1996
would have been increased to $1.25 and $0.50, respectively.
The weighted-average fair value of options granted during 1997 and 1996 is
$6.78 and $3.05 per option, respectively. The 1,703,500 options outstanding at
December 31, 1997 have a weighted-average exercise price of $10.00 and a
weighted-average remaining contractual life of 9 years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model. The following weighted-average
assumptions were used for grants in 1997: risk-free rate of return of 6.5%;
expected dividend yield of zero; expected time of exercise of five years;
expected volatility of 27.5%. The following weighted-average assumptions were
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 in 1996 for the securities
underlying the options based on the minimum value method.
1998 STOCK INCENTIVE PLAN
Subject to shareholder approval, AMF Bowling's Board of Directors has
approved the 1998 Stock Incentive Plan (the "1998 Plan") under which AMF Bowling
may grant to employees of the Company and its affiliates incentive awards
("Awards") in the form of Stock Options, stock appreciation rights and shares of
Common Stock that are subject to certain terms and conditions. Two million
shares of Common Stock will be reserved and available for issuance under the
1998 Plan. In addition, shares of Common Stock that have been reserved but not
issued under the 1996 Plan, and shares which are subject to awards under the
1996 Plan that expire or otherwise terminate, may be granted as Awards pursuant
to the 1998 Plan. As of December 31, 1997, there were 193,651 shares of Common
Stock under the 1996 Plan that are available for grant of awards under that
plan.
Shares allocated to Awards granted under the 1998 Plan which are later
forfeited, expire or otherwise terminate (including shares subject to Stock
Appreciation Rights that are exercised for cash) may again be used for Awards
under the 1998 Plan. No more than two hundred thousand shares of Common Stock
may be allocated to the Awards granted under the 1998 Plan to a Participant in
any one year.
Awards under the 1998 Plan are contingent on Board and shareholder
approval. As of February 20, 1998, no shares of Common Stock were awarded under
the 1998 Plan. Unless the Board sooner terminates it, the 1998 Plan will
terminate ten years after its effective date.
F-24
<PAGE> 131
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14. SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest and income taxes in 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Interest....................................... $83,200 $44,465
Income taxes................................... $ 5,518 $ 7,990
</TABLE>
Net cash used for business acquisitions in 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
BOWLING
CENTER
ACQUISITIONS
------------
<S> <C>
Year ended December 31, 1997:
Working capital, other than cash acquired................. $ 6,876
Plant and equipment....................................... (200,178)
Purchase price in excess of the net assets acquired....... (20,916)
Other assets.............................................. (9,106)
Noncurrent liabilities.................................... 8,563
---------
Net cash used for business acquisitions................... $(214,761)
=========
</TABLE>
<TABLE>
<CAPTION>
OTHER
BOWLING
CHARAN CENTER
ACQUISITION ACQUISITION ACQUISITIONS TOTAL
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Period ended December 31, 1996:
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)
Warrants to purchase shares of
Common Stock................... 8,700 -- -- 8,700
Noncurrent liabilities............ 6,198 -- -- 6,198
----------- --------- ------- -----------
Net cash used for business
acquisitions................... $(1,342,861) $(102,885) $(5,182) $(1,450,928)
=========== ========= ======= ===========
</TABLE>
Noncash financing activities in 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Issuance of Common Stock and Stock Options in connection
with a service contract................................ $4,028 --
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
F-25
<PAGE> 132
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, net of cash acquired, was
approximately $102.9 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 $62.9 million from available borrowings under Bowling
Worldwide's then 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 is based on pro forma AMF Bowling results of operations presented in "Note
3. Pro Forma Results of Operations." The pro forma information is presented for
information purposes only and is not necessarily indicative of what would have
occurred if the Charan 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, EXCEPT PER
SHARE DATA)
<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)
Net loss per share..................................... $ (0.50) $ (0.42)
Weighted average shares outstanding.................... 39,293 38,375
</TABLE>
Other Acquisitions
Since the Acquisition and prior to December 31, 1997, AMF Bowling Centers
purchased an aggregate of 179 bowling centers from various unrelated sellers
including Charan. The combined purchase price, net of cash acquired, was
approximately $322.8 million, 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 $282.8 million from available borrowing under Bowling
Worldwide's then existing Acquisition Facility and current Bank Facility. The
results of operations for acquired bowling centers and certain related assets
and liabilities other than the Charan Acquisition were not material in relation
to the Company's consolidated results of operations or financial position.
Subsequent to December 31, 1997, the Company acquired an additional 24
bowling centers in the United States, two bowling centers in the United Kingdom
and one center in Australia from unrelated sellers, including fifteen bowling
centers in the U.S. from Active West, Inc. ("Active West"). The aggregate
purchase price for these acquisitions was approximately $36.5 million, including
$35.3 million funded with borrowings under the Bank Facility and, with respect
to the Active West acquisition, 50,000 shares of Common Stock valued at the
closing price of $24 3/16 per share on the New York Stock Exchange on the date
of acquisition.
NOTE 16. JOINT VENTURES
In April 1997, the Company entered into a joint venture with Hong Leong
Corporation Limited, a Singapore-based conglomerate ("Hong Leong"), to build and
operate bowling centers in the Asia
F-26
<PAGE> 133
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pacific region. The joint venture ("Hong Leong JV") is owned 50% by the Company
and 50% by Hong Leong. The Hong Leong JV opened its first bowling center during
November 1997 in Tianjin, China. Additional sites are being evaluated for future
development.
In August 1997, the Company entered into a joint venture with Playcenter
S.A., a Sao Paulo-based amusement and entertainment company ("Playcenter"), to
build and operate bowling centers in Brazil and Argentina. The joint venture
("Playcenter JV") is owned 50% by the Company and 50% by Playcenter. As of
December 31, 1997, Playcenter JV operated eleven centers in Brazil and two
centers in Argentina.
The Company accounts for its investments in Hong Leong JV and Playcenter JV
by the equity method. The joint ventures' operations and the Company's equity in
earnings of the joint ventures are presented below (in thousands, unaudited):
<TABLE>
<CAPTION>
JOINT VENTURE
------------------------
JOINT VENTURE OPERATIONS HONG LEONG PLAYCENTER TOTAL
------------------------ ---------- ---------- -------
<S> <C> <C> <C>
Operating revenue........................ $297 $ 4,894 $ 5,191
Operating income (loss).................. 15 (1,215) (1,200)
Income (loss) before income taxes........ 15 (1,546) (1,531)
Income (loss) after income taxes......... 1 (1,608) (1,607)
</TABLE>
<TABLE>
<CAPTION>
JOINT VENTURE
------------------------
AMF EQUITY IN EARNINGS HONG LEONG PLAYCENTER TOTAL
---------------------- ---------- ---------- -------
<S> <C> <C> <C>
AMF equity in income (loss).............. $ -- $ (804) $ (804)
Elimination of 50% gross profit on sales
to joint ventures...................... (354) (204) (558)
----- ------- -------
Equity in earnings of joint ventures..... $(354) $(1,008) $(1,362)
===== ======= =======
</TABLE>
The joint ventures' financial position as of December 31, 1997, and the
Company's investments in the joint ventures and amounts due from Playcenter JV
as of December 31, 1997, are presented below (in thousands, unaudited):
<TABLE>
<CAPTION>
JOINT VENTURE
------------------------
JOINT VENTURE FINANCIAL POSITION HONG LEONG PLAYCENTER
-------------------------------- ---------- ----------
<S> <C> <C>
Current assets.............................. $1,240 $ 4,004
Noncurrent assets........................... 5,946 25,153
Current liabilities......................... 493 2,734
Noncurrent liabilities...................... 2,242 23,238
Stockholders' equity........................ 4,451 3,185
</TABLE>
<TABLE>
<CAPTION>
JOINT VENTURE
-----------------------------------
INVESTMENTS/AMOUNTS DUE FROM JOINT VENTURES HONG LEONG PLAYCENTER TOTAL
- ------------------------------------------- ---------- ---------- -------
<S> <C> <C> <C>
Investments in joint ventures............. $1,149 $ 8,669 $ 9,818
Note receivable due from joint venture.... -- 3,781 3,781
Loan to joint venture..................... -- 6,400 6,400
------ ------- -------
Total investment/due from joint ventures... $1,149 $18,850 $19,999
====== ======= =======
</TABLE>
F-27
<PAGE> 134
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's investment in Playcenter JV includes the unamortized excess
of the Company's investment over its equity in the joint venture's net assets.
This excess was $7,076 at December 31, 1997, and is being amortized on a
straight-line basis over the estimated life of the joint venture of ten years.
The note receivable due from Playcenter JV represents the balance due for sales
of equipment to the joint venture through a Brazilian distributor. The balance
due on the equipment sales and the loan to Playcenter JV bear interest at 12%
through November 21, 1997, and 8% thereafter. Principal and interest will be
repaid to the Company by the joint venture from its operating cash flow in
excess of capital expenditures required to build additional bowling centers.
Subsequent to December 31, 1997, the Company lent Playcenter JV an additional
$1,600 under the same terms.
NOTE 17. BUSINESS SEGMENTS
The Company operates in two major lines of business: operation of bowling
centers and manufacturing and sale of bowling and related products. Information
concerning operations in these business segments for 1997 and 1996 is presented
below:
<TABLE>
<CAPTION>
AMF BOWLING, INC.
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
BOWLING CENTERS BOWLING PRODUCTS
--------------------------------- ---------------------------------
U.S. INTERNATIONAL SUBTOTAL U.S. INTERNATIONAL SUBTOTAL
------ ------------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers................. $324.7 $104.4 $ 429.1 $105.7 $178.9 $284.6
Intersegment sales.......... -- -- -- 9.4 5.3 14.7
Operating income (loss)..... 36.5 11.1 47.6 36.6 14.4 51.0
Identifiable assets......... 810.5 309.1 1,119.6 631.1 69.9 701.0
Depreciation and
amortization.............. 64.3 18.5 82.8 18.6 1.2 19.8
Capital expenditures........ 33.4 6.0 39.4 8.1 1.1 9.2
Research and development
expense................... -- -- -- 0.9 -- 0.9
<CAPTION>
AMF BOWLING, INC.
-----------------------------------
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
CORPORATE ELIMINATIONS TOTAL
--------- ------------ --------
<S> <C> <C> <C>
Revenue from unaffiliated
customers................. $ -- $ -- $ 713.7
Intersegment sales.......... -- -- 14.7
Operating income (loss)..... (16.8) 1.1 82.9
Identifiable assets......... 10.3 1.2 1,832.1
Depreciation and
amortization.............. 1.4 (1.5) 102.5
Capital expenditures........ 8.6 (0.5) 56.7
Research and development
expense................... -- -- 0.9
</TABLE>
<TABLE>
<CAPTION>
AMF BOWLING, INC.
---------------------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1996
(IN MILLIONS)
BOWLING CENTERS BOWLING PRODUCTS
--------------------------------- ---------------------------------
U.S. INTERNATIONAL SUBTOTAL U.S. INTERNATIONAL SUBTOTAL
------ ------------- -------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers................. $132.3 $67.4 $199.7 $69.1 $116.0 $185.1
Intersegment sales.......... -- -- -- 3.7 2.3 6.0
Operating income (loss)..... 10.8 6.8 17.6 26.1 10.9 37.0
Depreciation and
amortization.............. 25.6 12.1 37.7 12.1 0.5 12.6
Capital expenditures........ 8.1 5.0 13.1 1.5 1.7 3.2
Research and development
expense................... -- -- -- 1.3 -- 1.3
<CAPTION>
AMF BOWLING, INC.
-----------------------------------
PERIOD ENDED DECEMBER 31, 1996
(IN MILLIONS)
CORPORATE ELIMINATIONS TOTAL
--------- ------------ --------
<S> <C> <C> <C>
Revenue from unaffiliated
customers................. $ -- $ -- $384.8
Intersegment sales.......... -- -- 6.0
Operating income (loss)..... (8.6) 0.1 46.1
Depreciation and
amortization.............. -- (0.9) 49.4
Capital expenditures........ 1.3 (0.7) 16.9
Research and development
expense................... -- -- 1.3
</TABLE>
F-28
<PAGE> 135
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18. GEOGRAPHIC SEGMENTS
Information about the Company's operations in different geographic areas
for 1997 and 1996, and identifiable assets at December 31, 1997 and 1996, are
presented below:
Operating revenue:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
United States........................................ $439,800 $205,800
China, including Hong Kong........................... 82,400 60,700
Japan................................................ 54,700 36,800
Australia............................................ 49,500 33,500
United Kingdom....................................... 44,100 15,900
Sweden............................................... 9,100 7,400
Mexico............................................... 8,800 5,400
Korea................................................ 14,100 14,300
Spain................................................ 3,300 900
Canada............................................... 600 200
Other European countries............................. 21,300 9,900
Middle East.......................................... 700 --
Eliminations......................................... (14,700) (6,000)
-------- --------
$713,700 $384,800
======== ========
</TABLE>
Operating revenue for the U.S. Bowling Products operation has been reduced
by $104,900 in 1997 and $63,400 in 1996 to reflect the elimination of
intracompany sales between the U.S. Bowling products operation and the Bowling
Products international sales and service branches.
Operating income (loss):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
United States.......................................... $56,300 $28,200
China, including Hong Kong............................. 8,300 7,600
Japan.................................................. 4,500 4,000
Australia.............................................. 6,700 4,900
United Kingdom......................................... 4,400 600
Sweden................................................. 1,300 1,000
Mexico................................................. 1,300 500
Korea.................................................. 200 100
Spain.................................................. (200) (100)
Canada................................................. (100) (100)
Middle East............................................ -- --
Other European countries............................... (900) (700)
Eliminations........................................... 1,100 100
------- -------
$82,900 $46,100
======= =======
</TABLE>
Operating income for the U.S. Bowling Products operation has been increased
by $2,300 in 1997 and reduced by $1,000 in 1996 to reflect the elimination of
intracompany gross profit between the U.S. Bowling Products operations and the
Bowling Products international sales and service branches.
F-29
<PAGE> 136
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Identifiable assets:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
United States..................................... $1,451,900 $1,246,700
China, including Hong Kong........................ 36,900 32,700
Japan............................................. 38,300 40,200
Australia......................................... 112,300 138,000
United Kingdom.................................... 115,900 72,300
Sweden............................................ 3,900 3,000
Mexico............................................ 17,200 15,200
Korea............................................. 5,400 4,600
Spain............................................. 6,300 7,300
Canada............................................ 3,400 3,700
Middle East....................................... 200 --
Other European countries.......................... 39,200 30,200
Eliminations...................................... 1,200 100
---------- ----------
$1,832,100 $1,594,000
========== ==========
</TABLE>
Identifiable assets for the international sales and service branches have
been reduced by $3,200 at December 31, 1997, and $5,500 at December 31, 1996 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 19. RELATED PARTIES
Goldman Sachs and its affiliates have certain interests in the Company in
addition to being the initial purchasers of the Notes 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 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 Prior Owners 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 bank credit agreement which partially funded the
Acquisition, 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., was also a lender under the bank 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.
Under 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; Citibank, N.A. is acting as Administrative Agent and
Citicorp USA, Inc. is acting as Collateral Agent. Total fees
F-30
<PAGE> 137
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payable to Goldman Sachs Credit Partners, L.P. in connection with its services
under the Credit Agreement aggregated approximately $900, and such entity was
reimbursed for expenses in connection with such services.
Goldman Sachs acted as the Company's lead underwriter in connection with
the Initial Public Offering. Underwriting discounts paid to the entire
underwriting syndicate in the Initial Public Offering totaled $18,941.
In 1997, the Company paid a fee of $300 to Goldman Sachs for its
representation of the Company in connection with the Company's lease of its new
bowling center at Chelsea Piers in New York.
Pursuant to the two 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 1996 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
vested 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 20. RECENT ACCOUNTING PRONOUNCEMENTS
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 21. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating information presents:
- Condensed consolidating balance sheets as of December 31, 1997 and 1996,
and condensed consolidating statements of income and cash flows for 1997
and 1996.
- 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 (the "Guarantors"). Third-tier subsidiaries of Bowling
Worldwide, all of which are wholly owned subsidiaries of AMF Worldwide Bowling
Centers Holdings Inc., a second-tier subsidiary of Bowling Worldwide, have not
provided guarantees (the "Non-Guarantors").
F-31
<PAGE> 138
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 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............. $ 33,451 $ 2,339 $ -- $ 35,790
Accounts and notes receivable, net of
allowance for doubtful accounts.... 71,652 2,339 -- 73,991
Accounts receivable -- intercompany... 6,682 1,963 (8,645) --
Inventories........................... 54,765 1,803 -- 56,568
Deferred taxes and other.............. 14,345 2,704 -- 17,049
---------- -------- --------- ----------
Total current assets.......... 180,895 11,148 (8,645) 183,398
Notes receivable -- intercompany........ 15,482 1,663 (17,145) --
Property and equipment, net............. 712,032 37,845 1,008 750,885
Investment in subsidiaries.............. 24,499 628,355 (652,854) --
Goodwill and other assets............... 891,011 6,758 -- 897,769
---------- -------- --------- ----------
Total assets.................. $1,823,919 $685,769 $(677,636) $1,832,052
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 38,513 $ 3,070 $ -- $ 41,583
Accounts payable -- intercompany...... 1,934 6,711 (8,645) --
Accrued expenses...................... 59,495 5,370 -- 64,865
Income taxes payable.................. 3,237 2,407 -- 5,644
Long-term debt, current portion....... 27,376 -- -- 27,376
---------- -------- --------- ----------
Total current liabilities..... 130,555 17,558 (8,645) 139,468
Long-term debt.......................... 1,033,223 -- -- 1,033,223
Notes payable -- intercompany........... 2,990 14,155 (17,145) --
Other long-term liabilities............. 5,333 -- -- 5,333
Deferred income taxes................... (1,036) 1,036 -- --
---------- -------- --------- ----------
Total liabilities............. 1,171,065 32,749 (25,790) 1,178,024
---------- -------- --------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock.......................... -- 596 -- 596
Paid-in capital....................... 747,145 746,049 (745,141) 748,053
Retained earnings (deficit)........... (74,718) (74,052) 73,722 (75,048)
Equity adjustment from foreign
currency translation............... (19,573) (19,573) 19,573 (19,573)
---------- -------- --------- ----------
Total stockholders' equity.... 652,854 653,020 (651,846) 654,028
---------- -------- --------- ----------
Total liabilities and
stockholders' equity........ $1,823,919 $685,769 $(677,636) $1,832,052
========== ======== ========= ==========
</TABLE>
F-32
<PAGE> 139
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
(UNAUDITED)
(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............ 548,218 30,139 951 579,308
Investment in subsidiaries............. 29,628 378,074 (407,702) --
Goodwill and other assets.............. 875,250 1,080 -- 876,330
---------- -------- --------- ----------
Total assets................. $1,588,485 $420,561 $(415,036) $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......................... -- 424 -- 424
Paid-in capital...................... 427,446 427,022 (425,442) 429,026
Retained earnings (deficit).......... (18,512) (18,512) 17,540 (19,484)
Equity adjustment from foreign
currency translation.............. (1,151) (1,151) 1,151 (1,151)
---------- -------- --------- ----------
Total stockholders' equity... 407,783 407,783 (406,751) 408,815
---------- -------- --------- ----------
Total liabilities and
stockholders' equity....... $1,588,485 $420,561 $(415,036) $1,594,010
========== ======== ========= ==========
</TABLE>
F-33
<PAGE> 140
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue........................ $673,714 $ 42,205 $ (2,251) $713,668
-------- -------- -------- --------
Operating expenses:
Cost of goods sold..................... 207,820 6,230 (1,506) 212,544
Bowling center operating expenses...... 229,629 22,188 (611) 251,206
Selling, general, and administrative
expenses............................ 61,421 3,125 -- 64,546
Depreciation and amortization.......... 96,812 5,826 (191) 102,447
-------- -------- -------- --------
Total operating expenses....... 595,682 37,369 (2,308) 630,743
-------- -------- -------- --------
Operating income............... 78,032 4,836 57 82,925
-------- -------- -------- --------
Nonoperating expenses (income):
Interest expense....................... 117,804 581 -- 118,385
Other expenses, net.................... 6,054 2,225 1,827 10,106
Interest income........................ (1,631) (323) -- (1,954)
Equity in loss of subsidiaries......... 1,043 53,336 (54,379) --
-------- -------- -------- --------
Total nonoperating expenses.... 123,270 55,819 (52,552) 126,537
-------- -------- -------- --------
Income (loss) before income taxes...... (45,238) (50,983) 52,609 (43,612)
Provision (benefit) for income taxes... (15,587) 2,811 -- (12,776)
-------- -------- -------- --------
Net loss before equity in loss of joint
ventures and extraordinary items.... (29,651) (53,794) 52,609 (30,836)
Equity in loss of joint ventures....... (1,362) -- -- (1,362)
-------- -------- -------- --------
Net loss before extraordinary items.... (31,013) (53,794) 52,609 (32,198)
Extraordinary items, net of tax........ (23,366) -- -- (23,366)
-------- -------- -------- --------
Net loss............................... $(54,379) $(53,794) $ 52,609 $(55,564)
======== ======== ======== ========
</TABLE>
F-34
<PAGE> 141
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE PERIOD ENDED DECEMBER 31, 1996
(UNAUDITED)
(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 18,234 (18,733) --
-------- -------- -------- --------
Total nonoperating expenses... 72,948 19,017 (17,811) 74,154
-------- -------- -------- --------
Income (loss) before income
taxes....................... (28,436) (17,481) 17,901 (28,016)
Provision (benefit) for income
taxes....................... (9,703) 1,171 -- (8,532)
-------- -------- -------- --------
Net loss...................... $(18,733) $(18,652) $ 17,901 $(19,484)
======== ======== ======== ========
</TABLE>
F-35
<PAGE> 142
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 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........................................... $ (54,379) $ (53,794) $ 52,609 $ (55,564)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 96,812 5,826 (191) 102,447
Equity in loss of joint ventures................. 1,362 -- -- 1,362
Extraordinary items, net of tax.................. 23,366 -- -- 23,366
Deferred income taxes............................ (20,227) 6 -- (20,221)
Amortization of bond discount.................... 33,562 -- -- 33,562
Equity in loss of subsidiaries................... 1,043 53,336 (54,379) --
Dividends from guarantor companies............... (500) 500 -- --
Dividends from non-guarantor companies........... 1,327 (1,327) -- --
Loss on the sale of property and equipment,
net............................................ 4,417 29 -- 4,446
Changes in assets and liabilities:
Accounts and notes receivable, net............. (25,218) (875) -- (26,093)
Receivables and payables -- affiliates......... (12,745) 12,745 -- --
Inventories.................................... (16,570) (401) -- (16,971)
Other assets................................... (13,375) (1,797) 2,275 (12,897)
Accounts payable and accrued expenses.......... 14,522 3,260 -- 17,782
Income taxes payable........................... (1,152) 1,754 -- 602
Other long-term liabilities.................... (4,089) -- -- (4,089)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................ 28,156 19,262 314 47,732
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired......................................... (197,271) (17,490) -- (214,761)
Investment in subsidiary........................... -- (315,671) 315,671 --
Investments in and advances to joint ventures...... (21,361) -- -- (21,361)
Purchases of property and equipment................ (53,911) (2,926) 134 (56,703)
Proceeds from sale of property and equipment....... 4,123 57 -- 4,180
--------- --------- --------- ---------
Net cash provided by (used in) investing
activities................................ (268,420) (336,030) 315,805 (288,645)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred
financing costs.................................. 231,406 9,000 -- 240,406
Payments on long-term debt......................... (295,621) (9,000) -- (304,621)
Prepayment penalty................................. (14,571) -- -- (14,571)
Capital contribution............................... 315,671 37,048 (316,119) 36,600
Net proceeds from initial public offering of
shares........................................... -- 279,071 -- 279,071
Repurchase of shares............................... -- (500) -- (500)
Noncompete obligations............................. (647) -- -- (647)
--------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................ 236,238 315,619 (316,119) 235,738
--------- --------- --------- ---------
Effect of exchange rates on cash............ (2,183) (420) -- (2,603)
--------- --------- --------- ---------
Net decrease in cash........................ (6,209) (1,569) -- (7,778)
Cash and cash equivalents at beginning of
period.................................... 39,660 3,908 -- 43,568
--------- --------- --------- ---------
Cash and cash equivalents at end of
period.................................... $ 33,451 $ 2,339 $ -- $ 35,790
========= ========= ========= =========
</TABLE>
F-36
<PAGE> 143
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 1996
(UNAUDITED)
(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) $(18,652) $ 17,901 $ (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 income taxes.......................... (14,040) -- -- (14,040)
Amortization of bond discount.................. 24,731 -- -- 24,731
Equity in loss of subsidiaries................. 499 18,234 (18,733) --
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, net........... (6,663) 159 -- (6,504)
Receivables and payables -- affiliates....... 399 (399) -- --
Inventories.................................. 1,830 32 -- 1,862
Other assets................................. (4,332) (582) 904 (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
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-37
<PAGE> 144
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1998
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 51,873
Accounts and notes receivable, net of allowance for
doubtful accounts of $5,050............................ 65,792
Inventories............................................... 71,292
Deferred taxes and other current assets................... 20,756
----------
Total current assets.............................. 209,713
Property and equipment, net................................. 872,430
Leasehold interests, net.................................... 46,219
Deferred financing costs, net............................... 24,934
Goodwill, net............................................... 775,036
Investments in and advances to joint ventures............... 23,813
Other assets................................................ 54,206
----------
Total assets...................................... $2,006,351
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 29,174
Accrued expenses.......................................... 48,735
Income taxes payable...................................... 5,603
Long-term debt, current portion........................... 29,875
----------
Total current liabilities......................... 113,387
Long-term debt, less current portion........................ 1,271,201
Other long-term liabilities................................. 5,268
----------
Total liabilities................................. 1,389,856
----------
Commitments and contingencies
Stockholders' equity:
Common stock (par value $.01, 200,000,000 shares
authorized, 59,726,450 shares issued and outstanding at
June 30, 1998)......................................... 597
Paid-in capital........................................... 749,093
Retained deficit.......................................... (111,420)
Equity adjustment from foreign currency translation....... (21,775)
----------
Total stockholders' equity........................ 616,495
----------
Total liabilities and stockholders' equity........ $2,006,351
==========
</TABLE>
The accompanying notes are an integral part of this condensed consolidated
balance sheet.
F-38
<PAGE> 145
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Operating revenue........................................... $349,758 $318,068
-------- --------
Operating expenses:
Cost of goods sold........................................ 85,021 86,084
Bowling center operating expenses......................... 159,332 116,038
Selling, general, and administrative expenses............. 34,847 30,172
Depreciation and amortization............................. 56,815 43,424
-------- --------
Total operating expenses.......................... 336,015 275,718
-------- --------
Operating income............................................ 13,743 42,350
-------- --------
Nonoperating expenses (income):
Interest expense.......................................... 53,605 57,454
Other expenses, net....................................... 2,557 2,368
Interest income........................................... (1,070) (1,126)
-------- --------
Total nonoperating expenses....................... 55,092 58,696
-------- --------
Loss before income taxes.................................... (41,349) (16,346)
Benefit for income taxes.................................... (6,540) (4,182)
-------- --------
Net loss before equity in loss of joint ventures............ (34,809) (12,164)
Equity in loss of joint ventures............................ (1,563) --
-------- --------
Net loss............................................... $(36,372) $(12,164)
======== ========
Net loss per share -- basic and diluted................... $ (0.61) $ (0.29)
======== ========
Weighted average shares outstanding....................... 59,688 42,274
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-39
<PAGE> 146
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (36,372) $ (12,164)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization.......................... 56,815 43,424
Equity in loss of joint ventures....................... 1,563 --
Deferred income taxes.................................. -- (1,775)
Amortization of bond discount.......................... 14,191 16,788
Loss on the sale of property and equipment, net........ 267 94
Changes in assets and liabilities:
Accounts and notes receivable, net................... 8,923 (17,942)
Inventories.......................................... (13,908) (15,877)
Other assets......................................... (27,422) (21,417)
Accounts payable and accrued expenses................ (29,378) 1,432
Income taxes payable................................. 314 2,257
Other long-term liabilities.......................... (126) 13,345
--------- ---------
Net cash (used in) provided by operating activities......... (25,133) 8,165
--------- ---------
Cash flows from investing activities:
Acquisitions of operating units, net of cash acquired..... (152,791) (122,165)
Investments in and advances to joint ventures............. (5,377) --
Purchases of property and equipment....................... (27,685) (25,639)
Proceeds from the sale of property and equipment.......... 193 268
--------- ---------
Net cash used in investing activities....................... (185,660) (147,536)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred financing
costs.................................................. 488,641 133,500
Payments on long-term debt................................ (262,358) (20,250)
Repurchase of shares...................................... -- (500)
Issuance of shares........................................ 1,042 --
Payments of noncompete obligations........................ (423) (322)
--------- ---------
Net cash provided by financing activities................... 226,902 112,428
--------- ---------
Effect of exchange rates on cash............................ (26) 15
--------- ---------
Net increase (decrease) in cash............................. 16,083 (26,928)
Cash and cash equivalents at beginning of period............ 35,790 43,568
--------- ---------
Cash and cash equivalents at end of period.................. $ 51,873 $ 16,640
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-40
<PAGE> 147
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 1997 and 1996
audited consolidated financial statements of AMF Bowling, Inc. ("AMF Bowling")
and its subsidiaries (collectively, the "Company") presented in AMF Bowling's
Form 10-K Annual Report for the fiscal year ended December 31, 1997 filed with
the U.S. Securities and Exchange Commission. The results of operations for the
six months ended June 30, 1998, are not necessarily indicative of results to be
expected for the entire year.
The Company is principally engaged in two business segments: (i) the
ownership or operation of bowling centers, consisting of 413 U.S. bowling
centers and 120 international bowling centers ("Bowling Centers"), including
fourteen joint venture centers described in "Note 8. Acquisitions", as of June
30, 1998, and (ii) the manufacture and sale 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. ("Bowling Worldwide") is a wholly owned, direct
subsidiary of AMF Group Holdings Inc. ("AMF Group Holdings"). AMF Group Holdings
is a wholly owned, direct 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 (defined
below). AMF Group Holdings and AMF Bowling are holding companies only. The
principal 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"). The purchase price for the Acquisition was approximately $1.37
billion. 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 Closing
Date.
On November 7, 1997, AMF Bowling completed an initial public offering (the
"Initial Public Offering") of 15,525,000 shares of common stock (the "Common
Stock"), which trades on the New York Stock Exchange under the symbol "PIN". The
net proceeds of $279.1 million from the Initial Public Offering were contributed
by AMF Bowling to Bowling Worldwide and used by Bowling Worldwide to reduce and
refinance its bank debt pursuant to Bowling Worldwide's third amended and
restated credit agreement (the "Credit Agreement") and to redeem a portion of
Bowling Worldwide's senior subordinated discount notes.
As of June 30, 1998, the Company has acquired 245 bowling centers and
constructed one bowling center since the Acquisition for a combined purchase
price of $475.6 million. The Company has funded its acquisitions and center
construction from internally generated cash, borrowings
F-41
<PAGE> 148
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under the senior secured revolving credit facility (the "Bank Facility") under
the Credit Agreement, and issuances of Common Stock. See "Note 8. Acquisitions".
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The condensed consolidated results of operations of the Company have been
presented for the six months ended June 30, 1998 and 1997, respectively. All
significant intercompany balances and transactions have been eliminated in the
accompanying condensed consolidated financial statements. All dollar amounts are
in thousands, except where otherwise indicated.
Goodwill
As a result of the Acquisition and subsequent purchases of bowling centers
discussed in "Note 8. Acquisitions", and in accordance with the purchase method
of accounting for all acquisitions, 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 $10,054 and $9,860 for the six months ended June 30, 1998 and 1997,
respectively.
Comprehensive Income
Effective January 1, 1998, the Company adopted, as required, Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income." Comprehensive loss was $38,574 and $17,179 for the six months ended
June 30, 1998 and 1997, respectively.
NOTE 3. INVENTORIES
Inventories at June 30, 1998 consisted of the following (unaudited):
<TABLE>
<S> <C>
Bowling Products, at FIFO:
Raw materials............................................. $14,718
Work in progress.......................................... 2,474
Finished goods and spare parts............................ 46,129
Bowling Centers, at average cost:
Merchandise and spare parts............................... 7,971
-------
$71,292
=======
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1998 consisted of the following
(unaudited):
<TABLE>
<S> <C>
Land........................................................ $ 130,793
Buildings and improvements.................................. 348,350
Equipment, furniture, and fixtures.......................... 521,191
Other....................................................... 7,778
----------
1,008,112
Less: accumulated depreciation and amortization............. (135,682)
----------
$ 872,430
==========
</TABLE>
F-42
<PAGE> 149
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense related to property and equipment was
$42,495 and $30,875 for the six months ended June 30, 1998 and 1997,
respectively.
NOTE 5. LONG-TERM DEBT
Long-term debt at June 30, 1998 consisted of the following (unaudited):
<TABLE>
<S> <C>
Bank debt................................................... $ 561,502
Senior subordinated notes................................... 250,000
Senior subordinated discount notes.......................... 200,802
Zero coupon convertible debentures.......................... 286,790
Mortgage and equipment notes................................ 1,982
----------
Total debt........................................ 1,301,076
Current maturities.......................................... (29,875)
----------
Total long-term debt.............................. $1,271,201
==========
</TABLE>
The Company's bank debt (the "Senior Debt") was incurred pursuant to a
credit agreement, dated as of May 1, 1996, which was amended and restated in
connection with the Initial Public Offering, as of November 3, 1997, as the
Credit Agreement among Bowling Worldwide and its lenders. The Credit Agreement
provides for (i) three senior secured term loan facilities aggregating $455.3
million (the "Term Facilities") and (ii) the Bank Facility which provides for
borrowings up to $355.0 million on a revolving basis. At June 30, 1998, amounts
outstanding under the Term Facilities and Bank Facility were $433,499 and
$128,003, respectively.
On May 12, 1998, AMF Bowling issued its zero coupon convertible debentures
(the "Debentures") for gross proceeds of approximately $284.1 million. The
Debentures mature on May 12, 2018 and have a yield to maturity of 7% per annum.
The Debentures were issued at an original price of $252.57 per $1,000 principal
amount at maturity. The Debentures are convertible at any time prior to maturity
into shares of Common Stock at a conversion rate of 8.6734 shares per $1,000
principal amount at maturity. If held to maturity and not redeemed or
repurchased by AMF Bowling, the Debentures will accrue to an aggregate principal
amount at maturity of $1.125 billion. The Debentures are not entitled to a
sinking fund. The Debentures are not redeemable at the option of AMF Bowling
before May 12, 2003.
The Debentures will be purchased by AMF Bowling, at the option of holders
of the Debentures, as of May 12, 2003, May 12, 2008 and May 12, 2013 for
purchase prices specified in the Debentures. The Debentures may also be redeemed
at the option of the holders of the Debentures upon the occurrence of a Change
of Control (as defined in the Indenture) at redemption prices specified in the
Debentures. AMF Bowling may elect to pay any such purchase price or redemption
price in cash or Common Stock, or any combination thereof. In connection with
the issuance of the Debentures, AMF Bowling has agreed to file a shelf
registration statement in respect of the Debentures and the Common Stock
issuable on conversion, redemption or repurchase thereof. If the shelf
registration statement has not been filed within 90 days, or declared effective
within 180 days, after May 12, 1998, AMF Bowling must pay liquidated damages as
specified in the related registration rights agreement.
AMF Bowling has reserved 9,757,575 shares of Common Stock for issuance upon
conversion, redemption or repurchase of the Debentures.
F-43
<PAGE> 150
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net proceeds of the Debentures were approximately $273.1 million of
which $249.6 million was used to repay senior bank indebtedness under the Credit
Agreement and $23.5 million was used for acquisitions and general corporate
purposes.
NOTE 6. 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 7. EMPLOYEE BENEFIT PLANS
AMF Bowling, Inc. 1996 Stock Incentive Plan
The total number of shares of Common Stock ("Stock Options") initially
reserved and available for grant under the AMF Bowling, Inc. 1996 Stock
Incentive Plan (the "1996 Plan") was 1,767,151. At June 30, 1998, the number of
shares of Common Stock subject to Stock Options outstanding to senior
management, other employees, consultants and directors totaled 1,464,450 at an
exercise price of $10.00 per share. In addition to Stock Options outstanding
under the 1996 Plan, 130,000 Stock Options granted to Douglas J. Stanard on May
1, 1996 were outstanding at June 30, 1998. Of the total Stock Options awarded
under the 1996 Plan, 313,910 were exercisable at June 30, 1998 and 46,450 were
exercised in the six months ended June 30, 1998. Forfeited Stock Options under
the 1996 Plan totaled 310,100 through June 30, 1998. There were 256,251 shares
of Common Stock available for grant under the 1996 Plan as of June 30, 1998.
AMF Bowling, Inc. 1998 Stock Incentive Plan
Under the AMF Bowling, Inc. 1998 Stock Incentive Plan (the "1998 Plan"),
AMF Bowling may grant incentive awards in the form of restricted stock Awards,
Stock Options and stock appreciation rights in substantially the same manner as
provided under the 1996 Plan. Two million shares of Common Stock have been
reserved and will be available for issuance under the 1998 Plan. In addition,
shares of Common Stock that have been reserved but not issued under the 1996
Plan, and shares which are subject to awards under the 1996 Plan that expire or
otherwise terminate, may be granted as awards pursuant to the 1998 Plan. As of
June 30, 1998, options to purchase 78,400 shares were granted under the 1998
Plan.
NOTE 8. ACQUISITIONS
From the Acquisition until December 31, 1997, Bowling Centers purchased an
aggregate of 179 bowling centers from unrelated sellers. The combined purchase
price, net of cash acquired, was approximately $340.7 million (including amounts
paid in 1998 for certain bowling centers included in the 1997 total), 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 $299.8
million from available borrowing under Bowling Worldwide's acquisition facility
then existing under the bank credit agreement and under the Bank Facility.
From January 1, 1998 through June 30, 1998, the Company acquired 46 centers
in the United States, fifteen centers in the United Kingdom and five centers in
Australia from unrelated sellers,
F-44
<PAGE> 151
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
including fifteen centers from Active West, Inc. ("Active West"). The aggregate
purchase price was approximately $134.9 million, including $114.0 million funded
with borrowings under the Bank Facility and, with respect to the Active West
acquisition, the issuance of 50,000 shares of Common Stock.
Between June 30, 1998 and July 31, 1998, the Company acquired six bowling
centers in the United States from unrelated sellers. As a result of these
acquisitions, and after giving effect to the closing of 11 U.S. centers and one
international center since the Acquisition, the Company owned or operated 419
U.S. bowling centers and 120 international bowling centers as of July 31, 1998.
As of July 31, 1998, the Company had entered into purchase agreements
regarding the acquisitions of ten additional U.S. bowling centers from unrelated
sellers. The aggregate purchase price is expected to be approximately $15.9
million and is expected to be funded with available borrowing under the Bank
Facility and cash generated from operations.
NOTE 9. BUSINESS SEGMENTS
The Company operates in two major lines of business: operating bowling
centers and manufacturing of bowling and related products. Information
concerning operations in these businesses for the six months ended June 30, 1998
and 1997, respectively, is presented below (in millions):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------------------------------------------
BOWLING CENTERS BOWLING PRODUCTS
---------------------------- --------------------------
INTER- SUB- INTER- SUB- ELIM-
U.S. NATIONAL TOTAL U.S. NATIONAL TOTAL CORPORATE INATIONS TOTAL
------ -------- -------- ------ -------- ------ --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from unaffiliated
customers............... $212.2 $ 54.3 $ 266.5 $ 36.8 $46.5 $ 83.3 $ -- $ -- $ 349.8
Intersegment sales........ -- -- -- 7.6 1.8 9.4 -- -- 9.4
Operating income (loss)... 25.0 5.6 30.6 (3.7) (3.4) (7.1) (10.6) 0.8 13.7
Identifiable assets....... 897.3 352.1 1,249.4 637.1 71.3 708.4 46.7 1.9 2,006.4
Depreciation and
amortization............ 36.9 9.4 46.3 10.3 0.7 11.0 0.6 (1.0) 56.9
Capital expenditures...... 17.6 4.1 21.7 5.2 0.7 5.9 0.1 -- 27.7
Research and development
expense................. -- -- -- 0.2 -- 0.2 -- -- 0.2
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------------------------------------------------------
BOWLING CENTERS BOWLING PRODUCTS
---------------------------- --------------------------
INTER- SUB- INTER- SUB- ELIM-
U.S. NATIONAL TOTAL U.S. NATIONAL TOTAL CORPORATE INATIONS 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 (8.3) 0.6 42.4
Identifiable assets....... 729.0 306.1 1,035.1 615.7 58.2 673.9 6.0 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>
F-45
<PAGE> 152
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial information presents: (i)
the condensed consolidating balance sheet as of June 30, 1998, and condensed
consolidating statements of income and cash flows for the six months ended June
30, 1998 and (ii) elimination entries necessary to combine the entities
comprising the Company.
Bowling Worldwide's senior subordinated notes and senior subordinated
discount notes are jointly and severally guaranteed on a full and unconditional
basis by AMF Group Holdings and the first and second-tier subsidiaries of
Bowling Worldwide. AMF Bowling and the third-tier subsidiaries of Bowling
Worldwide have not provided guarantees of such indebtedness.
F-46
<PAGE> 153
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 29,127 $ 22,746 $ -- $ 51,873
Accounts and notes receivable, net of
allowance for doubtful accounts.... 65,792 -- -- 65,792
Accounts receivable -- intercompany... 10,410 5,620 (16,030) --
Inventories........................... 70,288 1,004 -- 71,292
Deferred taxes and other assets....... 18,149 2,607 -- 20,756
---------- -------- --------- ----------
Total current assets.......... 193,766 31,977 (16,030) 209,713
Notes receivable -- intercompany........ 44,008 261,690 (305,698) --
Property and equipment, net............. 789,465 81,850 1,115 872,430
Investment in subsidiaries.............. 21,342 597,420 (618,762) --
Goodwill and other assets............... 908,958 15,250 -- 924,208
---------- -------- --------- ----------
Total assets.................. $1,957,539 $988,187 $(939,375) $2,006,351
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 22,084 $ 7,090 $ -- $ 29,174
Accounts payable -- intercompany...... 5,620 10,410 (16,030) --
Accrued expenses...................... 43,117 5,618 -- 48,735
Income taxes payable.................. 1,715 3,888 -- 5,603
Long-term debt, current portion....... 29,875 -- -- 29,875
---------- -------- --------- ----------
Total current liabilities..... 102,411 27,006 (16,030) 113,387
Long-term debt, less current portion.... 969,408 301,793 -- 1,271,201
Notes payable -- intercompany........... 261,690 44,008 (305,698) --
Other long-term liabilities............. 5,268 -- -- 5,268
---------- -------- --------- ----------
Total liabilities............. 1,338,777 372,807 (321,728) 1,389,856
Commitments and contingencies
Stockholders' equity:
Common stock.......................... 597 -- -- 597
Paid-in capital....................... 747,589 747,686 (746,182) 749,093
Retained earnings (deficit)........... (107,649) (110,531) 106,760 (111,420)
Equity adjustment from foreign
currency translation............... (21,775) (21,775) 21,775 (21,775)
---------- -------- --------- ----------
Total stockholders' equity.... 618,762 615,380 (617,647) 616,495
---------- -------- --------- ----------
Total liabilities and
stockholders' equity........ $1,957,539 $988,187 $(939,375) $2,006,351
========== ======== ========= ==========
</TABLE>
F-47
<PAGE> 154
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Operating revenue......................... $324,653 $ 25,105 $ -- $349,758
-------- -------- -------- --------
Operating expenses:
Cost of goods sold...................... 82,168 2,853 -- 85,021
Bowling center operating expenses....... 145,386 13,946 -- 159,332
Selling, general, and administrative
expenses............................. 32,514 2,333 -- 34,847
Depreciation and amortization........... 53,464 3,458 (107) 56,815
-------- -------- -------- --------
Total operating expenses........ 313,532 22,590 (107) 336,015
-------- -------- -------- --------
Operating income.......................... 11,121 2,515 107 13,743
-------- -------- -------- --------
Nonoperating expenses (income):
Interest expense........................ 50,546 3,059 -- 53,605
Other expenses, net..................... 21 2,536 -- 2,557
Interest income......................... (888) (182) -- (1,070)
Equity in loss (income) of
subsidiaries......................... 989 31,942 (32,931) --
-------- -------- -------- --------
Total nonoperating expenses..... 50,668 37,355 (32,931) 55,092
-------- -------- -------- --------
Loss before income taxes.................. (39,547) (34,840) 33,038 (41,349)
Provision (benefit) for income taxes...... (8,179) 1,639 -- (6,540)
-------- -------- -------- --------
Net (loss) income before equity in loss of
joint ventures.......................... (31,368) (36,479) 33,038 (34,809)
Equity in loss of joint ventures.......... (1,563) -- -- (1,563)
-------- -------- -------- --------
Net (loss) income......................... $(32,931) $(36,479) $ 33,038 $(36,372)
======== ======== ======== ========
</TABLE>
F-48
<PAGE> 155
AMF BOWLING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AMF BOWLING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................ $ (32,931) $ (36,479) $ 33,038 $ (36,372)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating
activities:
Depreciation and amortization.................. 53,464 3,458 (107) 56,815
Equity in loss of joint ventures............... 1,563 -- -- 1,563
Deferred income taxes.......................... -- -- -- --
Amortization of bond discount.................. 11,542 2,649 -- 14,191
Equity in earnings of subsidiaries............. 989 31,942 (32,931) --
Loss on the sale of property and equipment,
net.......................................... 267 -- -- 267
Changes in assets and liabilities:
Accounts and notes receivable................ 7,455 1,468 -- 8,923
Receivables and payables -- affiliates....... 230,381 (230,381) -- --
Inventories.................................. (13,835) (73) -- (13,908)
Other assets................................. (18,831) (8,591) -- (27,422)
Accounts payable and accrued expenses........ (33,795) 4,417 -- (29,378)
Income taxes payable......................... (240) 554 -- 314
Other long-term liabilities.................. (126) -- -- (126)
--------- --------- -------- ---------
Net cash provided by (used in) operating
activities..................................... 205,903 (231,036) -- (25,133)
--------- --------- -------- ---------
Cash flows from investing activities:
Acquisitions of operating units, net of cash
acquired....................................... (106,573) (46,218) -- (152,791)
Investments in and advances to joint ventures.... (5,377) -- -- (5,377)
Purchases of property and equipment.............. (25,839) (1,846) -- (27,685)
Proceeds from sale of property and equipment..... 193 -- -- 193
--------- --------- -------- ---------
Net cash used in investing activities.......... (137,596) (48,064) -- (185,660)
--------- --------- -------- ---------
Cash flows from financing activities:
Proceeds from long-term debt, net of deferred
financing costs................................ 166,500 322,141 488,641
Payments on long-term debt....................... (239,361) (22,997) -- (262,358)
Issuance of shares............................... 1,042 -- -- 1,042
Noncompete obligations........................... (423) -- -- (423)
--------- --------- -------- ---------
Net cash provided by (used in) financing
activities................................... (72,242) 299,144 -- 226,902
--------- --------- -------- ---------
Effect of exchange rates on cash............... (395) 369 -- (26)
--------- --------- -------- ---------
Net (decrease) increase in cash................ (4,330) 20,413 -- 16,083
Cash and cash equivalents at beginning of
period....................................... 33,457 2,333 -- 35,790
--------- --------- -------- ---------
Cash and cash equivalents at end of period..... $ 29,127 $ 22,746 $ -- $ 51,873
========= ========= ======== =========
</TABLE>
F-49
<PAGE> 156
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and the Stockholders
AMF Bowling Group
In our opinion, the combined financial statements listed in the
accompanying index 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 four months ended April 30,
1996 and for the year 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-50
<PAGE> 157
AMF BOWLING GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 30, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Currents 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-51
<PAGE> 158
AMF BOWLING GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Operating revenues:
Sales of products and services............................ $164,371 $563,998
Revenue from operating lease activities................... 573 926
-------- --------
Total operating revenues.......................... 164,944 564,924
-------- --------
Operating expenses:
Cost of sales, excluding depreciation of $791 and $2,531,
respectively........................................... 43,118 184,129
Bowling center operations................................. 80,156 166,465
Selling, general and administrative....................... 35,557 50,778
Depreciation and amortization............................. 15,097 39,139
-------- --------
Total operating expenses.......................... 173,928 440,511
-------- --------
Operating (loss) income........................... (8,984) 124,413
Nonoperating income (expenses):
Interest expense.......................................... (4,504) (15,711)
Other expenses, net....................................... (692) (1,043)
Interest income........................................... 611 2,184
Foreign currency transaction loss......................... (29) (979)
-------- --------
(Loss) income before income taxes........................... (13,598) 108,864
Income tax benefit (expense)................................ 1,731 (12,098)
-------- --------
Net (loss) income................................. $(11,867) $ 96,766
======== ========
</TABLE>
Pro Forma Financial Information (unaudited):
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Net (loss) income before income taxes and pro forma
adjustments............................................... $(13,598) $108,864
Pro forma C Corporation -- tax benefit (provision).......... 5,065 (40,616)
-------- --------
Pro forma net (loss) income................................. $ (8,533) $ 68,248
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE> 159
AMF BOWLING GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income......................................... $(11,867) $ 96,766
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization.......................... 15,097 39,139
Deferred income taxes.................................. 414 (830)
Loss on sale of property and equipment, net............ -- 567
Changes in assets and liabilities, net of effects from
companies acquired:
Accounts and notes receivable, net................... 4,784 10,630
Receivables and payables -- affiliates............... 1,535 6,147
Inventories.......................................... (3,631) (5,996)
Other assets and liabilities......................... (2,673) (101)
Accounts payable and accrued expenses................ 8,713 (18,741)
Income taxes payable................................. (5,745) (2,830)
-------- --------
Net cash provided by operating activities......... 6,627 124,751
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (6,874) (29,965)
Proceeds from sales of property and equipment............. -- 1,410
Other..................................................... 2,989 229
-------- --------
Net cash used for investing activities............ (3,885) (28,326)
-------- --------
Cash flows from financing activities:
Payments on credit note agreements, net................... -- (11,057)
Distributions to stockholders............................. (36,721) (71,851)
Payment of long-term debt................................. (3,812) (10,285)
Payment for redemption of stock........................... -- (3,960)
Proceeds (payments) on notes payable -- stockholders,
net.................................................... 1,236 (3,793)
Capital contributions by stockholders..................... 24,805 8,329
Collection of notes receivable -- affiliates.............. 19,408 --
Other..................................................... 3,988 (2,056)
-------- --------
Net cash provided by (used for) financing
activities..................................... 8,904 (94,673)
Effect of exchange rates on cash.................. 535 (194)
-------- --------
Net increase in cash........................................ 12,181 1,558
Cash at beginning of period................................. 9,732 8,174
-------- --------
Cash at end of period....................................... $ 21,913 $ 9,732
======== ========
</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-53
<PAGE> 160
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, 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-54
<PAGE> 161
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 Louie Lenexa, Inc.
- AMF Bowling Centers (Aust) International Inc.
- AMF Bowling Centers (Canada) International Inc.
- AMF BCO-France One, Inc.
- AMF BCO-France Two, Inc.
- AMF Bowling Centers (Hong Kong) International Inc.
- AMF Bowling Centers International Inc.-Japan
- AMF Bowling Mexico Holding, Inc.
- Boliches AMF, Inc.
- AMF Bowling Centers II Inc.-Switzerland
- AMF BCO-U.K. One, Inc.
- AMF BCO-U.K. Two, Inc.
- AMF BCO-China, Inc.
- AMF Bowling Centers China, Inc.
OTHER
- AMF Catering Services Pty, Ltd.
- Bush River Corporation
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,
F-55
<PAGE> 162
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
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 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, uncollectable 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 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.
F-56
<PAGE> 163
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Warranty costs
AMF Bowling offers warranties for its various products and provides, by a
current charge to income, an amount it estimates will be needed to cover future
warranty obligations for products sold. Warranty expense aggregated
approximately $1,313 for the four months ended April 30, 1996 and $2,748 for the
year ended December 31, 1995.
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 circum-
F-57
<PAGE> 164
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
stances and liable for state income taxes in certain jurisdictions; all other
domestic income taxes are the responsibility of the Combined Companies'
stockholders.
The foreign branches of the S Corporations and other foreign entities file
income tax returns and pay taxes in their respective countries. The stockholders
receive a tax credit, subject to certain limitations, in their U.S. federal
income tax returns for foreign taxes paid by the foreign branches of the 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 for the year ended December 31,
1995.
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 for the year ended December 31,
1995.
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
F-58
<PAGE> 165
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
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.
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, and 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 rate plus .75%, which was 6.48% at
December 31, 1995. Interest income for the year ended December 31, 1995 was
$602.
F-59
<PAGE> 166
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 year ended December 31, 1995 was approximately $8,053.
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 for the year ended December 31, 1995.
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. The maximum amount outstanding under these agreements was
$21,246 during fiscal 1995. The average interest rate on the outstanding debt
was 7.5% during fiscal 1995.
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,
F-60
<PAGE> 167
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
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 for the year ended December
31, 1995.
Other related party transactions
The Combined Companies were charged $512 for the four months ended April
30, 1996 and $1,622 for the year ended December 31, 1995 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
during the year ended 1995.
The Combined Companies charged service fees and sales commissions of $53
for the year ended December 31, 1995 to CLC. 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
for the year ended December 31, 1995.
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-61
<PAGE> 168
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 for the year ended December 31, 1995.
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-62
<PAGE> 169
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 consists 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 rate 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 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-63
<PAGE> 170
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. The maximum amount outstanding under these credit
arrangements was $39,454 during fiscal 1995. The average interest rate on these
credit arrangements was 6.43% during fiscal 1995.
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
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
United States............................. $ (7,757) $ 77,931
Foreign................................... (5,841) 30,933
-------- --------
$(13,598) $108,864
======== ========
</TABLE>
The income tax benefit (provision) consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Current tax benefit (provision)
U.S. federal.................................... $ -- $ --
State and local................................. 205 (1,065)
Foreign......................................... 1,940 (11,961)
------ --------
Total current..................................... 2,145 (13,026)
------ --------
Deferred tax benefit (provision)
U.S. federal.................................... -- --
State and local................................. -- 32
Foreign......................................... (414) 896
------ --------
Total deferred.................................... (414) 928
------ --------
Total benefit..................................... $1,731 $(12,098)
====== ========
</TABLE>
F-64
<PAGE> 171
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 year ended December 31, 1995 to income (loss) before income taxes. The
principal reasons for this difference are follows:
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Tax benefit (provision) at federal statutory
rate............................................ $ 4,759 $(38,102)
(Increase) decrease in rates resulting from:
S Corporation election for U.S. federal tax
purposes..................................... (4,759) 38,102
State and local taxes........................... 205 (1,033)
Foreign income taxes............................ 1,526 (11,065)
------- --------
Total............................................. $ 1,731 $(12,098)
======= ========
</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-65
<PAGE> 172
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
Pro forma tax benefit (provision) is as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current
U.S. federal.................................... $3,222 $(26,404)
State and local................................. 329 (3,491)
Foreign......................................... 1,940 (11,961)
------ --------
Total current..................................... 5,491 (41,856)
------ --------
Deferred
U.S. federal.................................... (85) 317
State and local................................. 73 27
Foreign......................................... (414) 896
------ --------
Total deferred.................................... (426) 1,240
------ --------
Total provision (benefit)......................... $5,065 $(40,616)
====== ========
</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)
<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) assets............... $(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-66
<PAGE> 173
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
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Tax benefit (provision) at federal statutory rate........... $ 4,759 $(38,102)
(Increase) decrease in rates resulting from:
State and local taxes, net................................ 402 (2,272)
Foreign income taxes...................................... 1,526 (11,065)
Foreign tax credits....................................... (1,526) 11,065
Other business credits.................................... -- --
Nondeductible items....................................... (91) (171)
Environmental tax......................................... -- (102)
Other..................................................... (5) 31
------- --------
$ 5,065 $(40,616)
======= ========
</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 for the year ended
December 31, 1995.
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 for the year ended December
31, 1995.
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.
F-67
<PAGE> 174
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
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. 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
F-68
<PAGE> 175
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
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
for the year ended December 31, 1995.
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 for
the year ended December 31, 1995. 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 for the year ended December 31, 1995.
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-69
<PAGE> 176
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
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Cash paid during the year for:
Interest........................................ $ 12,862 $ 5,909
Income taxes.................................... $ 5,359 $16,922
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 year ended December 31, 1995 and identifiable assets at April
30, 1996 and December 31, 1995 are presented below:
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Revenues from unaffiliated customers
Bowling centers
Domestic............................................... $ 75,000 $192,400
International.......................................... 33,500 99,900
Manufacturing............................................. 56,400 272,600
-------- --------
$164,900 $564,900
======== ========
Intersegment sales
Bowling centers
Domestic............................................... $ -- $ --
International.......................................... -- --
Manufacturing............................................. 4,600 13,900
-------- --------
$ 4,600 $ 13,900
======== ========
Operating (loss) income
Intersegment sales
Bowling centers
Domestic............................................... $ 3,600 $ 26,500
International.......................................... (2,500) 23,700
Manufacturing............................................. (9,600) 75,700
-------- --------
Eliminations.............................................. (500) (1,500)
-------- --------
$ (9,000) $124,400
======== ========
</TABLE>
F-70
<PAGE> 177
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <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
International.......................................... 2,500 7,500
Manufacturing............................................. 1,200 3,600
Eliminations.............................................. (400) (1,000)
-------- --------
$ 15,100 $ 39,200
======== ========
Capital expenditures
Bowling centers
Domestic............................................... $ 5,100 $ 17,800
International.......................................... 2,300 10,200
Manufacturing............................................. 400 4,500
Eliminations.............................................. (900) (2,500)
-------- --------
$ 6,900 $ 30,000
======== ========
</TABLE>
F-71
<PAGE> 178
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 year ended
December 31, 1995 and identifiable assets at April 30, 1996 and December 31,
1995 are presented below:
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Net operating revenue:
United States................................... $103,800 $371,400
Japan........................................... 13,700 50,300
Hong Kong....................................... 14,000 40,800
Korea........................................... 5,800 6,000
Australia....................................... 14,700 47,100
United Kingdom.................................. 7,300 26,100
Mexico.......................................... 2,100 7,800
Sweden.......................................... 1,200 10,000
Canada.......................................... 300 600
Spain........................................... 1,000 2,700
Other European countries........................ 5,200 16,000
China........................................... 400 --
Eliminations.................................... (4,600) (13,900)
-------- --------
$164,900 $564,900
======== ========
</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 for the year ended December 31, 1995 to reflect the elimination of
intercompany sales between the domestic manufacturing operation and the
manufacturing foreign sales and service branches.
F-72
<PAGE> 179
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOUR MONTHS
ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
Operating (loss) income:
United States................................... $(2,900) $ 92,200
Japan........................................... (1,400) 8,800
Hong Kong....................................... 800 6,200
Korea........................................... (300) (1,200)
Australia....................................... (1,300) 13,300
United Kingdom.................................. (1,100) 2,400
Mexico.......................................... (200) 1,500
Sweden.......................................... (500) 1,500
Canada.......................................... -- --
Spain........................................... (100) (100)
Other European countries........................ (1,300) 1,300
China........................................... (200) --
Eliminations.................................... (500) (1,500)
------- --------
$(9,000) $124,400
======= ========
</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 for the year ended December 31, 1995 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 intercompany gross profit in inventory
between the domestic manufacturing operations and the manufacturing foreign
sales and service branches.
F-73
<PAGE> 180
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
NOTE 14. BUSINESS COMBINATIONS
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
period 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-74
<PAGE> 181
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-75
<PAGE> 182
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-76
<PAGE> 183
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. (formerly AMF Group Inc.), a subsidiary of AMF Group Holdings,
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 Holdings, Inc.
Included with the guarantor companies at December 31, 1995 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.
F-77
<PAGE> 184
AMF BOWLING GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
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 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 year ended
December 31, 1995.
- Elimination entries necessary to combine the entities comprising the
Combined Companies.
F-78
<PAGE> 185
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-79
<PAGE> 186
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-80
<PAGE> 187
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-81
<PAGE> 188
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-82
<PAGE> 189
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 --
Change 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-83
<PAGE> 190
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
Change 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 and cash
equivalents............................. (5) (189) -- (194)
-------- ------- ------- --------
Net increase (decrease) in cash and cash
equivalents....................................... 2,190 (632) -- 1,558
Cash and cash equivalents at beginning of year...... 6,653 1,521 -- 8,174
-------- ------- ------- --------
Cash and cash equivalents at end of year............ $ 8,843 $ 889 $ -- $ 9,732
======== ======= ======= ========
</TABLE>
F-84
<PAGE> 191
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> 192
AMF BOWLING, INC. AND SUBSIDIARIES
SELECTED QUARTERLY DATA (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMF BOWLING, INC.
----------------------
1998 QUARTER ENDED MARCH 31 JUNE 30
------------------ ---------- --------
<S> <C> <C>
Net sales.................................. $187.6 $162.2
Operating income........................... 26.3 (12.6)
Net income (loss).......................... (0.6) (35.8)
Net income (loss) per share(a)............. $(0.01) $(0.61)
</TABLE>
<TABLE>
<CAPTION>
AMF BOWLING, INC.
--------------------------------------------------
1997 QUARTERS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales................................... $157.6 $160.5 $187.5 $208.1
Operating income............................ 29.7 12.7 17.5 23.0
Net income (loss) before extraordinary
items..................................... 0.1 (12.3) (10.2) (9.8)
Extraordinary items, net of tax(b).......... -- -- -- (23.4)
Net income (loss)........................... 0.1 (12.3) (10.2) (33.2)
Net income (loss) per share before
extraordinary items(a).................... $ 0.00 $(0.29) $(0.24) $(0.18)
Per share effect of extraordinary
items(a)(b)............................... -- -- -- (0.44)
------ ------ ------ ------
Net income (loss) per share(a).............. $ 0.00 $(0.29) $(0.24) $(0.62)
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY AMF BOWLING, INC.
-------------------- ---------------------------------------------------
ONE TWO PRO FORMA
MONTH MONTHS QUARTER
1996 QUARTERS ENDED MARCH 31 APRIL 30 JUNE 30 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------------- -------- -------- ------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............. $123.3 $ 41.6 $ 73.4 $114.8 $131.8 $179.6
Operating income
(loss).............. 27.9 (36.9) 4.0 5.3 14.3 27.8
Net income (loss)..... 21.6 (33.4) (11.9) (13.6) (5.3) (2.1)
Net income (loss) per
share(a)............ N/A N/A (0.31) (0.36) (0.14) (0.05)
</TABLE>
- ---------------
(a) Basic and diluted. Outstanding stock options and warrants are not considered
as their effect is antidilutive.
(b) Costs incurred in connection with the use of proceeds of the Initial Public
Offering. See "Note 9. Long-Term Debt" and "Note 12. Stockholders' Equity"
in the Notes to Consolidated Financial Statements.
F-86
<PAGE> 193
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-87
<PAGE> 194
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-88
<PAGE> 195
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-89
<PAGE> 196
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-90
<PAGE> 197
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-91
<PAGE> 198
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-92
<PAGE> 199
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-93
<PAGE> 200
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-94
<PAGE> 201
- ------------------------------------------------------------
- ------------------------------------------------------------
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 OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING SECURITYHOLDERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS NOT BEEN A CHANGE IN THE INFORMATION SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... 2
Forward-Looking Statements................. 3
Summary.................................... 4
Risk Factors............................... 14
Ratio of Earnings to Fixed Charges......... 22
Use of Proceeds............................ 22
Price Range of Common Stock and
Debentures............................... 23
Dividend Policy............................ 23
Selected Financial Data.................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 26
Business................................... 42
Management................................. 54
Securities Owned by Management and Certain
Beneficial Owners........................ 63
Certain Transactions....................... 67
Description of Debentures.................. 69
Description of Capital Stock............... 84
Description of Certain Indebtedness........ 86
Certain Federal Income Tax
Considerations........................... 94
Shares Eligible for Future Sale............ 101
Selling Securityholders.................... 102
Plan of Distribution....................... 104
Validity of Debentures and Common Stock.... 105
Experts.................................... 105
Index to Financial Statements.............. F-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
AMF BOWLING, INC.
------------------------
$1,125,000,000
AGGREGATE PRINCIPAL AMOUNT
AT MATURITY OF
ZERO COUPON CONVERTIBLE
DEBENTURES DUE 2018
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION,
REDEMPTION OR REPURCHASE THEREOF
------------------------
[AMF LOGO]
------------------------
PROSPECTUS
SEPTEMBER , 1998
------------------------------------------------------------
------------------------------------------------------------
<PAGE> 202
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Company in
connection with the offering of the Securities being registered hereby. The
Selling Securityholders will not share any portion of these expenses. Normal
commission expenses and brokerage fees are payable individually by the Selling
Securityholders. All amounts are estimated except the Securities and Exchange
Commission registration fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 58,079
New York Stock Exchange Fee................................. 70,000
Printing Expenses........................................... *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Transfer Agent and Registrar Fees and Expenses.............. *
Miscellaneous............................................... *
----------
Total............................................. *
==========
</TABLE>
- ---------------
* To be provided in an amendment to the Registration Statement.
As noted in Part I of this Registration Statement under "Plan of
Distribution", the Company has agreed to bear certain costs incident to the
registration of Securities and maintaining the effectiveness thereof.
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 Restated 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
II-1
<PAGE> 203
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 Restated Certificate of Incorporation 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 Restated 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 Restated 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 5(b) of the Registration Rights Agreement relating to the Private
Placement provides for indemnification by the Selling Securityholders,
underwriters, selling agents and other securities professionals 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 and 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
II-2
<PAGE> 204
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 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
II-3
<PAGE> 205
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.
(9) Pursuant to the 1996 Stock Incentive Plan, options to purchase
1,547,900 shares have been granted to officers and other employees of AMF,
in each case exercisable for $10 per share. 17,250 options have 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 313,759.13 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.
(12) In connection with the acquisition of fifteen U.S. bowling
centers from Active West, Inc. ("Active West"), the prior owners of Active
West were issued 50,000 shares of Common Stock on February 13, 1998 for an
aggregate value of $1,209,375.
(13) Pursuant to a Purchase Agreement dated May 6, 1998, among the
Company, the Designated Subsidiaries named therein and the Initial
Purchasers named therein, the Initial Purchasers purchased on May 12, 1998
$1,125,000,000 aggregate principal amount at maturity of Zero Coupon
Convertible Debentures due 2018.
(14) Pursuant to the 1998 Stock Incentive Plan, options to purchase
78,400 shares have been granted to officers and other employees of AMF, in
each case exercisable for $25 13/16 per share. These options have not been
exercised.
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. Except with
respect to the sales described in paragraph 13 no underwriters were engaged in
connection with the foregoing issuance of securities and no commissions or
discounts were paid. The sale described in paragraph (13) of this item 15 was
made by the Company to the Initial Purchasers, who in turn sold the Debentures
to qualified institutional buyers in reliance on Rule 144A under the Securities
Act. The Initial Purchasers were Goldman, Sachs & Co., Cowen & Company, Morgan
Stanley & Co. Incorporated and Schroder & Co. Inc. The aggregate offering price
for the Debentures and the discount paid to the Initial Purchasers totaled
$284,141,250 and $8,527,500, respectively. The Debentures are convertible into
Common Stock in accordance with the provisions of the Indenture filed as Exhibit
4.7 hereto.
II-4
<PAGE> 206
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
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)
3.2 By-Laws of the Company.(4)
4.1 Specimen of Common Stock Certificate.(5)
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.(6)
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.(7)
4.4 Form of Senior Subordinated Note.(8)
4.5 Form of Senior Subordinated Discount Note.(9)
4.6 Purchase Agreement dated May 6, 1998, among the Company, the
Designated Subsidiaries named therein and the Initial
Purchasers named therein.
4.7 Indenture dated as of May 12, 1998, between the Company and
The Bank of New York.(10)
4.8 Registration Rights Agreement dated as of May 12, 1998,
among the Company, the Designated Subsidiaries named therein
and the Initial Purchasers named therein.(11)
4.9 Form of the Company's Zero Coupon Convertible Debenture due
2018.
5.1* Opinion of McGuire, Woods, Battle & Boothe LLP as to the
legality of the Securities registered hereby.
5.2* Opinion of Wachtell, Lipton, Rosen & Katz as to the legality
of the Securities registered hereby.
8.1* Opinion of McGuire, Wood, Battle & Boothe LLP with respect
to certain tax matters.
10.1 Registration Rights Agreement, dated as of March 21, 1996,
by and among the Company, the Guarantors and Goldman, Sachs
& Co.(12)
10.2 Third Amended and Restated Credit Agreement dated as of
November 3, 1997, 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.(13)
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan.(14)
10.4 Stockholders Agreement, dated as of April 30, 1996, by and
among the Company and the Stockholders.(15)
10.5 Amendment No. 1, dated as of May 28, 1996, to the
Stockholders Agreement.(16)
10.6 Amendment No. 2, dated as of May 31, 1996, to the
Stockholders Agreement.(17)
10.7 Amendment No. 3, dated as of January 17, 1997, to the
Stockholders Agreement.(18)
10.8 Amendment No. 4, dated as of January 17, 1997, to the
Stockholders Agreement.(19)
10.9 Amendment No. 5, dated as of July 31, 1997, to the
Stockholders Agreement.(20)
10.10 Amendment No. 6, dated as of December 31, 1997, to the
Stockholders Agreement.(21)
10.11 Amendment No. 7, dated as of January 1, 1998, to the
Stockholders Agreement.(22)
10.12 Registration Rights Agreement, dated as of April 30, 1996,
by and among the Company and the Stockholders.(23)
10.13 Amendment No. 1, dated as of May 28, 1996, to the
Registration Rights Agreement.(24)
</TABLE>
II-5
<PAGE> 207
<TABLE>
<C> <S>
10.14 Amendment No. 2, dated as of January 17, 1997, to the Registration Rights Agreement.(25)
10.15 Amendment No. 3, dated as of January 17, 1997, to the Registration Rights Agreement.(26)
10.16 Amendment No. 4, dated as of July 31, 1997, to the Registration Rights Agreement.(27)
10.17 Amendment No. 5, dated as of September 30, 1997, to the Registration Rights Agreement.(28)
10.18 Warrant Agreement, dated as of May 1, 1996, between the Company and The Goldman Sachs Group, L.P.(29)
10.19 Employment Agreement, dated as of May 1, 1996, by and among the Company, AMF Bowling Products, Inc.
(formerly, AMF Bowling, Inc.) and Robert L. Morin.(30)
10.20 Employment Agreement, dated as of May 1, 1996, between the Company and Douglas J. Stanard.(31)
10.21 Stock Option Agreement, dated as of May 1, 1996, between the Company and Charles M. Diker.(32)
10.22 Employment Agreement, dated as of May 28, 1996, by and among the Company, AMF Group Inc. and Stephen E.
Hare.(33)
10.23 Asset Purchase Agreement, dated as of September 10, 1996, by and between AMF Bowling Centers, Inc. and
Charan Industries, Inc.(34)
10.24 Termination Agreement dated as of February 28, 1997, by and among the Company, AMF Bowling Products, Inc.
(formerly, AMF Bowling, Inc.) and Robert L. Morin.(35)
10.25 Stock Subscription Agreement, dated as of October 9, 1996, by and among the Company and the Purchasers (as
defined therein).(36)
10.26 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.(37)
10.27 Waiver and Amendment No. 1, dated as of March 24, 1997, to Amended and Restated Credit Agreement dated as
of December 20, 1996.(38)
10.28 Amendment No. 2 to the Amended and Restated Credit Agreement, dated as of June 30, 1997.(39)
10.29 Interest Rate Cap Agreement, dated July 2, 1997.(40)
10.30 AMF Bowling, Inc. 1998 Stock Incentive Plan.(41)
11.1 Computation of earnings per share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1* Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Todres & Scheiffer.
23.4 Consent of McGuire, Woods, Battle & Boothe LLP (contained in Exhibit 5.1).
23.5 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.2).
23.6 Consent of McGuire, Woods, Battle & Boothe LLP (contained in Exhibit 8.1).
24.1 Powers of Attorney (included on Signature Page).
25.1 Statement of Eligibility of Trustee under the Trust Indenture Act of 1939 on Form T-1.
</TABLE>
- ---------------
* To be filed by amendment.
II-6
<PAGE> 208
Notes to Exhibits:
<TABLE>
<C> <S>
(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 3.1 to the Registration
Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(4) Incorporated by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(5) Incorporated by reference to Exhibit 4.1 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(6) Incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 of AMF Group Inc. (File No. 333-4877).
(7) Incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-4 of AMF Group Inc. (File No. 333-4877).
(8) Incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-4 of AMF Group Inc. (File No. 333-4877).
(9) Incorporated by reference to Exhibit 4.4 to the Registration
Statement on Form S-4 of AMF Group Inc. (File No. 333-4877).
(10) Incorporated by reference to Exhibit 4.1 to the Quarterly
Report on Form 10-Q of AMF Bowling, Inc. for the quarter by
period ended on March 31, 1998 (File No. 0001-13539).
(11) Incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of AMF Bowling, Inc. for the quarter by
period ended on March 31, 1998 (File No. 0001-13539).
(12) Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(13) Incorporated by reference to Exhibit 10.2 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(14) Incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(15) Incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(16) Incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(17) Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(18) Incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(19) Incorporated by reference to Exhibit 10.8 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(20) Incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(21) Incorporated by reference to Exhibit 10.10 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(22) Incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(23) Incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
</TABLE>
II-7
<PAGE> 209
<TABLE>
<C> <S>
(24) Incorporated by reference to Exhibit 10.11 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(25) Incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(26) Incorporated by reference to Exhibit 10.13 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(27) Incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(28) Incorporated by reference to Exhibit 10.17 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(29) Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(30) Incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(31) Incorporated by reference to Exhibit 10.8 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(32) Incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(33) Incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(34) 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).
(35) 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).
(36) 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).
(37) 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).
(38) 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).
(39) 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).
(40) 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).
(41) Incorporated by reference to Exhibit 10.30 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
</TABLE>
(b) Financial Statement Schedules
Schedule I -- Condensed Financial Information of AMF Bowling, Inc.
Schedule II -- AMF Bowling Group Valuation and Qualifying Accounts and Reserves
II-8
<PAGE> 210
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Securities and
Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under item 15, 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
Securities Act of 1933 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-9
<PAGE> 211
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 Richmond, Commonwealth of
Virginia, on the 7th day of August, 1998.
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 post-effective 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-10
<PAGE> 212
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ RICHARD A. FRIEDMAN Chairman and Director July 31, 1998
- ------------------------------------------------
Richard A. Friedman
/s/ TERENCE M. O'TOOLE Director July 31, 1998
- ------------------------------------------------
Terence M. O'Toole
/s/ PETER M. SACERDOTE Director July 31, 1998
- ------------------------------------------------
Peter M. Sacerdote
/s/ DOUGLAS J. STANARD President, Chief Executive July 31, 1998
- ------------------------------------------------ Officer and Director
Douglas J. Stanard
/s/ STEPHEN E. HARE Executive Vice President, Chief July 31, 1998
- ------------------------------------------------ Financial Officer, and
Stephen E. Hare Treasurer (Principal Financial
Officer) and Director
/s/ CHARLES M. DIKER Director July 31, 1998
- ------------------------------------------------
Charles M. Diker
/s/ PAUL B. EDGERLEY Director July 31, 1998
- ------------------------------------------------
Paul B. Edgerley
/s/ HOWARD A. LIPSON Director July 31, 1998
- ------------------------------------------------
Howard A. Lipson
/s/ THOMAS R. WALL IV Director July 31, 1998
- ------------------------------------------------
Thomas R. Wall IV
/s/ MICHAEL P. BARDORO Senior Vice President, Corporate July 31, 1998
- ------------------------------------------------ Controller and Assistant
Michael P. Bardoro Secretary (Principal
Accounting Officer)
</TABLE>
II-11
<PAGE> 213
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE I
AMF BOWLING, INC.
To the Stockholders and Board of Directors of
AMF Bowling Inc.:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements included in the Registration Statement on
Form S-1 (the "Registration Statement") of AMF Bowling, Inc. and subsidiaries
for the year ended December 31, 1997, and for the period from inception (January
12, 1996) through December 31, 1996, and have issued our report thereon dated
February 20, 1998. Our audits were 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 audits 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 20, 1998
S-1
<PAGE> 214
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Investment in subsidiary.................................... $653,862 $408,734
Other noncurrent assets..................................... 239 137
-------- --------
Total assets...................................... $654,101 $408,871
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities................................... $ 73 $ 56
Stockholders' equity........................................ 654,028 408,815
-------- --------
Total liabilities and stockholders' equity........ $654,101 $408,871
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed balance sheets.
S-2
<PAGE> 215
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 (NOTE 3)
------------ -------------
<S> <C> <C>
Interest income............................................. $ 102 $ 137
Provision for income taxes.................................. 17 56
-------- --------
Income before equity in loss of subsidiary.................. 85 81
Equity in loss of subsidiary................................ (55,649) (19,565)
-------- --------
Net loss.................................................... $(55,564) $(19,484)
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
S-3
<PAGE> 216
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 (NOTE 3)
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss.................................................. $ (55,564) $ (19,484)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Interest income, net................................... (102) (137)
Equity in loss of subsidiary........................... 55,649 19,565
Change in current liabilities.......................... 17 56
--------- ---------
Net cash provided by operating activities.............. -- --
Net cash used in investing activities:
Investment in subsidiary............................... (315,671) (420,750)
--------- ---------
Net cash provided by financing activities:
Capital contributions.................................. 36,600 420,750
Net proceeds from initial public offering of shares.... 279,071 --
--------- ---------
Net cash provided by financing activities.............. 315,671 420,750
--------- ---------
Net change in cash and cash equivalents................ -- --
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 these condensed financial
statements.
S-4
<PAGE> 217
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF AMF BOWLING, INC.
NOTES TO AMF BOWLING, INC. CONDENSED FINANCIAL STATEMENTS
1. These notes to the AMF Bowling, Inc. ("AMF Bowling") condensed
financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements of AMF Bowling and subsidiaries (the
"Notes") included in this Registration Statement on Form S-1 (the
"Registration Statement"). 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. All dollar amounts are in
thousands, except where otherwise indicated.
2. The senior subordinated notes and senior subordinated discount 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 21. Condensed Consolidating
Financial Statements" in the Notes.
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.
4. Restricted assets of AMF Group Holdings and Bowling Worldwide:
The 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 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 payments 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 Credit Agreement, it may, i) declare and pay dividends
in common stock; ii) declare and pay cash dividends, to make payments
of approximately $0.15 million in May 1997 and, to the extent
necessary, to make payments of approximately $0.15 million due in May
1998 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.
5. Total assets and liabilities:
At December 31, 1997 and 1996, assets represent AMF Bowling's
investment in AMF Group Holdings and other assets related to
shareholder receivables which are related to subscription of AMF
Bowling's Common Stock. At December 31, 1997 and 1996, liabilities
represent federal income taxes payable arising from interest earned on
the shareholder receivables previously described.
S-5
<PAGE> 218
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
Four months ended April 30,
1996......................... $3,373 $ (17) $(246) $3,110
INVENTORY -- RESERVES
Year ended December 31, 1995.... $ 800 $ 954 $(498) $1,256
Four months ended April 30,
1996......................... $1,256 $ 104 $(553) $ 807
</TABLE>
S-6
<PAGE> 219
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <S>
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)
3.2 By-Laws of the Company.(4)
4.1 Specimen of Common Stock Certificate.(5)
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.(6)
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.(7)
4.4 Form of Senior Subordinated Note.(8)
4.5 Form of Senior Subordinated Discount Note.(9)
4.6 Purchase Agreement dated May 6, 1998, among the Company, the
Designated Subsidiaries named therein and the Initial
Purchasers named therein.
4.7 Indenture dated as of May 12, 1998, between the Company and
The Bank of New York.(10)
4.8 Registration Rights Agreement dated as of May 12, 1998,
among the Company, the Designated Subsidiaries named therein
and the Initial Purchasers named therein.(11)
4.9 Form of the Company's Zero Coupon Convertible Debenture due
2018.
5.1* Opinion of McGuire, Woods, Battle & Boothe LLP as to the
legality of the Securities registered hereby.
5.2* Opinion of Wachtell, Lipton, Rosen & Katz as to the legality
of the Securities registered hereby.
8.1* Opinion of McGuire, Wood, Battle & Boothe LLP with respect
to certain tax matters.
10.1 Registration Rights Agreement, dated as of March 21, 1996,
by and among the Company, the Guarantors and Goldman, Sachs
& Co.(12)
10.2 Third Amended and Restated Credit Agreement dated as of
November 3, 1997, 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.(13)
10.3 AMF Holdings Inc. 1996 Stock Incentive Plan.(14)
10.4 Stockholders Agreement, dated as of April 30, 1996, by and
among the Company and the Stockholders.(15)
10.5 Amendment No. 1, dated as of May 28, 1996, to the
Stockholders Agreement.(16)
10.6 Amendment No. 2, dated as of May 31, 1996, to the
Stockholders Agreement.(17)
10.7 Amendment No. 3, dated as of January 17, 1997, to the
Stockholders Agreement.(18)
10.8 Amendment No. 4, dated as of January 17, 1997, to the
Stockholders Agreement.(19)
10.9 Amendment No. 5, dated as of July 31, 1997, to the
Stockholders Agreement.(20)
10.10 Amendment No. 6, dated as of December 31, 1997, to the
Stockholders Agreement.(21)
10.11 Amendment No. 7, dated as of January 1, 1998, to the
Stockholders Agreement.(22)
10.12 Registration Rights Agreement, dated as of April 30, 1996,
by and among the Company and the Stockholders.(23)
10.13 Amendment No. 1, dated as of May 28, 1996, to the
Registration Rights Agreement.(24)
10.14 Amendment No. 2, dated as of January 17, 1997, to the
Registration Rights Agreement.(25)
10.15 Amendment No. 3, dated as of January 17, 1997, to the
Registration Rights Agreement.(26)
10.16 Amendment No. 4, dated as of July 31, 1997, to the
Registration Rights Agreement.(27)
</TABLE>
<PAGE> 220
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <S>
10.17 Amendment No. 5, dated as of September 30, 1997, to the
Registration Rights Agreement.(28)
10.18 Warrant Agreement, dated as of May 1, 1996, between the
Company and The Goldman Sachs Group, L.P.(29)
10.19 Employment Agreement, dated as of May 1, 1996, by and among
the Company, AMF Bowling, Inc. and Robert L. Morin.(30)
10.20 Employment Agreement, dated as of May 1, 1996, between the
Company and Douglas J. Stanard.(31)
10.21 Stock Option Agreement, dated as of May 1, 1996, between the
Company and Charles M. Diker.(32)
10.22 Employment Agreement, dated as of May 28, 1996, by and among
the Company, AMF Group Inc. and Stephen E. Hare.(33)
10.23 Asset Purchase Agreement, dated as of September 10, 1996, by
and between AMF Bowling Centers, Inc. and Charan Industries,
Inc.(34)
10.24 Termination Agreement dated as of February 28, 1997, by and
among the Company, AMF Bowling, Inc. and Robert L.
Morin.(35)
10.25 Stock Subscription Agreement, dated as of October 9, 1996,
by and among the Company and the Purchasers (as defined
therein).(36)
10.26 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.(37)
10.27 Waiver and Amendment No. 1, dated as of March 24, 1997, to
Amended and Restated Credit Agreement dated as of December
20, 1996.(38)
10.28 Amendment No. 2 to the Amended and Restated Credit
Agreement, dated as of June 30, 1997.(39)
10.29 Interest Rate Cap Agreement, dated July 2, 1997.(40)
10.30 AMF Bowling, Inc. 1998 Stock Incentive Plan.(41)
11.1 Computation of earnings per share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1* Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Todres & Scheiffer.
23.4 Consent of McGuire, Woods, Battle & Boothe LLP (contained in
Exhibit 5.1).
23.5 Consent of Wachtell, Lipton, Rosen & Katz (contained in
Exhibit 5.2).
23.6 Consent of McGuire, Woods, Battle & Boothe LLP (contained in
Exhibit 8.1).
24.1 Powers of Attorney (included on Signature Page).
25.1 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 on Form T-1.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 221
Notes to Exhibits:
<TABLE>
<C> <S>
(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 3.1 to the Registration
Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(4) Incorporated by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 of AMF Bowling, Inc. (File No.
333-34099).
(5) Incorporated by reference to Exhibit 4.1 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(6) Incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-4 of AMF Group Inc. (File No. 333-4877).
(7) Incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-4 of AMF Group Inc. (File No. 333-4877).
(8) Incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-4 of AMF Group Inc. (File No. 333-4877).
(9) Incorporated by reference to Exhibit 4.4 to the Registration
Statement on Form S-4 of AMF Group Inc. (File No. 333-4877).
(10) Incorporated by reference to Exhibit 4.1 to the Quarterly
Report on Form 10-Q of AMF Bowling, Inc. for the quarter by
period ended on March 31, 1998 (File No. 0001-13539).
(11) Incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q of AMF Bowling, Inc. for the quarter by
period ended on March 31, 1998 (File No. 0001-13539).
(12) Incorporated by reference to Exhibit 10.1 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(13) Incorporated by reference to Exhibit 10.2 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(14) Incorporated by reference to Exhibit 10.3 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(15) Incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
(16) Incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(17) Incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(18) Incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(19) Incorporated by reference to Exhibit 10.8 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(20) Incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form S-1 of AMF Bowling, Inc.
(File No. 333-34099).
(21) Incorporated by reference to Exhibit 10.10 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(22) Incorporated by reference to Exhibit 10.11 to the Annual
Report on Form 10-K of AMF Bowling, Inc. for the fiscal year
ended December 31, 1997 (File No. 001-13539).
(23) Incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-4 of AMF Group Inc. (File
No. 333-4877).
</TABLE>
<PAGE> 1
EXHIBIT 4.6
AMF BOWLING, INC.
ZERO COUPON CONVERTIBLE DEBENTURES DUE 2018
PURCHASE AGREEMENT
May 6, 1998
Goldman, Sachs & Co.,
Cowen & Company,
Morgan Stanley & Co. Incorporated,
Schroder & Co. Inc.,
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
Purchasers named in Schedule I hereto (the "Purchasers") an aggregate of $
900,000,000 principal amount at maturity of the Zero Coupon Convertible
Debentures due 2018, convertible into Common Stock, par value $0.01 per share
("Stock"), of the Company, specified above (the "Firm Securities") and, at the
election of the Purchasers, up to an aggregate of $ 225,000,000 additional
aggregate principal amount at maturity (the "Optional Securities") (the Firm
Securities and the Optional Securities which the Purchasers elect to purchase
pursuant to Section 2 hereof are herein collectively called the "Securities").
1. The Company represents and warrants to, and agrees with, each of the
Purchasers that:
(a) A preliminary offering circular, dated April 27, 1998 (the
"Preliminary Offering Circular"), and an offering circular, dated May 6,
1998 (the "Offering Circular"), have been prepared in connection with the
offering of the Securities and shares of the Stock issuable upon
conversion, repurchase or redemption thereof. The Preliminary Offering
Circular or the Offering Circular and any amendments or supplements
thereto did not and will not, as of their respective dates, contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
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 a Purchaser through
Goldman, Sachs & Co. expressly for use therein;
(b) The Company's most recent Annual Report on Form 10-K and all
subsequent documents filed prior to or at the Time of Delivery with the
United States Securities and Exchange Commission (the "Commission")
pursuant to Section 13(a), 13(c) or 15(d) of the United States Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as amended or
supplemented (hereinafter called the "Exchange Act Reports"), when they
were or are filed with the Commission, conformed or will conform in all
material respects to the applicable requirements of the Exchange Act and
the applicable rules and regulations of the Commission thereunder; and the
Exchange Act Reports
<PAGE> 2
did not and will not, as of their respective dates, contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(c) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Offering Circular 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 Offering Circular; and, since the respective dates as
of which information is given in the Offering Circular, 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 Offering Circular (other than the issuance of Stock upon exercise
of outstanding options under the Company's 1996 Stock Incentive Plan);
(d) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case free
and clear of all liens, encumbrances and defects except such as are
described in the Offering Circular 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 them 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;
(e) 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 Offering Circular, 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;
(f) 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
Offering Circular, 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) The Company has an authorized capitalization as set forth in the
Offering Circular, 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 Offering Circular; and the shares of Stock initially issuable upon
conversion of the Securities have been duly and validly authorized and
reserved for issuance and, when issued and delivered in accordance with
the provisions of the Securities and the Indenture referred to below, will
be duly and validly issued,
2
<PAGE> 3
fully paid and non-assessable and will conform to the description of the
Stock contained in the Offering Circular; 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, 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 Third Amended and Restated Credit Agreement, dated as of
November 3, 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 "Third Amended and
Restated Credit Agreement"); and, except as set forth in the Offering
Circular, 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;
(h) The Firm Securities and Optional Securities have been duly
authorized and, when issued and delivered pursuant to this Agreement and
the Indenture, will have been duly executed, authenticated, issued and
delivered and will constitute valid and legally binding obligations of the
Company, subject to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles, entitled to the benefits provided by the
indenture to be dated as of May 12, 1998 (the "Indenture") between the
Company and The Bank of New York, as Trustee (the "Trustee"), under which
they are to be issued; the Indenture has been duly authorized and, when
executed and delivered by the Company and the Trustee, the Indenture will
constitute a valid and legally binding instrument, enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles; and the
Securities and the Indenture will conform to the descriptions thereof in
the Offering Circular;
(i) 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 to consummate the
transactions contemplated hereby, including without limitation, in the
case of the Company, the corporate power and authority to issue, sell and
deliver the Securities, as provided herein;
(j) None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale of
the Securities) will violate or result in a violation of Section 7 of the
Exchange Act, or any regulation promulgated thereunder, including, without
limitation, Regulations G, T, U, and X of the Board of Governors of the
Federal Reserve System;
(k) Prior to the date hereof, neither the Company nor any of its
subsidiaries has taken any action which is designed to or which has
constituted or which would reasonably have been expected to cause or
result in stabilization or manipulation of the price of any security of
the Company in connection with the offering of the Securities;
(l) The issue and sale of the Firm Securities and Optional
Securities by the Company hereunder and the compliance by the Company and
each of the Designated Subsidiaries with all of the provisions of the
Securities, the Indenture and this 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
3
<PAGE> 4
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 Securities or the consummation by the Company or any Designated
Subsidiary of the transactions contemplated by this Agreement or the
Indenture, except (i) the filing of a registration statement by the
Company with the Commission pursuant to the United States Securities Act
of 1933, as amended (the "Act") pursuant to Section 5(k) hereof and
related qualification of the Indenture under the TIA (as hereinafter
defined) 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 Securities by the
Purchasers and (ii) such consents, approvals, authorizations,
registrations or qualifications as may be required to permit the Company
and its subsidiaries to retain its existing liquor and gaming, lottery and
gambling licenses;
(m) 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;
(n) 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;
(o) 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 Offering Circular; (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;
(p) The statements set forth in the Offering Circular under the
caption "Description of Debentures" and "Description of Capital Stock",
insofar as they purport to constitute a summary of the terms of the
Securities and the Stock, 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;
(q) Other than as set forth or contemplated in the Offering
Circular, 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 Securities or the Stock issuable upon conversion
thereof or would affect the validity of this Agreement or the Indenture;
and, to the best of the Company's
4
<PAGE> 5
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(r) When the Firm Securities and Optional Securities are issued and
delivered pursuant to this Agreement, the Securities will not be of the
same class (within the meaning of Rule 144A under the Act) as securities
which are listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a U.S.
automated inter-dealer quotation system;
(s) The Company is subject to Section 13 or 15(d) of the Exchange
Act;
(t) The Company is not and, after giving effect to the offering and
sale of the Securities, will not be, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act of 1940, as
amended (the "Investment Company Act");
(u) Neither the Company, nor any person acting on its or their
behalf has offered or sold the Securities by means of any general
solicitation or general advertising within the meaning of Rule 502(c)
under the Act or, with respect to Securities sold outside the United
States to non-U.S. persons (as defined in Rule 902 under the Act), by
means of any directed selling efforts within the meaning of Rule 902 under
the Act and the Company, any affiliate of the Company and any person
acting on its or their behalf has complied with and will implement the
"offering restriction" within the meaning of such Rule 902; provided that
no representation is made herein as to the actions of you or your
affiliates other than the Company and its subsidiaries;
(v) Within the preceding six months, neither the Company nor any
other person acting on behalf of the Company has offered or sold to any
person any Securities, or any securities of the same class (within the
meaning of Rule 144A under the Act) as the Securities, other than
Securities offered or sold to the Purchasers hereunder. The Company will
take reasonable precautions designed to insure that any offer or sale,
direct or indirect, in the United States or to any U.S. person (as defined
in Rule 902 under the Act) of any Securities or any substantially similar
security issued by the Company, within six months subsequent to the date
on which the distribution of the Securities has been completed (as
notified to the Company by Goldman, Sachs & Co.), is made under
restrictions and other circumstances reasonably designed not to affect the
status of the offer and sale of the Securities in the United States and to
U.S. persons contemplated by this Agreement as transactions exempt from
the registration provisions of the Act;
(w) The consolidated historical financial statements, together with
related schedules and notes, set forth in the Offering Circular 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 Offering
Circular have been prepared on a 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 Offering Circular or
contemplated by this Agreement. The other financial information and data
included in the Offering Circular, 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;
(x) Except as set forth in the Offering Circular, 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
5
<PAGE> 6
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;
(y) 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 Offering Circular, 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;
(z) 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;
(aa) 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 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 (as defined in Section 4
hereof), 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;
(bb) 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;
6
<PAGE> 7
(cc) There are no holders of securities of the Company or any of its
subsidiaries who, by reason of the execution of this 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 (iii) the Registration Rights Agreement,
to be dated as of May 12, 1998, by and among the Company, the Designated
Subsidiaries and the Purchasers (the "Registration Rights Agreement"); and
(dd) 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 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.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Purchasers, and each of the Purchasers
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of 24.499% of the principal amount thereof at maturity, plus accrued
Original Issue Discount (as defined in the Offering Circular) from May 12, 1998
to the Time of Delivery hereunder, the principal amount at maturity of Firm
Securities set forth opposite the name of such Purchaser in Schedule I hereto,
and (b) in the event and to the extent that the Purchasers shall exercise the
election to purchase Optional Securities as provided below, the Company agrees
to issue and sell to each of the Purchasers, and each of the Purchasers agrees,
severally and not jointly, to purchase from the Company, at the same purchase
price set forth in clause (a) of this Section 2, that portion of the aggregate
principal amount at maturity of the Optional Securities as to which such
election shall have been exercised (to be adjusted by you so as to eliminate
fractions of $1,000) determined by multiplying such aggregate principal amount
of Optional Securities by a fraction, the numerator of which is the maximum
aggregate principal amount at maturity of Optional Securities which such
Purchaser is entitled to purchase as set forth opposite the name of such
Purchaser in Schedule I hereto and the denominator of which is the maximum
aggregate principal amount at maturity of Optional Securities which all of the
Purchasers are entitled to purchase hereunder.
The Company hereby grants to the Purchasers the right to purchase at their
election up to $225,000,000 aggregate principal amount at maturity of Optional
Securities, at the same purchase price set forth in clause (a) of the first
paragraph of this Section 2 for the sole purpose of covering overallotments in
the sale of the Firm Securities. Any such election to purchase Optional
Securities 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 principal amount at maturity of Optional Securities
to be purchased and the date on which such Optional Securities are to be
delivered, as determined by you but in no event earlier than the First Time of
Delivery (as defined in Section 4 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. Upon the authorization by you of the release of the Firm Securities,
the several Purchasers propose to offer the Firm Securities for sale upon the
terms and conditions set forth in this Agreement and the Offering Circular and
each Purchaser hereby represents and warrants to, and agrees with the Company
that:
(a) It will offer and sell the Securities only to persons who it
reasonably believes are "qualified institutional buyers" ("QIBs") within
the meaning of Rule 144A under the Act in transactions meeting the
requirements of Rule 144A;
(b) It is an Institutional Accredited Investor; and
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(c) It will not offer or sell the Securities by any form of general
solicitation or general advertising, including but not limited to the methods
described in Rule 502(c) under the Act.
4. (a) The Securities to be purchased by each Purchaser hereunder will be
represented by one or more definitive global Securities in book-entry form which
will be deposited by or on behalf of the Company with The Depository Trust
Company ("DTC") or its designated custodian. The Company will deliver the
Securities to Goldman, Sachs & Co., for the account of such Purchaser, against
payment by or on behalf of such Purchaser of the purchase price therefor by wire
transfer in Federal (same day) funds to an account(s) designated by the Company,
by causing DTC to credit the Securities to the account of Goldman, Sachs & Co.
at DTC. The Company will cause the certificates representing the Securities to
be made available to Goldman, Sachs & Co. for checking at least twenty-four
hours prior to the Time of Delivery (as defined below) at the office of DTC or
its designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be 9:30 a.m., New York City time, on May 12, 1998 or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing, and, with respect to the Optional Securities, 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 Purchasers' election to purchase such
Optional Securities, 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
Securities is herein called the "First Time of Delivery", such time and date for
delivery of the Optional Securities, 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 7 hereof, including the cross-receipt
for the Securities and any additional documents requested by the Purchasers
pursuant to Section 7(j) hereof, will be delivered at such time and date at the
offices of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 (the
"Closing Location"), and the Securities will be delivered at the Designated
Office, all at such Time of Delivery. A meeting will be held at the Closing
Location at 2:00. 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 4, "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.
5. The Company agrees with each of the Purchasers:
(a) To prepare the Offering Circular in a form approved by you; to
make no amendment or any supplement to the Offering Circular which shall
be disapproved by you promptly after reasonable notice thereof; and to
furnish you with copies thereof;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities and the shares of Stock
issuable upon conversion, redemption or repurchase of the Securities 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 Securities, 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) To furnish the Purchasers with 4 copies of the Offering Circular
and each amendment or supplement thereto signed by an authorized officer
of the Company with the independent accountants' report(s) in the Offering
Circular, and any amendment or supplement containing amendments to the
financial statements covered by such report(s), signed by the accountants,
and additional copies thereof in such quantities as you may from time to
time reasonably request, and if, at any time prior to the expiration of
nine months after the date of the Offering Circular, any event shall have
occurred as a result of which the Offering Circular 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
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<PAGE> 9
Offering Circular is delivered, not misleading, or, if for any other
reason it shall be necessary or desirable during such same period to amend
or supplement the Offering Circular, to notify you and upon your request
to prepare and furnish without charge to each Purchaser and to any dealer
in securities as many copies as you may from time to time reasonably
request of an amended Offering Circular or a supplement to the Offering
Circular which will correct such statement or omission or effect such
compliance;
(d) During the period beginning from the date hereof and continuing
to and including the 90th day after the date of the Offering Circular,
directly or indirectly, not to issue, offer, sell, contract to sell,
pledge, grant an option to purchase or otherwise dispose of any Securities
or shares of Stock (other than the issuance of Stock (i) pursuant to
existing employee stock option and stock purchase plans or the Company's
proposed 1998 Stock Incentive Plan (the "98 Plan"), (ii) upon conversion,
redemption or repurchase of the Securities or (iii) as consideration for
acquisitions of bowling centers or other related entities so long as the
seller of the center or centers or other related entity or entities to be
acquired agrees to be bound by the provisions of this Section 5(d)) or any
other securities of the Company that are substantially similar to the
Securities or the Stock, 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 existing employee stock option and stock purchase plans or the
98 Plan, upon the conversion of outstanding convertible securities or
warrants or pursuant to existing earn-out obligations arising out of prior
acquisitions), or enter into any swap, option, future, forward or other
cash-settled or physically-settled hedging transaction relating to the
Securities or the Stock that transfers, in whole or in part, the economic
consequence of ownership of such securities or any securities
substantially similar to the Securities or the Stock, in each case without
your prior written consent;
(e) Not to be or become, at any time prior to the expiration of two
years after such Time of Delivery, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act;
(f) At any time when the Company is not subject to Section 13 or
15(d) of the Exchange Act, for the benefit of holders from time to time of
Securities, to furnish at its expense, upon request, to holders of
Securities and prospective purchasers of securities information (the
"Additional Issuer Information") satisfying the requirements of subsection
(d)(4)(i) of Rule 144A under the Act;
(g) If requested by you, to use its best efforts to cause the
Securities to be eligible for the PORTAL trading system of the National
Association of Securities Dealers, Inc.;
(h) To furnish to the holders of the Securities as soon as available
(and in any event no later than the time within which the Company is
required to file its Form 10-K with the Commission) 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 available (and in any event no later than the time within
which the Company is required to file its Forms 10-Q with the Commission)
after the end of each of the first three quarters of each fiscal year
(beginning with the fiscal quarter ending after the date of the Offering
Circular), consolidated summary financial information of the Company and
its subsidiaries for such quarter in reasonable detail;
(i) During a period of five years from the date of the Offering
Circular, to furnish to you copies of all reports or other communications
(financial or other) furnished to stockholders of the Company, 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
securities exchange on which the Securities or 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
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<PAGE> 10
of the Company and its subsidiaries are consolidated in reports furnished
to its stockholders generally or to the Commission);
(j) During the period of two years after such Time of Delivery, the
Company will not, and will not permit any of its "affiliates" (as defined
in Rule 144 under the Act) which it controls to, resell any of the
Securities or any Stock issued upon conversion, redemption or repurchase
thereof which constitute "restricted securities" under Rule 144 that have
been reacquired by any of them;
(k) The Company shall file and use its best efforts to cause to be
declared or become effective under the Act, on or prior to 180 days after
the First Time of Delivery, a shelf registration statement on an available
Form with respect to resales, from time to time, of the Securities and the
Stock issuable upon conversion, redemption or repurchase thereof and to
use its best efforts to maintain the effectiveness of such registration
statement during the period required under Section 2 of the Registration
Rights Agreement;
(l) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the
Offering Circular under the caption "Use of Proceeds";
(m) To reserve and keep available at all times, free of preemptive
rights, shares of Stock for the purpose of enabling the Company to satisfy
any obligations to issue shares of its Stock upon conversion of the
Securities; and
(n) To use its best efforts to list, subject to notice of issuance,
the shares of Stock issuable upon conversion of the Securities on the New
York Stock Exchange (the "Exchange").
6. The Company covenants and agrees with the several Purchasers 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
issue of the Securities and the shares of Stock issuable upon conversion of the
Securities and all other expenses in connection with the preparation, printing
and filing of the Preliminary Offering Circular and the Offering Circular and
any amendments and supplements thereto and the mailing and delivering of copies
thereof to the Purchasers and dealers; (ii) the cost of printing or producing
any Agreement among Purchasers, this Agreement, the Indenture, the Blue Sky and
Legal Investment Memoranda, closing documents (including any compilations
thereof) and any other documents in connection with the offering, purchase, sale
and delivery of the Securities; (iii) all expenses in connection with the
qualification of the Securities and the shares of Stock issuable upon
conversion, redemption or repurchase of the Securities for offering and sale
under state securities laws as provided in Section 5(b) hereof, including the
fees and disbursements of counsel for the Purchasers in connection with such
qualification and in connection with the Blue Sky and legal investment surveys;
(iv) any fees charged by securities rating services for rating the Securities;
(v) the cost of preparing the Securities; (vi) the fees and expenses of the
Trustee and any agent of the Trustee and , if requested by the Trustee, the fees
and disbursements of counsel for the Trustee in connection with the Indenture
and the Securities; (vii) any cost incurred in connection with the designation
of the Securities for trading in PORTAL and the listing of the shares of Stock
issuable upon conversion, redemption or repurchase of the Securities; (viii) the
cost and charges of any transfer agent or registrar for the Securities or the
Stock issuable upon conversion, redemption or repurchase thereof; and (ix) 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 8
and 11 hereof, the Purchasers will pay all of their own costs and expenses,
including the fees of their counsel, transfer taxes on resale of any of the
Securities by them, and any advertising expenses connected with any offers they
may make.
7. The obligations of the Purchasers hereunder 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:
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(a) Sullivan & Cromwell, counsel for the Purchasers, 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;
(b) Wachtell, Lipton, Rosen & Katz, counsel for the Company, shall
have furnished to you their written opinion, dated such the 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 authority (corporate and other) to
own its properties and conduct its business as described in the
Offering Circular;
(ii) The Company has an authorized capitalization as set forth
in the Offering Circular, and all of the issued shares of capital
stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable; and the shares of
Stock initially issuable upon conversion, redemption or repurchase
of the Securities, when issued and delivered in accordance with the
provisions of the Securities and the Indenture, will be duly and
validly issued and fully paid and non-assessable, and will conform
to the description of the Stock contained in the Offering Circular;
except as set forth in the Offering Circular, 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;
(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 Offering Circular, 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 Securities or would affect the validity of this
Agreement or the Indenture;
(vii) The Securities being issued at such Time of Delivery
constitute valid and legally binding obligations of the Company
enforceable in accordance with its terms and
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entitled to the benefits provided by the Indenture subject to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles; and the Securities and the Indenture
conform to the descriptions thereof in the Offering Circular;
(viii) The Indenture constitutes a valid and legally binding
instrument, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to
general equity principles;
(ix) The issue and sale of the Securities being issued at such
Time of Delivery and the compliance by the Company with all of the
provisions of the Securities, the Indenture and this 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 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;
(x) 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 Securities or the consummation by the Company of the
transactions contemplated by this Agreement or the Indenture, except
(i) such as may be required under the Act in connection with the
shares of Stock issuable upon conversion of the Securities or under
the TIA in connection with the qualification of the Indenture
thereunder, 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 Securities by the Purchasers and (ii) such
consents, approvals, authorizations, orders, registrations or
qualifications as may be required to permit the Company and its
subsidiaries to retain its existing liquor and gaming, lottery and
gambling licenses;
(xi) 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 to consummate
the transactions contemplated hereby, including without limitation
the corporate power and authority to issue, sell and deliver the
Securities as provided herein;
(xii) 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;
(xiii) The statements set forth in the Offering Circular under
the caption "Description of Debentures", "Description of Capital
Stock", insofar as they purport to constitute a summary of the terms
of the Securities and the Stock, 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 provisions;
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(xv) No registration of the Securities under the Act, and no
qualification of an indenture under the United States Trust
Indenture Act of 1939 (the "TIA") with respect thereto, is required
for the offer, sale and initial resale of the Securities by the
Purchasers in the manner contemplated by this Agreement; and
(xvii) Such counsel have no reason to believe that the
Offering Circular and any further amendments or supplements 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
as of its date or contains as of such Time of Delivery an untrue
statement of a material fact or omitted or omits, as the case may
be, to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading.
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.
(c) McGuire, Woods, Battle & Boothe LLP, 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 Offering Circular, 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 has been duly authorized, executed and
delivered by the Company and each of the Designated Subsidiaries;
(iii) The Securities being issued at such Time of Delivery
have been duly authorized, executed, issued and delivered by or on
behalf of the Company, assuming due authentication thereof by the
Trustee in accordance with the Indenture;
(iv) The shares of Stock initially issuable upon conversion,
redemption or repurchase of the Securities have been duly and
validly authorized and reserved for issuance;
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(v) The Indenture has been duly authorized, executed and
delivered by the parties thereto;
(vi) The statements set forth in the Offering Circular under
the caption "Certain Federal Income Tax Considerations", 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; and
(vii) 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 to consummate the transactions contemplated hereby;
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.
(d) On the date of the Offering Circular at a time prior to the
execution 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, 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;
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Offering Circular 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 Offering Circular, and (ii) since the respective dates as of which
information is given in the Offering Circular 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 Offering Circular, the effect of which, in
any such case described in Clause (i) or (ii), is in the judgment of
Goldman, Sachs & Co. on behalf of the Purchasers so material and adverse
as to make it impracticable or inadvisable to proceed with the offering or
the delivery of the Securities being delivered at such Time of Delivery on
the terms and in the manner contemplated in this Agreement and in the
Offering Circular;
(f) 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;
(g) 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 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 Goldman, Sachs &
Co. on behalf of the Purchasers makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Securities being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Offering Circular;
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(h) The Securities have been designated for trading on PORTAL;
(i) The Company has obtained and delivered to the Purchasers
executed copies of an agreement from each director and executive officer
of the Company, substantially to the effect set forth in subsection 5(d)
hereof in form and substance satisfactory to you, except as waived by
Goldman, Sachs & Co. on behalf of the Purchasers;
(j) The Company shall have furnished or caused to be furnished to
you at each 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 subsection (e) of this Section and as to such other matters as
you may reasonably request;
(k) The shares of Stock issuable upon conversion of the Securities
shall have been duly listed, subject to notice of issuance, on the
Exchange; and
(l) The Company and the Designated Subsidiaries, on the one hand,
and the Purchasers, on the other hand, shall each have entered into the
Registration Rights Agreement and received the executed counterparts of
the other.
8 (a) The Company and the Designated Subsidiaries, jointly and
severally, will indemnify and hold harmless each Purchaser against any losses,
claims, damages or liabilities, joint or several, to which such Purchaser 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 Offering Circular or the Offering Circular, 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 necessary to make the
statements therein not misleading, and will reimburse each Purchaser for any
legal or other expenses reasonably incurred by such Purchaser 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
Offering Circular or the Offering Circular or any such amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company by any Purchaser through Goldman, Sachs & Co. expressly for use therein.
(b) Each Purchaser 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 an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Offering Circular or the Offering
Circular, 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 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 Offering Circular or the Offering Circular or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Purchaser 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
15
<PAGE> 16
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 8 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 Purchasers on the
other from the offering of the Securities. 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 Purchasers 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 and the Designated Subsidiaries on the one hand and the
Purchasers on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Securities purchased under
this Agreement (before deducting expenses) received by the Company and the
Designated Subsidiaries bear to the total underwriting discounts and
commissions received by the Purchasers with respect to the Securities
purchased under this Agreement, in each case as set forth in the Offering
Circular. 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 Purchasers 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 Purchasers agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were determined
by pro rata allocation (even if the Purchasers 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. 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
16
<PAGE> 17
of such fraudulent misrepresentation. Notwithstanding the provisions of
this subsection (d), no Purchaser shall be required to contribute any
amount in excess of the amount by which the total price at which the
Securities underwritten by it and distributed to investors were offered to
investors exceeds the amount of any damages which such Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Purchasers' 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 8 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 Purchaser within the meaning of the Act; and the obligations
of the Purchasers under this Section 8 shall be in addition to any
liability which the respective Purchasers 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 the
Designated Subsidiaries within the meaning of the Act.
9 (a) If any Purchaser shall default in its obligation to purchase the
Securities 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 Securities on the terms contained herein. If within thirty-six
hours after such default by any Purchaser you do not arrange for the purchase of
such Securities, 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 Securities 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 Securities, or the Company notifies
you that it has so arranged for the purchase of such Securities, 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 Offering Circular, or in any other documents or
arrangements, and the Company agrees to prepare promptly any amendments to the
Offering Circular which in your opinion may thereby be made necessary. The term
"Purchaser" 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 Securities.
(b) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Purchaser or Purchasers by you and the
Company as provided in subsection (a) above, the aggregate principal
amount at maturity of such Securities which remains unpurchased does not
exceed one-eleventh of the aggregate principal amount at maturity of all
the Securities to be purchased at such Time of Delivery, then the Company
shall have the right to require each non-defaulting Purchaser to purchase
the principal amount at maturity of Securities which such Purchaser agreed
to purchase hereunder at such Time of Delivery and, in addition, to
require each non-defaulting Purchaser to purchase its pro rata share
(based on the principal amount at maturity of Securities which such
Purchaser agreed to purchase hereunder) of the Securities of such
defaulting Purchaser or Purchasers for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Purchaser from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of
the Securities of a defaulting Purchaser or Purchasers by you and the
Company as provided in subsection (a) above, the aggregate principal
amount at maturity of Securities which remains unpurchased exceeds
one-eleventh of the aggregate principal amount at maturity of all the
Securities 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 Purchasers to purchase Securities of a defaulting Purchaser
or Purchasers, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Purchasers to purchase and of the Company
to sell the Optional Securities) shall thereupon terminate, without
liability on the part of any non-defaulting Purchaser or the Company,
except for the expenses to be borne by the Company and the Purchasers as
provided in Section 6 hereof and the indemnity and contribution
17
<PAGE> 18
agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Purchaser from liability for its default.
10 The respective indemnities, agreements, representations, warranties and
other statements of the Company and the several Purchasers, 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 Purchaser or any controlling person of any Purchaser, or the Company, or
any officer or director or controlling person of the Company, and shall survive
delivery of and payment for the Securities.
11 If this Agreement shall be terminated pursuant to Section 9 hereof, the
Company shall not then be under any liability to any Purchaser except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any
Securities are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Purchasers through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Purchasers in making preparations for the
purchase, sale and delivery of the Securities not so delivered, but the Company
shall then be under no further liability to any Purchaser in respect of the
Securities not so delivered except as provided in Sections 6 and 8 hereof.
12 In all dealings hereunder, you shall act on behalf of each of the
Purchasers, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Purchaser made or given
by you jointly or by Goldman, Sachs & Co. on your behalf.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Purchasers shall be delivered or sent by mail, telex or
facsimile transmission to you 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 Offering Circular, Attention:
Secretary, with copies to (a) GS Capital Partners II, L.P., 85 Broad Street, New
York, New York 10004, Attention: David J. Greenwald, Esq., (b) Wachtell, Lipton,
Rosen & Katz, 51 West 52nd Street, New York, New York 10019, Attention: Daniel
A. Neff, Esq. and (c) McGuire, Woods, Battle & Boothe LLP, 901 East Cary Street,
Richmond, Virginia 23219, Attention: Joseph C. Carter, III, Esq.; provided,
however, that any notice to a Purchaser pursuant to Section 8(c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such Purchaser at
its address set forth in its Purchasers' Questionnaire, or telex constituting
such Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
13 This Agreement shall be binding upon, and inure solely to the benefit
of, the Purchasers, the Company and, to the extent provided in Sections 8 and 10
hereof, the officers and directors of the Company and each person who controls
the Company or any Purchaser, 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
Securities from any Purchaser shall be deemed a successor or assign by reason
merely of such purchase.
14 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.
15 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16 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.
18
<PAGE> 19
If the foregoing is in accordance with your understanding, please sign and
return to us 8 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Purchasers, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Purchasers and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Purchasers is pursuant to the authority set forth in a form of Agreement among
Purchasers, 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.
AMF Group Holdings Inc.
AMF Bowling Worldwide, Inc.
AMF BCO-China, Inc.
AMF BCO-France One, Inc.
AMF BCO-France Two, Inc.
AMF BCO-UK One, Inc.
AMF BCO-UK Two, Inc.
AMF Beverage Company of Oregon, Inc.
AMF Beverage Company of W. Va., Inc.
AMF Bowling Centers, Inc.
AMF Bowling Centers China, Inc.
AMF Bowling Centers International Inc.
AMF Bowling Centers (Aust)
International Inc.
AMF Bowling Centers (Canada)
International Inc.
AMF Bowling Centers (Hong Kong)
International Inc.
AMF Bowling Centers Holdings Inc.
AMF Bowling Centers Spain Inc.
AMF Bowling Centers Switzerland Inc.
AMF Bowling Products, Inc.
AMF Bowling Holdings Inc.
AMF Bowling Mexico Holding, Inc.
AMF Worldwide Bowling Centers
Holdings Inc.
Boliches AMF, Inc.
Bush River Corporation
King Louie Lenaxa, Inc.
American Recreation Centers Inc.
Burleigh Recreation, Inc.
300, Inc.
Lake Grove Centers, Inc.
Michael Jordan Golf Company, Inc.
Michael Jordan Golf-Water Tower, Inc.
MJG-O'Hare, Inc.
By: _____________________________
Name: Stephen E. Hare
Title: Executive Vice President
Accepted as of the date hereof:
Goldman, Sachs & Co.
19
<PAGE> 20
Cowen & Company
Morgan Stanley & Co. Incorporated
Schroder & Co. Inc.
By: ______________________________
(Goldman, Sachs & Co.)
On behalf of each of the Purchasers
20
<PAGE> 21
SCHEDULE I
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
PRINCIPAL AT MATURITY OF
AMOUNT AT OPTIONAL
MATURITY OF SECURITIES TO BE
SECURITIES PURCHASED IF
TO BE MAXIMUM OPTION
PURCHASER PURCHASED EXERCISED
--------- --------- ---------
<S> <C> <C>
Goldman, Sachs & Co. .............. $585,000,000 $146,250,000
Cowen & Company ................... 90,000,000 22,500,000
Morgan Stanley & Co. Incorporated.. 135,000,000 33,750,000
Schroder & Co. Inc. ............... 90,000,000 22,500,000
------------ ------------
Total ....................... $900,000,000 $225,000,000
============ ============
</TABLE>
21
<PAGE> 22
ANNEX I
Pursuant to Section 7(d) of the Purchase Agreement, the accountants shall
furnish letters to the Purchasers to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries as would be required within the
meaning of the Act and the applicable published rules and regulations
thereunder;
(ii) In their opinion, the financial statements audited by them and
included in the Offering Circular 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 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 for the periods specified in such letter;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
any unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows 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 Offering
Circular 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 Offering Circular
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 Offering Circular,
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:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows 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 for them to be in conformity with generally accepted
accounting principles;
I-1
<PAGE> 23
(B) any other unaudited income statement data and balance
sheet items included in the Offering Circular 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 Offering Circular;
(C) the unaudited financial statements which were not included
in the Offering Circular 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 Offering Circular 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
Offering Circular;
(D) 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 Offering Circular) 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 Offering Circular, except in
each case for changes, increases or decreases which the Offering
Circular discloses have occurred or may occur or which are described
in such letter; and
(E) for the period from the date of the latest financial
statements included in the Offering Circular 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 Offering Circular discloses have
occurred or may occur or which are described in such letter; and
(viii) In addition to the examination referred to in their report(s)
included in the Offering Circular 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 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 Offering Circular, 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.
I-2
<PAGE> 24
ANNEX II
Pursuant to Section 7(d) of the Purchase Agreement, the accountants shall
furnish letters to the Purchasers 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 Offering Circular 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 Purchasers (the "Representatives") and are
attached hereto.
II-1
<PAGE> 1
EXHIBIT 4.9
[FORM OF FACE OF SECURITY]
PBNY_PS1
FOR UNITED STATES FEDERAL INCOME TAX PURPOSES, THIS SECURITY BEARS
ORIGINAL ISSUE DISCOUNT. INFORMATION INCLUDING THE ISSUE PRICE, AMOUNT OF
ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY WILL BE MADE
AVAILABLE TO HOLDERS UPON REQUEST TO THE SECRETARY OF THE COMPANY AT (804)
730-4000.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS SECURITY AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION,
REDEMPTION OR REPURCHASE OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS
SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY
RULE 144A THEREUNDER.
THIS SECURITY AND ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS
CONVERSION, REDEMPTION OR REPURCHASE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES
IS A QUALIFIED INSTITUTIONAL BUYER ACQUIRING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, (III) TO AN INSTITUTION THAT IS AN
ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) or (7) UNDER
THE SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT, (IV) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), OR (V) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND IN EACH OF
CASES (I) THROUGH (V) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES AND OTHER JURISDICTIONS OF THE UNITED STATES. NO REPRESENTATION CAN BE
MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF
THE SECURITIES OR ANY SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION,
REDEMPTION OR REPURCHASE THEREOF.
THIS SECURITY, ANY SHARES OF COMMON STOCK ISSUABLE UPON ITS CONVERSION,
REDEMPTION OR REPURCHASE AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON RESALES AND OTHER
TRANSFERS OF THIS SECURITY AND ANY SUCH SHARES TO REFLECT ANY CHANGE IN
APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES
RELATING TO THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE
HOLDER OF THIS SECURITY AND ANY SUCH SHARES SHALL BE DEEMED BY THE ACCEPTANCE OF
THIS SECURITY OR ANY SUCH SHARES TO HAVE AGREED TO ANY SUCH AMENDMENT OR
SUPPLEMENT.
<PAGE> 2
AMF BOWLING, INC.
ZERO COUPON CONVERTIBLE DEBENTURE DUE 2018
No. _________
Issue Date: May 12, 1998 Original Issue Discount: $743.43
Issue Price: $252.57 (for each $1,000 Principal Amount)
(for each $1,000 Principal Amount) CUSIP:
AMF Bowling, Inc., a Delaware corporation, promises to pay to
or registered assigns, on May 12, 2018 [the Principal Amount of Dollars
($ )].
This Security shall not bear interest except as specified on the other
side of this Security. Original Issue Discount will accrue as specified on the
other side of this Security. This Security is convertible and subject to
repurchase or redemption as specified on the other side of this Security.
Additional provisions of this Security are set forth on the other side
of this Security.
IN WITNESS WHEREOF, AMF Bowling, Inc. has caused this instrument to be
duly executed under its corporate seal.
AMF Bowling, Inc.
By:
-----------------------
Name:
Title:
Attest:
By:
----------------------
Name:
Title:
[SEAL]
Dated: ______________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
THE BANK OF NEW YORK
as Trustee, certifies that this
is one of the Securities referred
to in the within-mentioned Indenture.
By:
-------------------------
Authorized Signatory
2
<PAGE> 3
[FORM OF REVERSE SIDE OF SECURITY]
AMF BOWLING, INC.
ZERO COUPON CONVERTIBLE DEBENTURE DUE 2018
1. INTEREST
This Security shall not bear interest, except that if any amount
payable hereunder is not paid when due (whether upon acceleration pursuant to
Section 6.02 of the Indenture, upon the date set for payment of the Redemption
Price pursuant to paragraph 5 hereof, upon the date set for payment of a
Purchase Price or Change of Control Redemption Price pursuant to paragraph 6
hereof or upon the Stated Maturity of this Security, or otherwise), then in each
such case the overdue amount shall bear interest at the rate of 7% per annum,
compounded semiannually (to the extent that the payment of such interest shall
be legally enforceable), which interest shall accrue from the date such overdue
amount was due to the date payment of such amount, including interest thereon,
has been made or duly provided for. All such interest shall be payable on
demand. The accrual of such interest on overdue amounts shall, in the case of
any late payment of the Principal Amount, Purchase Price or Change of Control
Redemption Price, be in lieu of, and not in addition to, the continued accrual
of Original Issue Discount.
The Original Issue Discount (the difference between the Issue Price and
the Principal Amount of the Security) in the period during which a Security
remains outstanding, shall accrue at 7% per annum, on a semiannual bond
equivalent basis using a 360-day year composed of twelve 30-day months,
commencing on May 12, 1998.
2. METHOD OF PAYMENT
Subject to the terms and conditions of the Indenture, the Company will
make payments in respect of the Securities to the Persons who are registered
Holders of Securities at the close of business on the Business Day preceding the
Redemption Date or Stated Maturity, as the case may be, or at the close of
business on a Purchase Date or Repurchase Date, as the case may be. Holders must
surrender Securities to a Paying Agent to collect such payments in respect of
the Securities. The Company will pay cash amounts in money of the United States
that at the time of payment is legal tender for payment of public and private
debts.
3. PAYING AGENT, CONVERSION AGENT AND REGISTRAR
Initially, The Bank of New York, a New York banking corporation (the
"Trustee"), will act as Paying Agent, Conversion Agent and Registrar. The
Company may appoint and change any Paying Agent, Conversion Agent, Registrar or
co-registrar without notice, other than notice to the Trustee. The Company or
any of its Subsidiaries or any of their Affiliates may act as Paying Agent,
Conversion Agent, Registrar or co-registrar.
4. INDENTURE
The Company issued the Securities under an Indenture (the "Indenture"),
dated as of May 12, 1998, between the Company and the Trustee. Capitalized terms
used herein and not defined herein have the meanings ascribed thereto in the
Indenture. The Securities are subject to all such terms, and Holders are
referred to the Indenture for a statement of those terms.
The Securities are general unsecured obligations of the Company limited
to $1,125,000,000 aggregate Principal Amount (except as provided in Sections
2.02 and 2.07 of the Indenture). The Indenture
3
<PAGE> 4
does not limit the incurrence of other indebtedness of the Company, secured or
unsecured.
5. REDEMPTION AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Securities. Subject to the terms
and conditions of the Indenture, the Securities are redeemable as a whole, or
from time to time in part, at any time at the option of the Company at the
Redemption Prices set forth below, provided that the Securities are not
redeemable prior to May 12, 2003.
The "Redemption Price" of any Security shall be equal to the Issue
Price of such Security plus accrued Original Issue Discount, interest, if any,
and Liquidated Damages, if any, thereon to the date of redemption. The table
below shows the Redemption Price of a Security per $1,000 Principal Amount on
the dates shown below and at Stated Maturity, which prices reflect accrued
Original Issue Discount calculated to each such date. The Redemption Price of a
Security redeemed between such dates would include an additional amount
reflecting the additional Original Issue Discount accrued since the next
preceding date in the table to the actual Redemption Date.
<TABLE>
<CAPTION>
REDEMPTION DATE
(1) (2) (3)
SECURITY ACCRUED ORIGINAL REDEMPTION
ISSUE PRICE ISSUE DISCOUNT AT PRICE
7% (1) + (2)
<S> <C> <C> <C>
May 12, 2003 .. $ 252.57 $ 103.71 $ 356.28
May 12, 2004 .. 252.57 129.08 381.65
May 12, 2005 .. 252.57 156.27 408.84
May 12, 2006 .. 252.57 185.39 437.96
May 12, 2007 .. 252.57 216.58 469.15
May 12, 2008 .. 252.57 250.00 502.57
May 12, 2009 .. 252.57 285.79 538.36
May 12, 2010 .. 252.57 324.14 576.71
May 12, 2011 .. 252.57 365.21 617.78
May 12, 2012 .. 252.57 409.21 661.78
May 12, 2013 .. 252.57 456.35 708.92
May 12, 2014 .. 252.57 506.84 759.41
May 12, 2015 .. 252.57 560.93 813.50
May 12, 2016 .. 252.57 618.87 871.44
May 12, 2017 .. 252.57 680.94 933.51
Stated Maturity .. 252.57 747.43 1,000.00
</TABLE>
6. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER; REDEMPTION AT THE
OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
(a) Subject to the terms and conditions of the Indenture, the
Company shall become obligated to purchase, at the option of the Holder, the
Securities held by such Holder on the following Purchase Dates and at a Purchase
Price equal to the Issue Price of such Security plus accrued Original Issue
Discount, interest, if any, and Liquidated Damages, if any, thereon to the date
of purchase, upon delivery of a Purchase Notice containing the information set
forth in the Indenture, from the opening of business on the date that is 20
Business Days prior to such Purchase Date until the close of business on
4
<PAGE> 5
such Purchase Date and upon delivery of the Securities to the Paying Agent by
the Holder as set forth in the Indenture. Such Purchase Prices may be paid, at
the option of the Company, in cash or by the issuance and delivery of shares of
Common Stock of the Company, or in any combination thereof.
<TABLE>
<CAPTION>
PURCHASE DATE PURCHASE PRICE
<S> <C>
May 12, 2003 $356.28
May 12, 2008 $502.57
May 12, 2013 $708.92
</TABLE>
Securities in denominations larger than $1,000 of Principal Amount may be
required by the Holder to be purchased in part, but only in integral multiples
of $1,000 of Principal Amount.
(b) At the option of the Holder and subject to the terms and
conditions of the Indenture, the Company shall become obligated to redeem the
Securities held by such Holder 45 days after the date of the Company's notice of
a Change of Control occurring on or prior to May 12, 2018 for a Change of
Control Redemption Price per $1,000 Principal Amount equal to the Issue Price
plus accrued Original Issue Discount, interest, if any, and Liquidated Damages,
if any, to the Repurchase Date. Securities in denominations larger than $1,000
of Principal Amount may be required by the Holder to be redeemed in part in
connection with a Change of Control, but only in integral multiples of $1,000 of
Principal Amount.
(c) Holders have the right to withdraw any Purchase Notice or
Repurchase Notice, as the case may be, by delivering to the Paying Agent a
written notice of withdrawal in accordance with the provisions of the Indenture.
(d) If the Paying Agent holds, in accordance with the
Indenture, on the Business Day following a Purchase Date or a Repurchase Date
money or securities, if permitted hereunder and under the Indenture, sufficient
to pay the Securities payable on that date, then on and after that date such
Securities shall cease to be outstanding and Original Issue Discount and
interest, if any, on such Securities shall cease to accrue, whether or not
book-entry transfer of such Securities is made or such Securities are delivered
to the Paying Agent, and the Holders thereof shall have no other rights as such
(other than the right to receive such payment).
7. NOTICE OF REDEMPTION AT THE OPTION OF THE COMPANY
Notice of redemption at the option of the Company will be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Securities at the Holder's registered address. If the Paying Agent
holds, in accordance with this Indenture, on a Redemption Date money sufficient
to pay the Securities payable on that date, then on and after that date such
Securities shall cease to be outstanding and Original Issue Discount and
interest, if any, on such Securities shall cease to accrue, whether or not
book-entry transfer of such Securities is made or such Securities are delivered
to the Paying Agent, and the Holders thereof shall have no other rights as such
(other than the right to receive such payment); provided that notice of such
redemption has been duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made. Securities in denominations larger
than $1,000 of Principal Amount may be redeemed in part but only in integral
multiples of $1,000 of Principal Amount.
8. CONVERSION
Subject to the next two succeeding sentences and the terms and
conditions of the Indenture, a Holder of a Security may convert this Security
for Common Stock of the Company at any time prior to the close of business on
May 12, 2018. If this Security is called for redemption, the Holder may convert
it at any time before the close of business on the applicable Redemption Date
unless the Company defaults in the payment of the Redemption Price. A Security
in respect of which a Holder has delivered a notice of exercise of the option to
require the Company to purchase such Security pursuant to Section 3.08 of the
5
<PAGE> 6
Indenture or to repurchase such Security in the event of a Change of Control
pursuant to Section 3.09 of the Indenture may be converted only if the notice of
such exercise is withdrawn in accordance with the terms of the Indenture.
The initial Conversion Rate is 8.6734 shares of Common Stock per $1,000
Principal Amount, subject to adjustment in certain events specified in Section
10.06 of the Indenture. The Company will deliver Cash in lieu of any fractional
share of Common Stock as provided in the Indenture.
To convert this Security a Holder must (1) complete and manually sign
the conversion notice on the back of this Security (or complete and manually
sign a facsimile of such notice) and deliver such notice to the Conversion
Agent, (2) surrender this Security to the Conversion Agent, (3) furnish
appropriate endorsements and transfer documents if required by the Conversion
Agent, the Company or the Trustee and (4) pay any transfer or similar tax, if
required.
A Holder may convert a portion of this Security if the Principal Amount
of such portion is $1,000 or an integral multiple of $1,000. No payment or
adjustment will be made for dividends on the Common Stock except as provided in
the Indenture. On conversion of this Security, that portion of accrued Original
Issue Discount attributable to the period from the Issue Date to the Conversion
Date with respect to the converted portion of this Security shall not be
canceled, extinguished or forfeited, but rather shall be deemed to be paid in
full to the Holder thereof through the delivery of the Common Stock (together
with any cash payment in lieu of fractional shares) in exchange for the portion
of this Security being converted pursuant to the terms hereof.
9. CONVERSION ARRANGEMENT ON CALL FOR REDEMPTION
Any Securities called for redemption, unless surrendered for conversion
before the close of business on the last Trading Day prior to the Redemption
Date, may be deemed to be purchased from the Holders of such Securities at an
amount not less than the Redemption Price, by one or more investment bankers or
other purchasers who may agree with the Company to purchase such Securities from
the Holders, to convert them for Common Stock of the Company and to make payment
for such Securities to the Trustee in trust for such Holders.
10. REGISTRATION RIGHTS
The Holder of this Security and the Common Stock issuable upon
conversion, redemption or repurchase thereof is entitled to the benefits of a
Registration Rights Agreement (subject to the provisions thereof), dated as of
May 12, 1998, among the Company, the Designated Subsidiaries named therein and
the Initial Purchasers.
11. DENOMINATIONS; TRANSFER; EXCHANGE
The Securities are in registered form, without coupons, in
denominations of $1,000 of Principal Amount and integral multiples of $1,000. A
Holder may transfer or convert Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not transfer or exchange
any Securities selected for redemption (except, in the case of a Security to be
redeemed in part, the portion of the Security not to be redeemed) or any
Securities in respect of which a Purchase Notice or Repurchase Notice has been
given and not withdrawn (except, in the case of a Security to be purchased in
part, the portion of the Security not to be purchased) or any Securities for a
period of 15 days before a selection of Securities to be redeemed.
12. PERSONS DEEMED OWNERS
6
<PAGE> 7
The registered Holder of this Security may be treated as the owner of
this Security for all purposes.
13. UNCLAIMED MONEY OR SECURITIES
The Trustee and the Paying Agent shall return to the Company upon
written request any money or securities held by them for the payment of any
amount with respect to the Securities that remains unclaimed for two years,
provided, however, that the Trustee or such Paying Agent, before being required
to make any such return, may at the expense of the Company cause to be published
once in a newspaper of general circulation in The City of New York or mail to
each such Holder notice that such money or securities remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication or mailing, any unclaimed money or securities then
remaining will be returned to the Company.
14. AMENDMENT; WAIVER
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in aggregate Principal Amount of the Securities
at the time outstanding and (ii) certain defaults or noncompliance with certain
provisions may be waived with the written consent of the Holders of a majority
in aggregate Principal Amount of the Securities at the time outstanding. Subject
to certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, defect or inconsistency, or to comply with
Article V or Section 10.12 of the Indenture, to provide for uncertificated
Securities in addition to or in place of certificated Securities or to make any
change that does not adversely affect the rights of any Securityholder or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the TIA.
15. DEFAULTS AND REMEDIES
If an Event of Default (as defined in the Indenture) occurs and is
continuing, the Trustee, or the Holders of at least 25% in aggregate Principal
Amount of the Securities at the time outstanding, may declare all the Securities
to be due and payable immediately. Certain events of bankruptcy or insolvency
are Events of Default which will result in the Securities being declared due and
payable immediately upon the occurrence of such Events of Default.
Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders notice of any continuing
Default (except a Default in payment of amounts due under this Security) if it
determines that withholding notice is in their interests.
16. TRUSTEE DEALINGS WITH THE COMPANY
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with and collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
17. NO RECOURSE AGAINST OTHERS
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting a Security, each
Securityholder waives
7
<PAGE> 8
and releases all such liability. The waiver and release are part of the
consideration for the issue of the Securities.
18. AUTHENTICATION
This Security shall not be valid until an authorized officer of the
Trustee manually signs the Trustee's Certificate of Authentication on the other
side of this Security.
19. ABBREVIATIONS
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TENANT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. GOVERNING LAW
THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THIS
SECURITY, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
8
<PAGE> 9
FORM OF CONVERSION NOTICE
To: AMF Bowling, Inc.
The undersigned registered holder of this Security hereby irrevocably
exercises the option to convert this Security, or portion hereof (which is $
1,000 Principal Amount or an integral multiple thereof) below designated, for
shares of Common Stock of AMF Bowling, Inc. in accordance with the terms of the
Indenture referred to in this Security, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Securities representing any unconverted Principal
Amount hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this
Security not converted are to be issued in the name of a Person other than the
undersigned, the undersigned will pay any documentary, stamp or similar issue or
transfer taxes payable with respect thereto.
Dated:
------------------------------
------------------------------
Signature (s)
Fill in for registration of shares if to be delivered, and Securities if to be
issued other than to and in the name of the registered holder:
- --------------------------------------
(Name)
- --------------------------------------
(Street Address)
- --------------------------------------
(City, state and zip code)
Please print name and address
Principal amount to be converted (if
less than all):
$
----------
---------------------------------
Social Security or Other Taxpayer
Identification Number
9
<PAGE> 10
FORM OF ELECTION OF HOLDER TO REQUIRE
REDEMPTION UPON A CHANGE OF CONTROL
To: The Bank of New York
The undersigned registered holder of this Security hereby acknowledges
receipt of a notice from AMF Bowling, Inc. (the "Company") as to the occurrence
of a Change of Control with respect to the Company and requests and instructs
the Company to repurchase this Security, or the portion hereof (which is $1,000
Principal Amount or an integral multiple thereof) below designated, as of the
Repurchase Date pursuant to the terms and conditions specified in paragraph 6(b)
of this Security and in the Indenture the Indenture referred to in this
Security.
The undersigned hereby directs the Company to pay
_______________________________ an amount in Cash or, at the Company's election,
Common Stock valued as set forth in the Indenture, equal to the Issue Price plus
accrued Original Issue Discount and interest, if any, and Liquidated Damages, if
any, to the Repurchase Date (the "Change of Control Redemption Price"), as
provided in the Indenture; provided that if the Company elects to pay any
portion of the Change of Control Redemption Price in Common Stock but such
portion will ultimately be payable in Cash, pursuant to Section 3.09(d) or (e)
of the Indenture, then the undersigned elects (check one):
( ) to withdraw this notice with respect to the following
Securities:
Principal Amount:
Certificate numbers:
( ) to receive Cash in respect of the entire Change of Control
Redemption Price with respect to the Securities that are
subject to this notice.
Notice: If the Holder fails to make an election, the Holder shall be deemed to
have elected to receive Cash in respect of the entire Change of Control
Redemption Price for all Securities subject to this notice.
Dated:
----------
- --------------------------------
----------------------------------
Signature (s)
Security certificate number:
Principal Amount to be redeemed
(if less than all): $
-------------
Remaining Principal Amount after
redemption: $
----------------
---------------------------------
Social Security or Other Taxpayer
Identification Number
10
<PAGE> 11
SCHEDULE FOR ENDORSEMENTS ON GLOBAL SECURITY
TO REFLECT CHANGES IN PRINCIPAL AMOUNT
Schedule A
Principal Amount of Global Security: $ , reduced as set forth below.
Changes to Principal Amount of Global Security
<TABLE>
<CAPTION>
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
DATE PRINCIPAL AMOUNT OF SECURITIES BY WHICH REMAINING PRINCIPAL AMOUNT NOTATION MADE
THIS GLOBAL SECURITY IS TO BE REDUCED, OF THIS GLOBAL SECURITY BY
AND REASON FOR REDUCTION
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
<S> <C> <C> <C>
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
- --------------- -- ------------------------------------------ ----- ---------------------------- -- ================
</TABLE>
11
<PAGE> 1
Exhibit 11.1
AMF Bowling, Inc.
Computation of Earnings Per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period Ended Year Ended Six Months Ended June 30,
December 31, December 31, ----------------------------
1996(a) 1997 1998 1997
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares
Weighted average number of
common shares outstanding 39,713 45,249 59,688 42,274
======== ======== ======== ========
Net loss before extraordinary items $(19,484) $(32,198) $(36,372) $(12,164)
======== ======== ======== ========
Net loss $(19,484) $(55,564) $(36,372) $(12,164)
======== ======== ======== ========
Net loss per share before
extraordinary items (b) $ (0.49) $ (0.71) $ (0.61) $ (0.29)
Per share effect of extraordinary
items (b) -- (0.52) -- --
-------- -------- -------- --------
Basic and diluted loss per common
share (b) $ (0.49) $ (1.23) $ (0.61) $ (0.29)
======== ======== ======== ========
</TABLE>
- ----------------------
(a) For the period from the inception date of January 12, 1996 which includes
results of operations of the acquired business from May 1, 1996 through the
period ended December 31, 1996.
(b) Outstanding stock options and warrants are not considered as their effect
is antidilutive.
<PAGE> 1
AMF Bowling, Inc. Exhibit 12.1
Computation of Ratio of Earnings to Fixed Charges
(in millions of dollars)
<TABLE>
<CAPTION>
AMF Bowling, Inc.
---------------------------------------------------------
Predecessor Company For the Six Months
------------------------------------------ For the Year ended December 31, ended June 30,
Years Ended December 31, Four Months --------------------------------- ----------------------
-------------------------- Ended Pro Forma Pro Forma Pro Forma
1993 1994 1995 April 30, 1996 1996(a) 1996(b) 1997(c) 1997 1998(c) 1998 1997
---- ---- ---- -------------- ------- ------- ------- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss)
from continuing
operations $ 97.5 $115.8 $108.9 $ (13.6) $ (30.4) $ (28.0) $ (43.6) $(43.6) $(41.3) $(41.3) $(16.4)
Fixed charges:
Interest expense 5.0 7.4 15.7 4.5 106.2 78.0 115.5 118.4 52.0 53.6 57.5
Amortization of debt
issue costs on all
indebtedness - - - - 4.5 3.3 5.5 4.9 1.8 1.6 2.5
Rentals - 33% 4.8 5.0 5.6 2.5 7.0 4.5 8.0 8.0 4.0 4.0 3.3
------ ------ ------ -------- ------ ----- ----- ------ ---- ----- ------
Total fixed charges 9.8 12.4 21.3 7.0 117.7 85.8 129.0 131.3 57.8 59.2 63.3
------ ------ ------ -------- ------ ----- ----- ------ ---- ----- ------
Earnings before income
taxes and fixed charges $107.3 $128.2 $130.2 $ (6.6) $ 87.3 $57.8 $85.4 $87.7 $16.5 $17.9 $46.9
====== ====== ====== ======== ====== ===== ===== ===== ===== ===== ======
Ratio of earnings to
fixed charges 11.0 10.3 6.1 (0.9) 0.7 0.7 0.7 0.7 0.3 0.3 0.7
====== ====== ====== ======== ====== ===== ===== ===== ===== ===== ======
Deficiency of earnings
to fixed charges $ - $ - $ - $ (13.6) $(30.4) $(28.0) $(43.6) $(43.6) $(41.3) $(41.3) $(16.4)
====== ====== ====== ======== ====== ===== ===== ===== ===== ===== ======
</TABLE>
- ---------------------
(a) Represents results of operations from January 1, 1996 through December 31,
1996 on a pro forma basis.
(b) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes the results of operations of the acquired business
from May 1, 1996 through December 31, 1996.
(c) Represents earnings to fixed charges for the year ended December 31, 1997,
and for the three months ended March 31, 1998, based on the historical
results of operations for the periods presented and adjusted for the
interest expense as a result of using the proceeds of the Offering to repay
senior bank debt, with weighted average borrowing rates of 8.75% and 7.68%
for the year ended December 31, 1997 and the three months ended March 31,
1998, respectively, as if the Offering had occurred as of the beginning of
the periods presented.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated February 20, 1998, and to all references to our Firm included in
this Form S-1 Registration Statement.
ARTHUR ANDERSEN LLP
Richmond, Virginia
August 5, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF PRICEWATERHOUSECOOPERS 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,
which appears in such Prospectus. We also consent to the application of such
report to the Financial Statement Schedules for the four months ended April 30,
1996 and the year 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.
PricewaterhouseCoopers LLP
Norfolk, Virginia
August 5, 1998
<PAGE> 1
Exhibit 23.3
[TODRES & RUBIN LOGO]
CERTIFIED PUBLIC ACCOUNTANTS
AND CONSULTANTS
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated December 5, 1996, and to all references to our Firm included in this Form
S-1 Registration Statement.
/s/ Todres & Rubin
------------------
Todres & Rubin
Westbury, New York
August 5, 1998
<PAGE> 1
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
AMF BOWLING, INC.
(Exact name of obligor as specified in its charter)
Delaware 13-3873268
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
8100 AMF Drive
Richmond, Virginia 23111
(Address of principal executive offices) (Zip code)
Zero Coupon Convertible Debentures due 2018
(Title of the indenture securities)
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
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<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 15th day of June, 1998.
THE BANK OF NEW YORK
By: /s/WALTER N. GITLIN
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
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<PAGE> 5
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ................................... $ 5,742,986
Interest-bearing balances ............................ 1,342,769
Securities:
Held-to-maturity securities .......................... 1,099,736
Available-for-sale securities ........................ 3,882,686
Federal funds sold and Securities purchased
under agreements to resell .......................... 2,568,530
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................................. 35,019,608
LESS: Allowance for loan and
lease losses ....................................... 627,350
LESS: Allocated transfer risk
reserve ............................................ 0
Loans and leases, net of unearned
income, allowance, and reserve ..................... 34,392,258
Assets held in trading accounts ........................ 2,521,451
Premises and fixed assets (including
capitalized leases) .................................. 659,209
Other real estate owned ................................ 11,992
Investments in unconsolidated
subsidiaries and associated
companies ............................................ 226,263
Customers' liability to this bank on
acceptances outstanding .............................. 1,187,449
Intangible assets ...................................... 781,684
Other assets ........................................... 1,736,574
------------
Total assets ........................................... $ 56,153,587
============
LIABILITIES
Deposits:
In domestic offices .................................. $ 27,031,362
Noninterest-bearing .................................. 11,899,507
Interest-bearing ..................................... 15,131,855
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ..................... 13,794,449
Noninterest-bearing .................................. 590,999
Interest-bearing ..................................... 13,203,450
Federal funds purchased and Securities
sold under agreements to repurchase .................. 2,338,881
Demand notes issued to the U.S.
Treasury ............................................. 173,851
Trading liabilities .................................... 1,695,216
Other borrowed money:
With remaining maturity of one year
or less ............................................ 1,905,330
With remaining maturity of more than
one year through three years ....................... 0
With remaining maturity of more than
three years ........................................ 25,664
Bank's liability on acceptances executed
and outstanding .................................... 1,195,923
Subordinated notes and debentures ...................... 1,012,940
Other liabilities ...................................... 2,018,960
------------
Total liabilities ...................................... 51,192,576
------------
EQUITY CAPITAL
Common stock ........................................... 1,135,284
Surplus ................................................ 731,319
Undivided profits and capital
reserves ............................................. 3,093,726
Net unrealized holding gains
(losses) on available-for-sale
securities ........................................... 36,866
Cumulative foreign currency translation adjustments .... (36,184)
------------
Total equity capital ................................... 4,961,011
------------
Total liabilities and equity
capital .............................................. $ 56,153,587
============
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
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Thomas A. Renyi |
Alan R. Griffith | Directors
J. Carter Bacot |
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