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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
AMERICAN RECREATION CENTERS, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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March 26, 1997
[LOGO OF AMERICAN RECREATION]
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the
Shareholders (the "Special Meeting") of American Recreation
Centers, Inc., a California corporation (the "Company") to be
held on April 24, 1997 at 8:30 a.m., local time, at 3333
Michelson Drive, Irvine, California 92715.
As described in the enclosed Proxy Statement, at the Special
Meeting, shareholders will be asked to vote upon a proposal to
approve the Agreement and Plan of Merger, dated as of January
17, 1997, among the Company, AMF Bowling Centers, Inc., a
Virginia corporation ("AMF"), and Noah Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of AMF
("Noah"), a related Agreement of Merger between the Company and
Noah, and the merger (the "Merger") of Noah with and into the
Company. As a result of the Merger, the Company will become a
wholly-owned subsidiary of AMF and each outstanding share of the
Company's common stock ("Common Stock") will be converted into
the right to receive $8.50 in cash, without interest. You are
urged to read the enclosed Proxy Statement, which provides you
with a description of certain of the terms of the proposed
Merger. A copy of the Merger Agreement is included as Appendix A
to the enclosed Proxy Statement.
THE BOARD HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS OF
THE PROPOSED MERGER AND HAS DETERMINED THAT THE MERGER IS IN THE
BEST INTERESTS OF, AND IS ON TERMS THAT ARE FAIR TO, THE
COMPANY'S SHAREHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE RELATED AGREEMENT OF MERGER
(COLLECTIVELY THE "MERGER AGREEMENTS") AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND RECOMMENDS THAT
THE SHAREHOLDERS OF THE COMPANY APPROVE THE MERGER AGREEMENTS
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
Consummation of the Merger is subject to certain conditions,
including approval of the Merger Agreements and the transactions
contemplated thereby by the affirmative vote of the holders of a
majority of the outstanding shares of the Common Stock entitled
to vote thereon and the approval of the Merger and the
transactions contemplated thereby by various regulatory
authorities.
Only holders of common stock of record at the close of
business on March 3, 1997 are entitled to notice of and to vote
at the Special Meeting or any adjournments or postponements
thereof.
In the material accompanying this letter, you will find a
Notice of Special Meeting of Shareholders, a Proxy Statement
relating to the actions to be taken by the Company's
shareholders at the Special Meeting and a proxy. The Proxy
Statement more fully describes the proposed Merger and includes
information about the Company.
It is important that your shares are represented and voted at
the Special Meeting. All Shareholders are invited to attend the
Special Meeting in person. However, whether or not you plan to
attend the Special Meeting, please complete, sign, date and
return your proxy in the enclosed envelope. If you attend the
Special Meeting, you may vote in person if you wish, even though
you have previously returned your proxy. Executed proxies with
no instructions indicated thereon will be voted "FOR" approval
of the Merger Agreements and the transactions contemplated
thereby, including the Merger.
Please do not send in your stock certificate at this time. In
the event that the Merger is approved by the requisite vote of
the Company's shareholders, you will be sent a letter of
transmittal for that purpose promptly after the Merger is
consummated.
Sincerely,
/s/ ROBERT A. CRIST
------------------------------
Robert A. Crist
Chairman of the Board
[LOGO OF AMERICAN RECREATION]
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<TABLE>
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<S> <C>
INTRODUCTION.............................................................. 1
SUMMARY................................................................... 4
The Parties.......................................................... 4
Special Meeting of Shareholders...................................... 4
The Merger........................................................... 5
Recommendation of the Board of Directors; Reasons for the Merger..... 6
Interests of Certain Persons......................................... 6
Opinion of Financial Advisor......................................... 7
The Merger Agreement................................................. 7
Rights of Dissenting Shareholders.................................... 9
Federal Income Tax Consequences...................................... 10
Accounting Treatment................................................. 10
Market Price Data.................................................... 10
GENERAL................................................................... 11
Date, Time and Place of Special Meeting.............................. 11
Purpose of the Special Meeting....................................... 11
Record Date; Shares Outstanding and Entitled to Vote; Quorum......... 11
Vote Required........................................................ 11
Voting of Proxies; Revocability of Proxies........................... 11
Solicitation of Proxies and Expenses................................. 12
THE MERGER AND RELATED TRANSACTIONS....................................... 13
General.............................................................. 13
Background of the Merger............................................. 13
Reasons for the Merger............................................... 14
Board Recommendation................................................. 16
Interests of Certain Persons......................................... 16
Opinion of Financial Advisor......................................... 17
THE MERGER AGREEMENT...................................................... 20
Representations and Warranties; Covenants............................ 20
Conditions to the Merger............................................. 21
Stock Options and Stock Plans........................................ 21
Amendment or Termination of the Merger Agreement; Reimbursement of
Expenses and Breakup Fee............................................ 22
Joint Venture Agreements............................................. 23
HSR Act.............................................................. 23
Certain Federal Income Tax Consequences.............................. 23
Accounting Treatment................................................. 24
Rights of Dissenting Shareholders.................................... 24
Exchange of Certificates............................................. 25
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY.......................... 26
BUSINESS OF AMF........................................................... 27
BUSINESS OF THE COMPANY................................................... 27
Properties........................................................... 29
Legal Proceedings.................................................... 30
SELECTED FINANCIAL DATA................................................... 31
</TABLE>
ii
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<TABLE>
<CAPTION>
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<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 32
Years Ended May 29, 1996, May 31, 1995, and May 25, 1994............. 32
Discontinued Operations.............................................. 33
Three Months Ended November 17, 1996, and November 29, 1995.......... 33
Six Months Ended November 27, 1996, and November 29, 1995............ 33
Liquidity and Capital Resources...................................... 34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 36
EXPENSES OF SOLICITATION.................................................. 37
ANNUAL REPORT ON FORM 10-K................................................ 37
SUBMISSION OF SHAREHOLDER PROPOSALS....................................... 37
EXPERTS................................................................... 37
OTHER BUSINESS............................................................ 37
REPORT OF INDEPENDENT ACCOUNTANTS......................................... 38
FINANCIAL STATEMENTS...................................................... 39
APPENDIX A................................................................ A-1
APPENDIX B................................................................ B-1
APPENDIX C................................................................ C-1
APPENDIX D................................................................ D-1
Section 1300. Right to Require Purchase--Dissenting Shares.......... D-1
Section 1301. Demand for Purchase................................... D-2
Section 1302. Endorsement of Shares................................. D-2
Section 1303. Agreed Price--Time for Payment........................ D-3
Section 1304. Dissenter's Action to Enforce Payment................. D-3
Section 1305. Appraisers' Report--Payment--Costs.................... D-3
Section 1306. Dissenting Shareholder's Status as Creditor........... D-4
Section 1307. Dividends Paid as Credit Against Payment.............. D-4
Section 1308. Continuing Rights and Privileges of Dissenting Share-
holders............................................................. D-4
Section 1309. Termination of Dissenting Shareholder Status.......... D-5
Section 1310. Suspension of Proceedings for Payment Pending Litiga-
tion................................................................ D-5
Section 1311. Exempt Shares......................................... D-5
Section 1312. Attacking Validity of Reorganization or Merger........ D-5
</TABLE>
iii
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AMERICAN RECREATION CENTERS, INC.
11171 SUN CENTER DRIVE
RANCHO CORDOVA, CALIFORNIA 95670
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 1997
To the Shareholders of American Recreation Centers, Inc.:
A Special Meeting of Shareholders of AMERICAN RECREATION CENTERS, INC., a
California corporation (the "Company"), will be held on Thursday, April 24,
1997, at 8:30 a.m., local time, at 3333 Michelson Drive, Irvine, California
92715 for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of January 17, 1997, among the
Company, AMF Bowling Centers, Inc., a Virginia corporation ("AMF"), and Noah
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of AMF
("Noah"), a related Agreement of Merger between the Company and Noah (the
"Agreement of Merger" and, collectively with the Merger Agreement, the "Merger
Agreements"), and the merger (the "Merger") of Noah with and into the Company.
As a result of the Merger, the Company will become a wholly-owned subsidiary
of AMF and each outstanding share of the Company's common stock, no par value
("Common Stock"), will be converted into the right to receive $8.50 in cash,
without interest.
2. To act upon procedural matters, including without limitation potential
adjournments of the Special Meeting, and to transact such other business as
may properly come before the Special Meeting or any adjournments or
postponements thereof.
Only shareholders of record of the Company's Common Stock at the close of
business on March 3, 1997 are entitled to notice of, and will be entitled to
vote at, the Special Meeting or any adjournment or postponement thereof.
Approval of the Merger Agreements and the Merger will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
entitled to vote thereon. Executed proxies with no instructions indicated
thereon will be voted "FOR" approval of the Merger Agreements and the Merger.
If votes sufficient for approval of the Merger Agreements and the Merger are
not received, it is expected that the Special Meeting will be postponed or
adjourned to a later time in order to permit further solicitation of proxies
or votes by the Company.
By Order of the Board of Directors
/s/ ROBERT A. CRIST
Robert A. Crist
Chairman of the Board
Rancho Cordova, California
March 26, 1997
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY
IN THE POSTAGE PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING IN PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY
TIME BEFORE IT IS VOTED. DO NOT SEND STOCK CERTIFICATES AT THIS TIME.
<PAGE>
AMERICAN RECREATION CENTERS, INC.
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 24, 1997
INTRODUCTION
This Proxy Statement is furnished to shareholders of American Recreation
Centers, Inc., a California corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors (the "Board") of the
Company for a Special Meeting of Shareholders (including any postponements or
adjournments thereof, the "Special Meeting") of the Company to be held at 3333
Michelson Drive, Irvine, California 92715 on April 24, 1997 at 8:30 a.m.,
local time, and at any adjournments or postponements thereof. At the Special
Meeting, shareholders will be asked to consider and vote upon a proposal to
approve the Agreement and Plan of Merger (the "Merger Agreement"), dated as of
January 17, 1997, among the Company, AMF Bowling Centers, Inc., a Virginia
corporation ("AMF"), and Noah Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of AMF ("Noah"), a related Agreement of Merger between
the Company and Noah (the "Agreement of Merger" and, collectively with the
Merger Agreement, the "Merger Agreements"), and the merger (the "Merger") of
Noah with and into the Company. As a result of the Merger, the Company will
become a wholly-owned subsidiary of AMF and each outstanding share of the
Company's common stock, no par value ("Common Stock") will, except as
described below, be converted into the right to receive $8.50 in cash, without
interest (the "Merger Consideration").
On the effective date of the Merger (the "Effective Time"), subject to the
conditions contained in the Merger Agreement, each outstanding share of Common
Stock other than shares owned by the Company, AMF, Noah or any subsidiary of
any of the Company, AMF or Noah (but including shares owned by the Company's
Employee Stock Ownership Plan and Employee Stock Purchase Plan), and other
than "Dissenting Shares," as defined below, will be converted into the right
to receive the Merger Consideration. Shares of Common Stock owned by
shareholders who have perfected their rights in accordance with Chapter 13 of
the California General Corporation Law ("Dissenting Shares") will not be
converted into the right to receive the Merger Consideration but such
shareholders will be entitled to receive the fair market value of their shares
as provided in Chapter 13 of the California General Corporation Law. See "THE
MERGER AND RELATED TRANSACTIONS--Rights of Dissenting Shareholders."
Only shareholders of record of the Company's Common Stock at the close of
business on March 3, 1997 are entitled to notice of, and will be entitled to
vote at, the Special Meeting or any adjournments or postponements thereof. As
of the close of business on March 3, 1997, there were 4,613,037 shares of the
Company's Common Stock outstanding. Approval of the Merger Agreements and the
Merger will require the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock entitled to vote thereon. Executed proxies
with no instructions indicated thereon will be voted "FOR" approval of the
Merger Agreements and the Merger. If votes sufficient for approval of the
Merger Agreements and the Merger are not received, it is expected that the
Special Meeting will be postponed or adjourned to a later time in order to
permit further solicitation of proxies or votes by the Company.
THE BOARD HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS OF THE PROPOSED
MERGER AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF, AND IS
ON TERMS THAT ARE FAIR TO, THE COMPANY'S SHAREHOLDERS. THE BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY APPROVE THE MERGER AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER.
In accordance with California law, no other matters may be brought before
the Special Meeting.
1
<PAGE>
This Proxy Statement and the enclosed proxy are first being mailed to the
Company's shareholders on or about March 26, 1997. The solicitation will be by
mail, but further solicitation of proxies may be made by telephone or oral
communication with some shareholders by the Company's regular employees who
will not receive additional compensation for the solicitation. Expenses of
this solicitation, including reimbursements paid to brokerage firms and others
for their expenses incurred in forwarding solicitation material regarding the
Special Meeting to beneficial owners of the Company's Common Stock will be
borne by the Company. In addition, the Company has retained MacKenzie
Partners, Inc. to aid in the solicitation of proxies for the Special Meeting.
The fee of such firm is $7,500 plus reimbursement of reasonable out-of-pocket
costs and expenses. In addition, the Company has agreed to indemnify MacKenzie
Partners, Inc. against certain losses and liabilities.
All information contained in this Proxy Statement concerning AMF, Noah and
their affiliates, has been supplied by AMF and Noah. All other information
contained in this Proxy Statement has been supplied by the Company.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A
PROXY IN ANY JURISDICTION FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
PROXY SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROXY STATEMENT
SHALL NOT, UNDER ANY CIRCUMSTANCES, IMPLY THAT THERE HAS NOT BEEN ANY CHANGE
IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS PROXY STATEMENT.
Disclosure Regarding Forward-Looking Statements. This Proxy Statement
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Although the Company believes that the expectations reflected in such forward-
looking statements are reasonable at this time, it can give no assurance that
such expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's
expectations are set forth in "Business" as well as elsewhere in this Proxy
Statement.
Additional Information. The Company is subject to the informational
requirements of the Exchange Act of 1934 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 can be inspected and copied at the public reference
facilities maintained by Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices at 500
West Madison Street, Chicago, Illinois 60606 and 7 World Trade Center, New
York, New York 10048. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Such material may be obtained electronically by visiting the
Commission's web site on the Internet at http://www.sec.gov. The Common Stock
of the Company is traded on the Nasdaq National Market System. Reports, proxy
statements and other information concerning the Company may be inspected at
the National Association of Securities Dealers, Inc., at 1735 K Street, N.W.,
Washington D.C. 20006.
Incorporation of Certain Documents by Reference. The Company incorporates
herein by reference its Annual Report on Form 10-K for the fiscal year ended
May 29, 1996, the Company's Quarterly Reports on Form 10-Q for the quarters
ended August 28, 1996 and November 27, 1996, and the Company's Current Report
on Form 8-K dated January 21, 1997.
This Proxy Statement incorporates documents by reference which are not
presented herein or delivered herewith. There will be provided without charge
to each person, including any beneficial owner, to whom a Proxy Statement is
delivered, upon oral or written request of any such person, a copy of any or
all documents incorporated by reference herein (excluding exhibits unless such
exhibits are specifically incorporated by reference herein). Such requests
should be directed to the Secretary of the Company, P.O. Box 580, Rancho
Cordova, California 95741. In order to ensure timely delivery of the documents
in advance of the Special Meeting, any such request should be made by April
10, 1997.
2
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All reports and definitive proxy or information statements filed pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Proxy Statement and prior to the Effective Date shall be deemed
incorporated by reference into this Proxy Statement from the date of filing of
such documents. Any statement contained in a document incorporated or deemed
to be incorporated herein shall be deemed to be modified or superseded for
purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
----------------
The date of this Proxy Statement is March 26, 1997.
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3
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary does not contain a complete description
of the Agreement and Plan of Merger, dated as of January 17, 1997, among the
Company, AMF Bowling Centers, Inc., a Virginia corporation ("AMF"), and Noah
Acquisition Corp., a Delaware corporation ("Noah"), a copy of which is attached
as Appendix A (the "Merger Agreement"), the related Agreement of Merger between
Noah and the Company, a copy of which is attached as Appendix B (the "Agreement
of Merger" and, collectively with the Merger Agreement, the "Merger
Agreements"), or the merger of Noah with and into the Company (the "Merger"),
or the other matters contained in this Proxy Statement. The summary is
qualified in its entirety by reference to the full text of this Proxy Statement
and the attached Appendices. Shareholders are urged to read carefully this
Proxy Statement and the attached Appendices in their entirety before voting.
THE PARTIES
The Company
The Company is one of the largest chain operators of bowling centers in the
United States. As of January 31, 1997 it operated a total of 43 bowling centers
(18 in Northern California, three in Southern California, 10 in Texas, seven in
Wisconsin, three in Oklahoma and one each in Kentucky and Missouri) containing
an aggregate of 1,680 lanes. The Company's bowling centers range in size from
24 to 72 lanes. Thirteen centers are located in buildings that are leased from
third parties; nine centers are located in buildings that are owned by the
Company or its wholly-owned subsidiaries; and 22 are operated by joint ventures
which own 21 of the buildings and in which the Company is an 85% owner. The
Company's principal executive offices are located at 11171 Sun Center Drive,
Suite 120, Rancho Cordova, California 95670. Its telephone number is (916) 852-
8005.
AMF
AMF is a Virginia corporation principally engaged in the ownership and
operation of bowling centers consisting of 264 U.S. bowling centers and 84
international bowling centers as of January 31, 1997. AMF is a subsidiary of
AMF Group, Inc. AMF's principal executive offices are located at 8100 AMF
Drive, Mechanicsville, Virginia 23111. Its telephone number is (804) 730-4000.
Noah
Noah is a newly-formed, wholly-owned subsidiary of AMF formed solely for the
purposes of the Merger. Noah's principal executive offices are located at 8100
AMF Drive, Mechanicsville, Virginia 23111. Its telephone number is (804) 730-
4000.
SPECIAL MEETING OF SHAREHOLDERS
Date, Time and Place
The Special Meeting of the Company's shareholders (the "Special Meeting")
will be held on April 24, 1997 at 8:30 a.m., local time, at 3333 Michelson
Drive, Irvine, California 92715.
Purpose of the Special Meeting
At the Special Meeting, shareholders of record of the Company as of the close
of business on the Record Date (as defined below) will be asked to consider and
vote upon a proposal to approve the Merger Agreements and the Merger, and such
other matters as may properly be brought before the Special Meeting.
4
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Record Date; Shares Outstanding and Entitled to Vote; Quorum
Only holders of the Company's Common Stock at the close of business on March
3, 1997 (the "Record Date") will be entitled to notice of and to vote at the
Special Meeting. At the close of business on the Record Date, there were
4,613,037 shares of Common Stock outstanding, each of which will be entitled to
one vote on each matter to be acted upon. The required quorum for the
transaction of business at the Special Meeting is a majority of the shares of
Common Stock issued and outstanding on the Record Date. Pursuant to the terms
of the Company's Employee Stock Ownership Plan (the "ESOP") and Employee Stock
Purchase Plan (the "ESPP") shares held in trust for the benefit of participants
in the ESOP or ESPP will be voted by such participants through a pass-through
voting procedure. Abstentions and broker non-votes each will be included in
determining the number of shares present for purposes of determining the
presence of a quorum.
Vote Required; Revocability of Proxies
Approval of the Merger Agreements and the Merger requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
issued and outstanding as of the close of business on the Record Date.
Abstentions and broker non-votes will have the same effect as votes against the
Merger Agreements and the Merger. As of March 3, 1997, the directors and
officers of the Company and their affiliates had the right to vote an aggregate
of two percent (2%) of the Common Stock outstanding as of such date. Any
shareholder who has given a proxy may revoke it at any time before it is
exercised at the Special Meeting, by (i) delivering to the Secretary of the
Company (by any means, including facsimile) a written notice, bearing a date
later than the proxy, stating that the proxy is revoked, (ii) signing and so
delivering a proxy relating to the same shares and bearing a later date than
the earlier proxy prior to the vote at the Special Meeting or (iii) attending
the Special Meeting and voting in person (although attendance at the Special
Meeting will not, by itself, revoke a proxy). See "GENERAL--Voting of Proxies."
THE MERGER
General. Pursuant to the Merger, Noah will be merged with and into the
Company and the Company will be the surviving corporation of the Merger and
become a wholly-owned subsidiary of AMF. If the requisite approval of the
shareholders of the Company is received, the Merger is expected to be
consummated as soon as practicable after the satisfaction or waiver of each of
the conditions to the consummation of the Merger, which is expected to occur as
soon as practicable following receipt of shareholder approval at the Special
Meeting.
Effects of Merger. Upon consummation of the Merger, each then-outstanding
share of Common Stock, other than shares owned by the Company, AMF, Noah or any
subsidiary of the Company, AMF or Noah (but including shares owned by the
Company's Employee Stock Ownership Plan and Employee Stock Purchase Plan), and
other than Dissenting Shares, automatically will be converted into the right to
receive $8.50 in cash, without interest, and the Company will become a wholly-
owned subsidiary of AMF.
Exchange of Certificates. If the Merger is consummated, shareholders of the
Company will be notified promptly of the consummation of the Merger and will be
advised of the procedure for surrender of their stock certificates in exchange
for the Merger Consideration, which will be paid promptly after such surrender.
SHAREHOLDERS SHOULD NOT SEND IN STOCK CERTIFICATES AT THIS TIME. See "THE
MERGER AND RELATED TRANSACTIONS--Exchange of Certificates."
Effective Time of the Merger. The Merger will become effective upon the
acceptance of the filing of the Agreement of Merger by the Secretary of State
of California, and the acceptance of the filing of a certificate of merger by
the Secretary of State of Delaware, or such later time as may be specified in
the Agreement of Merger. The Agreement of Merger and certificate of merger are
expected to be filed as soon as practicable after the satisfaction or waiver of
each of the conditions to consummation of the Merger, which is expected to
occur as soon as practicable following receipt of shareholder approval at the
Special Meeting.
5
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors of the Company has unanimously approved the Merger
Agreements and the Merger and believes that the Merger is fair to and in the
best interests of the Company's shareholders and unanimously recommends that
the Company's shareholders vote for the approval of the Merger Agreements and
the Merger. In reaching its unanimous determination, the Board considered a
number of factors, set forth in more detail in "THE MERGER AND RELATED
TRANSACTIONS--Reasons for the Merger," including, its knowledge of the business
and the Company, management's assessments, the historical and current value of
the Common Stock, the terms of the Merger Agreement, and the fairness opinion
of L.H. Friend, Weinress, Frankson & Presson, Inc. The Board believes that the
Company's recent operating results have been adversely affected by a trend of
reduced market demand and by the current and prospective environment in which
the Company operates. Though the Company has taken steps to address the reduced
demand by offering alternative recreational activities at its bowling centers,
the Board believes that there is substantial risk that in the long-term, the
Company will not produce shareholder value in excess of the Merger
Consideration.
INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Company's Board of Directors with
respect to the Merger, shareholders of the Company should be aware that the
Board of Directors and certain officers of the Company have interests that may
present them with potential conflicts of interests. The Company previously has
provided options under various stock option plans to the directors and certain
executive officers of the Company. Pursuant to the terms of the Company's stock
option plans, all stock options granted thereunder will be fully exercisable
immediately prior to the Effective Time. Prior to the Effective Time, each
holder of an option has the right to surrender his option for cash in an amount
per share equal to the difference between the exercise price of the option and
$8.50, less applicable withholding taxes. The individuals below own the
following number of options to purchase the Company's Common Stock and the
total spread between the Merger Consideration and the exercise price of such
options is: Chairman of the Board, Chief Executive Officer, and President
Robert A. Crist (205,000 shares, $454,688); Karen Wagner, Chief Financial
Officer and Vice President/Treasurer (125,000 shares, $312,188); Director
Stewart Bloom (30,000 shares, $97,813); Director Stephen R. Chanecka (30,000
shares, $97,813); Director Stanley B. Schneider (30,000 shares, $97,813); and
Director Bruce Feuchter (13,000 shares, $40,625).
The Company has entered into Severance Agreements with Robert A. Crist,
Chairman of the Board, Chief Executive Officer, and President of the Company
and Karen B. Wagner, Chief Financial Officer, Vice President and Treasurer of
the Company. Pursuant to the terms of the Severance Agreements, in the event of
the termination or resignation of either such person following a change in
control of the Company, the Company would be obligated to continue paying such
person's salary and providing all employee benefits (other than ESOP/ESPP
participation, option grants and bonuses) to such person for a period of 28
months (in the case of Mr. Crist) or 12 months (in the case of Ms. Wagner),
following such termination or resignation, which payment may be demanded by
such persons in a lump sum. The Merger, if consummated, will constitute a
change in control. The severance payments thereunder would be equal to $406,361
to Mr. Crist and $118,266 to Ms. Wagner.
The Company, and pursuant to the Merger Agreement, AMF, are obligated to
provide certain indemnification to the present and former directors and
officers of the Company and to maintain, subject to certain limitations, the
directors' and officers' liability insurance policies currently maintained by
the Company. See "THE MERGER AND RELATED TRANSACTIONS--Interests of Certain
Persons."
The Company is obligated to pay certain legal fees in connection with the
Merger and related transactions to Stradling, Yocca, Carlson & Rauth, a
Professional Corporation, legal counsel to the Company. Bruce Feuchter, a
director of the Company, is a shareholder of Stradling, Yocca, Carlson & Rauth.
6
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OPINION OF FINANCIAL ADVISOR
L.H. Friend, Weinress, Frankson & Presson, Inc. ("L.H. Friend") orally
advised the Board of Directors on January 17, 1997, and has delivered its
written opinion dated January 24, 1997, that the consideration to be received
by the Company's shareholders, pursuant to the terms of the Merger Agreement,
is fair to the Company's shareholders from a financial point of view. The full
text of the opinion of L.H. Friend, which sets forth the assumptions made,
matters considered and limitations on the review undertaken by L.H. Friend, is
attached as Appendix C to this Proxy Statement. Shareholders are urged to read
the opinion in its entirety. See "THE MERGER AND RELATED TRANSACTIONS--Opinion
of Financial Advisor."
THE MERGER AGREEMENT
Representations and Warranties; Covenants
Under the Merger Agreement, the Company made a number of representations
regarding its capital structure, operations, financial condition and other
matters, including its authority to enter into the Merger Agreement and to
consummate the Merger. See "THE MERGER AGREEMENTS--Representations and
Warranties; Covenants."
The Company has agreed that, until the consummation of the Merger or the
termination of the Merger Agreement, it will maintain its business, it will not
take certain actions outside the ordinary course of its business without AMF's
consent and it will use its best efforts to consummate the Merger. The Company
has agreed not to initiate, continue, solicit or encourage any inquiries or the
making of any proposal or offer with respect to a merger, consolidation or
similar transaction involving, or any purchase of all or any significant
portion of the assets or any equity securities of, the Company or any of its
subsidiaries (an "Acquisition Proposal"), except that the Board of Directors
may provide information to and engage in negotiations with a third party
regarding an Acquisition Proposal in accordance with the Board's fiduciary
duties as advised in writing by the Company's outside counsel. See "THE MERGER
AGREEMENTS--Representations and Warranties; Covenants."
AMF has agreed, if the Merger is consummated, to provide employees of the
Company's subsidiaries retained by AMF with employee benefits in the aggregate
no less favorable than those benefits provided to AMF's similarly situated
employees for a period of six months following the effectiveness of the Merger
and to provide certain severance benefits to certain employees of the Company
terminated during such period. AMF has also agreed that if the Merger is
consummated, to indemnify the officers and directors of the Company, subject to
any limitations imposed by applicable law, for a period of six years with
respect to any claim or liability arising out of or pertaining to (i) any act
or omission occurring prior to the Merger or (ii) the transactions contemplated
by the Merger Agreement to the extent provided under the Company's Articles of
Incorporation and Bylaws in effect on the date of the Merger Agreement. AMF has
also agreed to honor the existing Indemnification Agreements between the
Company and certain of its such officers and directors. AMF has further agreed,
for a period of three years following consummation of the Merger, subject to
certain limitations, to cause the Company to use its best efforts to provide
directors and officers liability insurance coverage to the persons currently
covered by Company's directors and officers liability insurance policy
comparable to that provided to such officers and directors prior to the Merger.
See "THE MERGER AGREEMENTS--Representations and Warranties; Covenants."
Conditions Precedent to the Merger
In addition to the approval of the shareholders of the Company sought hereby,
the obligations of the Company, AMF and Noah to consummate the Merger are also
conditioned upon the accuracy in all material respects of the representations
and warranties made by the other party and the performance in all material
respects of the covenants of the other party. AMF's obligations under the
Merger Agreement are also conditioned
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upon the following: (i) the absence of any action by any governmental entity,
whether actually instituted or pending, seeking to delay, restrain, prohibit or
limit (or seeking to impose material damages or to impose material restrictions
relating to) the Merger, the Merger Agreement, the transactions contemplated
thereby, the ownership or operation of the business of the Company, AMF, Noah,
or any of their respective subsidiaries, or seeking to require divestiture of
or interfere with the full rights of ownership of any shares of Common Stock of
AMF or its subsidiaries, or that would otherwise, in the reasonable judgment of
AMF, be likely to materially adversely affect any such rights; (ii) the absence
of material adverse changes in the value, condition, prospects, business or
results of operations of the Company; (iii) the receipt by AMF of all
regulatory approvals, licenses and certain other consents, including all
consents and licenses relating to the sale and service of alcoholic beverages
and any gaming or gambling activities required to be obtained prior to the
consummation of the Merger and the transactions contemplated by the Merger
Agreement; and (iv) that AMF be reasonably satisfied that, at or prior to the
Effective Time, certain of the Company's debt will be prepaid in full, and that
the Company will consummate the acquisition of all minority interests in
certain of the Company's joint ventures. See "THE MERGER AGREEMENTS--Conditions
to the Merger."
Stock Options and Stock Plans
Pursuant to the terms of the Company's stock option plans all stock options
granted thereunder will be fully exercisable immediately prior to the Effective
Time and the Company will offer to pay to each holder of options to purchase
the Company's Common Stock ("Company Options"), in exchange for the
cancellation of such holder's Company Options, an amount of cash equal to the
product of (a) the excess, if any, of the Merger Consideration over the per
share exercise price of each such Company Option and (b) the number of shares
subject to such Company Option immediately prior to the Effective Time. See
"THE MERGER AGREEMENTS--Stock Options and Stock Plans."
Immediately prior to the Effective Time, the rights of the participants in
the Company's Employee Stock Purchase Plan and Employee Stock Ownership Plan to
all shares of the Company's Common Stock held under such plans will become
fully vested, each holder of shares under such plans shall have the right to
vote such shares at the Special Meeting, and at the Effective Time, such plans
will be terminated. See "THE MERGER AGREEMENTS--Stock Options and Stock Plans."
Amendment of Merger Agreement
The Merger Agreement may be amended by the Company, AMF and Noah prior to the
Effective Time, at any time before or after approval of the Merger by the
shareholders of the Company; provided, however, that after such shareholder
approval, no amendment may be made without the further approval of such
shareholders which would alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital stock of the
Company, or (ii) any of the principal terms of the Merger. See "THE MERGER
AGREEMENTS--Amendment or Termination of the Merger Agreement."
Termination of Merger Agreement
The Merger Agreement may be terminated by mutual agreement of AMF and the
Company or by either such party if (i) the other such party shall have failed
to comply in any material respect with any of its covenants or agreements in
the Merger Agreement to be complied with or performed by such party at or prior
to such date of termination, (ii) if the required approval of the shareholders
of the Company is not obtained by reason of the failure to obtain the required
vote, (iii) if the Merger has not been consummated by July 31, 1997 other than
as a result of a material breach of the Merger Agreement by the terminating
party, or (iv) if there shall be any law or regulation that makes consummation
of the Merger illegal or otherwise prohibited or if any judgment, injunction,
order or decree enjoining AMF or the Company from consummating the Merger is
entered and such judgment, injunction, order or decree shall become final and
nonappealable. See "THE MERGER AGREEMENTS--Amendment or Termination of the
Merger Agreement."
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The Merger Agreement may be terminated by the Board of Directors of AMF if
the Board of Directors of the Company withdraws or modifies, or resolves to
withdraw or modify, in a manner adverse to AMF or Noah its approval or
recommendation of the Merger Agreement or the Merger. The Merger Agreement may
be terminated by the Board of Directors of the Company if the Company receives
an Acquisition Proposal on terms the Company's Board of Directors (after
consultation with its financial advisors) determines to be more favorable to
the Company's shareholders than the terms of the Merger, and the Company's
Board of Directors determines, in accordance with the written advice of the
Company's outside counsel, (x) that to continue to recommend that holders of
shares of the Company's Common Stock vote in favor of the Merger,
notwithstanding the receipt of such offer with respect to an Acquisition
Proposal, would violate the fiduciary duties of the Board to the Company's
shareholders and (y) to accept such Acquisition Proposal; provided, however,
that the Company has provided AMF and Noah with two business days prior written
notice of its intent to so terminate this Agreement together with a detailed
summary of the terms and conditions (including proposed financing, if any) of
such Acquisition Proposal; and provided, further, that AMF shall receive the
fees described below immediately prior to such transaction (a "Company
Fiduciary Termination").
Reimbursement of Expenses; Breakup Fee
The Merger Agreement provides for the reimbursement of AMF's fees and
expenses in connection with this transaction up to a maximum of $650,000 and
the payment of an additional breakup fee of $2 million by the Company if (a)
AMF terminates the Merger Agreement as a result of the Company's Board of
Directors withdrawal or modification (or resolution to withdraw or modify) of
its approval or recommendation of the Merger Agreement or the Merger in a
manner adverse to AMF or Noah, (b) the Company terminates the Agreement
pursuant to a Company Fiduciary Termination, or (c) (i) after January 17, 1997
any person or group other than AMF or Noah or any of their respective
subsidiaries or affiliates (collectively, an "Acquiring Person") shall have
become the beneficial owner of 10% or more of the outstanding shares of the
Company Common Stock (or any person or group already beneficially owning 10% or
more of the outstanding shares of the Company's Common Stock increases such
ownership by more than 5% of the shares such person or group theretofore
owned), or any Acquiring Person shall have commenced, or shall have publicly
announced an intention to commence, a tender offer or exchange offer for or an
intention to acquire (by merger, consolidation, recapitalization or otherwise)
10% or more of the outstanding shares of the Company's Common Stock or all or
substantially all of the assets of the Company, and (ii) any Acquiring Person
shall have become the beneficial owner of a majority of the outstanding shares
of the Company's Common Stock. See "THE MERGER AGREEMENT--Reimbursement of
Expenses; Breakup Fee").
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger is approved by the shareholders and is consummated,
shareholders of the Company who disapprove of the Merger may, if they satisfy
certain conditions, pursue rights as dissenting shareholders to have their
shares purchased at fair market value as determined in a judicial appraisal
action. Under the provisions of Sections 1300 through 1312 of the California
General Corporation Law (the "CGCL"), since the Company's Common Stock is
designated as a Nasdaq National Market security and is listed on the
interdealer quotation system of the National Association of Securities Dealers,
Inc. (an "NMS Security"), the Company's shares are not eligible to be treated
as dissenting shares unless demands under the CGCL for appraisal are filed with
respect to five percent or more of the outstanding shares. Accordingly,
shareholders of the Company will not have dissenters' rights unless (a) holders
of at least five percent of the Common Stock file timely demands or (b) the
Common Stock is no longer an NMS Security immediately prior to the Merger. In
the event that shareholders do have dissenters' rights, they must (unless the
Common Stock is no longer an NMS Security), deliver written demand for the
purchase of their shares before the Special Meeting and vote against the Merger
to be entitled to exercise the rights afforded pursuant to Sections 1300
through 1312 of the CGCL. If the Common Stock is no longer an NMS Security (an
event the Company does not anticipate), the shares need not have been voted
against
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the Merger (but may not have been voted in favor thereof), and the demand need
not be received by the Company until 30 days after the Company mails to the
shareholders a notice of approval of the Merger.
THE REQUIRED PROCEDURES MUST BE FOLLOWED EXACTLY OR DISSENTERS' RIGHTS, IF
AVAILABLE, MAY BE LOST. For a summary of these rights, see "THE MERGER AND
RELATED TRANSACTIONS--Rights of Dissenting Shareholders." The full text of
Sections 1300 through 1312 of the CGCL is attached to the Proxy Statement as
Appendix D.
FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash by shareholders of the Company as a result of the Merger
will be a taxable transaction to the shareholders for Federal income tax
purposes and may be a taxable transaction under state, local and foreign tax
laws. Each shareholder is urged to consult his or her own tax and financial
advisers as to the tax consequences of the Merger in the light of his or her
particular circumstances, including any state, local or foreign tax
consequences. See "THE MERGER AND RELATED TRANSACTIONS--Certain Federal Income
Tax Consequences."
ACCOUNTING TREATMENT
AMF has informed the Company that it will treat the Merger as a purchase for
accounting purposes.
MARKET PRICE DATA
The Company's Common Stock is traded on the over-the-counter market under the
Nasdaq National Market symbol "AMRC." The following table sets forth the high
and low per share closing sales prices for shares of Common Stock and per share
dividends declared for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
FISCAL YEAR ENDED MAY 31, 1995
First Quarter................................... $7.00 $6.375 $.06
Second Quarter.................................. $7.00 $5.875 $.06
Third Quarter................................... $6.50 $4.50 $.06
Fourth Quarter.................................. $7.625 $6.125 $.0625
FISCAL YEAR ENDED MAY 29, 1996
First Quarter................................... $7.375 $5.875 $.0625
Second Quarter.................................. $6.75 $5.75 $.0625
Third Quarter................................... $6.625 $5.875 $.0625
Fourth Quarter.................................. $7.125 $5.75 $.065
FISCAL YEAR ENDING MAY 28, 1997
First Quarter................................... $7.00 $6.125 $.065
Second Quarter.................................. $7.00 $5.00 $.065
Third Quarter................................... $8.50 $4.875 $.065
</TABLE>
The high and low prices of the Company's Common Stock on January 16, 1997,
the last trading day prior to public announcement of the Merger Agreement, were
$7.375 and $7.00 per share. On March 21, 1997, the last practicable date prior
to the mailing of this Proxy Statement, the last reported sales price for
shares of the Company's Common Stock was $8.25 per share. Shareholders are
advised to obtain current market quotations for their shares.
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GENERAL
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting will be held on April 24, 1997 at 8:30 a.m., local time,
at 3333 Michelson Drive, Irvine, California 92715.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, shareholders of record of the Company as of the
close of business on the Record Date will be asked to consider and vote upon a
proposal to approve and adopt the Merger Agreements and the Merger, and such
other matters as may properly be brought before the Special Meeting.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE; QUORUM
Only holders of record of the Company's Common Stock at the close of
business on the Record Date, are entitled to notice of and to vote at the
Special Meeting. As of the close of business on the Record Date, there were
4,613,037 shares of Common Stock outstanding and entitled to vote, held of
record by approximately 8,000 shareholders. A majority, or 2,306,519 of these
shares, present in person or represented by proxy, will constitute a quorum
for the transaction of business. Each shareholder is entitled to one vote for
each share of Common Stock held as of the Record Date. Abstentions and broker
non-votes will be counted for the purposes of establishing a quorum at the
Special Meeting.
VOTE REQUIRED
Pursuant to the California Corporations Code and the Company's Articles of
Incorporation, approval and adoption of the Merger Agreements and the Merger
requires the affirmative vote of the holders of a majority of the outstanding
shares of the Company's Common Stock entitled to vote. On March 3, 1997, the
record date for the Special Meeting, 4,613,037 shares of Common Stock were
outstanding, all of which are entitled to vote on the Merger Agreements and
the Merger. As of March 3, 1997, shareholders who are not affiliates of the
Company or AMF owned approximately 3,840,000, or 83%, of the outstanding
shares of the Company's Common Stock. AMF owns no shares of the Company's
Common Stock. The directors and officers of the Company together own
approximately two percent (2%) of the Common Stock. Each of the directors and
officers has expressed his intention to vote all of his or her shares of
Common Stock for the Merger. Abstentions and broker non-votes will have the
same effect as votes against the Merger Agreements and the Merger.
VOTING OF PROXIES; REVOCABILITY OF PROXIES
The proxy accompanying this Proxy Statement is solicited on behalf of the
Board of Directors of the Company for use at the Special Meeting. Shareholders
are requested to complete, date and sign the accompanying proxy and promptly
return it in the accompanying envelope or otherwise mail it to the Company.
All proxies that are properly executed and received by the Company in time to
be voted at the Special Meeting, and that are not revoked, will cause the
shares of Common Stock represented thereby to be voted at the Special Meeting
in accordance with the instructions indicated on the proxies or, if no
direction is indicated, to approve the Merger Agreements and the Merger. In
accordance with California law, no other business may be brought before the
Special Meeting. Any shareholder who has given a proxy may revoke it at any
time before it is exercised at the Special Meeting, by (i) delivering to the
Secretary of the Company (by any means, including facsimile) a written notice,
bearing a date later than the proxy, stating that the proxy is revoked,
addressed to the Secretary of the Company at P.O. Box 580, Rancho Cordova,
California 95741, facsimile number(916) 852-8004, (ii) signing and so
delivering a proxy relating to the same shares and bearing a later date than
the earlier proxy prior to the vote at the Special Meeting or (iii) attending
the Special Meeting and voting in person (although attendance at the Special
Meeting will not, by itself, revoke a proxy).
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<PAGE>
If a quorum is not obtained or if fewer shares of Common Stock than the
number required therefor are voted in favor of approval of the Merger
Agreements and the Merger, it is expected that the Special Meeting will be
postponed or adjourned in order to permit additional time for soliciting and
obtaining additional proxies or votes, and at any subsequent reconvening of
the Special Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original Special Meeting, except for any
proxies which have theretofore effectively been revoked or withdrawn.
SOLICITATION OF PROXIES AND EXPENSES
The Company will bear the cost of the solicitation of proxies in the
enclosed form from its shareholders. In addition to solicitation by mail, the
directors, officers and employees of the Company may solicit proxies from
shareholders by telephone, telegram, letter, facsimile or in person. Following
the original mailing of the proxies and other soliciting materials, the
Company will request brokers, custodians, nominees and other record holders to
forward copies of the proxy and other soliciting materials to persons for whom
they hold shares of the Common Stock and to request authority for the exercise
of proxies. In such cases, the Company, upon the request of the record
holders, will reimburse such holders for their reasonable expenses. In
addition, the Company has retained MacKenzie Partners, Inc. to aid in the
solicitation of proxies for the Special Meeting. The fee of the firm is $7,500
plus reimbursement of reasonable out-of-pocket costs and expenses. In
addition, the Company has agreed to indemnify MacKenzie Partners, Inc. against
certain losses and liabilities.
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THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Merger Agreements provide for the merger of Noah with and into the
Company, with the Company to be the surviving corporation of the Merger,
becoming a wholly-owned subsidiary of AMF. If the requisite approval of the
shareholders of the Company is received, the Merger is expected to be
consummated as soon as practicable after the satisfaction or waiver of each of
the conditions to consummation of the Merger, which is expected to occur as
soon as practicable following receipt of shareholder approval at the Special
Meeting. Upon the consummation of the Merger, each share of the outstanding
Common Stock (other than shares owned by the Company or owned by AMF, Noah or
any subsidiary of the Company, AMF or Noah, and other than Dissenting Shares)
will automatically be converted into the right to receive $8.50 in cash,
without interest. The following discussion in this Proxy Statement of the
Merger and the Merger Agreements is a description of all of the material terms
of the Merger and the Merger Agreements; provided, however, that such
discussions are subject to and qualified in their entirety by reference to the
Merger Agreement and the Agreement of Merger, copies of which are attached to
this Proxy Statement as Appendices A and B, respectively, and incorporated
herein by this reference.
BACKGROUND OF THE MERGER
From time to time, the Board of Directors of the Company has informally
evaluated strategic alternatives, including the sale of the Company and other
possible transactions that could strengthen the Company's competitive position
with respect to other operators of bowling chains (see "Reasons for the
Merger", below). As part of its exploration of strategic alternatives, which
included the creation of the family entertainment center (FEC) test facilities
in fiscal 1996 and the ongoing construction of an FEC conversion in fiscal
1997, the Company pursued the acquisition of other bowling center chain
operators, throughout the country, to provide the benefits of consolidation,
and considered a joint venture with other recreation and entertainment
companies to provide additional entertainment alternatives to the Company's
bowling oriented business. The acquisition of the Red Carpet chain in
Wisconsin was, in part, an extension of that strategy. The Company realized
that the cyclical nature of bowling had historically recovered after a down
period, but was seeking to add recreation alternatives in its bowling centers.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS".
As part of its business strategy, AMF pursues strategic acquisitions in the
bowling industry. As part of this process, the Company's Chief Executive
Officer was contacted by a representative of AMF on August 28, 1996, to
discuss a possible transaction between the two companies. Such representative
expressed to the Company AMF's potential interest in acquiring the Company.
On September 16, 1996, AMF executed a Confidentiality Agreement with the
Company, pursuant to which AMF agreed to keep confidential all confidential
due diligence materials provided to it by the Company and further agreed not
to purchase any shares of the Company's Common Stock without the Company's
written consent. After the Confidentiality Agreement was executed, the Company
delivered an information package of materials to AMF on October 31, 1996.
There were limited communications between the parties during the next two
months in which AMF requested further information.
On November 19, 1996, the Board of Directors of the Company held a regularly
scheduled meeting. Among other matters, the Board discussed AMF's potential
interest in acquiring the Company. The Board authorized management to
entertain discussions with AMF, but concluded that the Company was not for
sale at that time.
On November 26, 1996, legal counsel to the Company received a telephone call
from legal counsel to AMF and was informed that AMF was interested in pursuing
an acquisition of the Company. During the next three weeks, the Company
provided AMF with additional due diligence materials. On December 20, 1996,
the Board of Directors held a meeting to discuss the status of AMF's due
diligence investigation and the likelihood of AMF submitting a proposal to
acquire the Company. The Board determined that, while the Company was not
putting itself up for sale, it would be willing to consider a reasonable, bona
fide offer. The legal counsel of the Company who participated in such
telephone conversation, as well as in all conversations and meetings referred
to below, was Bruce Feuchter, a shareholder of Stradling, Yocca, Carlson &
Rauth, a Professional Corporation, legal counsel to the Company. Mr. Feuchter
is also a Director of the Company.
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On December 24, 1996, a representative of the Company contacted
representatives of L.H. Friend to discuss AMF's interest in the Company and
the possibility of retaining L.H. Friend as financial advisor to the Company
in connection with a possible transaction with AMF.
On December 26, 1996, legal counsel to AMF contacted legal counsel to the
Company and expressed AMF's interest in acquiring the Company at a price of
$7.50 per share. The Directors of the Company discussed such expression of
interest throughout the day. On December 27, 1996, the Board of Directors held
a meeting to discuss whether AMF's $7.50 per share expression of interest was
in the best interests of the Company's shareholders. The Board concluded that
$7.50 per share was inadequate and that the Company should not enter into
negotiations with AMF at that price. Legal counsel to the Company contacted
legal counsel to AMF and informed AMF of the Board's conclusion.
On December 31, 1996, AMF, through its legal counsel, provided a draft
acquisition agreement to the Company. The Company, through its legal counsel,
informed AMF that the Company would not enter into negotiations concerning the
documentation until the parties had reached agreement on price.
On January 10, 1997, legal counsel to AMF delivered by telephone to legal
counsel to the Company AMF's offer to acquire the Company for $8.50 per share,
which offer was subject to negotiation of and agreement upon definitive
documentation and approval of the respective boards of directors of the
Company and AMF. From January 13, 1997 to January 17, 1997, representatives of
AMF met with representatives of the Company to negotiate a definitive
acquisition agreement.
On January 17, 1997, the Company's Board of Directors met to consider a
proposed Agreement and Plan of Merger and the transactions contemplated
thereby. At such meeting, members of the Company's senior management, together
with the Company's legal and financial advisors, reviewed with the Board,
among other things, the background of the proposed transaction, the value
presented by the transaction and the Company's long-term outlook and the terms
of the Merger Agreement. L.H. Friend gave a presentation to the Board of
Directors regarding the value of the Company and the fairness of the proposed
transaction. At the conclusion of the presentation, L.H. Friend delivered its
oral opinion (subsequently confirmed in writing) that the consideration to be
received by the Company's shareholders in the Merger was fair to the Company's
shareholders from a financial point of view. The Board of Directors
unanimously approved the Merger Agreement and the transactions contemplated
thereby. The parties executed the Merger Agreement later that day.
REASONS FOR THE MERGER
The Board of Directors of the Company has carefully considered the terms and
conditions of the proposed Merger and has determined that the Merger is in the
best interests of, and is on terms fair to, the Company's shareholders and has
unanimously approved the Merger Agreements and the transactions contemplated
thereby, including the Merger.
In reaching its unanimous determination that the Merger Agreements and the
transactions contemplated thereby, including the Merger, are in the best
interests of, and on terms fair to, the Company's shareholders, the Board of
Directors considered a number of factors, which taken together supported such
determination, including without limitation the following:
(i) the Board's knowledge of the business, operations, properties, assets,
financial condition and operating results of the Company, which provided the
background and context for its deliberations and determinations;
(ii) information relating to the financial condition, results of operations,
capital levels, and prospects of the Company, and management's assessment of
the prospects of the Company, which led the Board to determine that there is
substantial risk that in the long-term the Company will not produce
shareholder value in excess of the Merger Consideration;
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(iii) the current and prospective environment in which the Company operates,
including the environment in California, where approximately half of the
Company's operations are located, which has experienced reduced demand for
bowling as a result of changing lifestyles, weak economic conditions, anti-
smoking legislation, and other events such as military base closures, thus
adversely affecting the Company's results of operations and financial
condition (see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS");
(iv) the presentation by L.H. Friend and its opinion that the cash
consideration of $8.50 per share to be received by the shareholders pursuant
to the Merger Agreement is fair to such shareholders (see "THE MERGER AND
RELATED TRANSACTIONS--Opinion of Financial Advisor");
(v) the relationship of the Merger Consideration to the historical and
current market prices for the Common Stock preceding the announcement of the
Merger and the Board's belief that the public market's valuation of the
Company and the bowling industry in general, may limit the value realized by
the Company in the public market;
(vi) the Board's determination that there is substantial risk that in the
long-term the Company will not produce shareholder value in excess of the
Merger Consideration, based on the advice of senior management and L.H.
Friend, as well as the Board's judgment, after review with the Company's
management and its outside legal and financial advisors of alternatives to the
Merger, particularly the alternative of pursuing the Company's strategy of
partially converting its bowling centers into multi-functional
bowling/recreation centers, the uncertain likelihood of success of this
strategy and the need for substantial additional capital to pursue this
strategy (see "THE BUSINESS OF THE COMPANY");
(vii) the terms of the Merger Agreement as reviewed by the Board with its
legal advisors; and
(viii) the fact that the Merger Consideration is all cash and that the
Merger is not subject to financing contingencies.
The Company pursued its business strategy, which principally consisted of
operating bowling centers, acquiring additional bowling centers if the Company
believed such acquisition could be achieved at a price that such additional
centers would add to profitability and shareholder value, and converting
certain centers to multi-use family entertainment centers, up to the date it
entered into the Merger Agreement. The Company acquired two additional bowling
centers in Texas on December 20, 1996 and recently completed the conversion of
the bowling center in Arlington, Texas to a family entertainment center.
The Board of Directors was continuing to pursue the Company's established
business strategies discussed above until AMF made an offer to acquire the
Company at a price which the Board did not believe would be offered by any
other party. After detailed consideration, the Board determined that the price
was substantially higher than the Company's stock price had been in recent
years and that the price was so advantageous to the Company's shareholders
that it would be imprudent not to enter into the Merger Agreement. Such
determination was developed by the Board from its analysis of acquiring other
bowling center chains, such as Red Carpet. In addition, in 1995 the Board of
Directors had engaged financial advisors to seek bids for the purchase and
sale of either its then-majority owned subsidiary, The Right Start, Inc., or
the Company. In connection with such efforts, the Board, together with such
advisors, had performed substantial analysis of the valuation of the Company,
but were unsuccessful in obtaining any offers to purchase the Company. In
light of the significant experience of the Board in pricing the purchase of
bowling businesses and analyzing the pricing for the potential sale of the
Company, the Board believed that the Merger Consideration was above the amount
other potential acquirors would be willing to pay or that the Company could
expect to otherwise achieve. For these reasons, the Board did not seek other
alternatives to the Merger.
The foregoing discussion of the information and factors considered by the
Board of Directors addresses all of the material factors considered by the
Board in its consideration of the Merger. The Board did not quantify or attach
any particular weight to the various factors that it considered in reaching
its determination that the Merger Agreements and the transactions contemplated
thereby, including the Merger, are advisable and in the best
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interests of the Company's shareholders. In reaching its determination, the
Board of Directors took the various factors into account collectively, did not
perform factor-by-factor analysis, but rather its determination was made in
consideration of all of the factors as a whole.
BOARD RECOMMENDATION
THE BOARD HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS OF THE PROPOSED
MERGER AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF, AND IS
ON TERMS THAT ARE FAIR TO, THE COMPANY'S SHAREHOLDERS. THE BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS OF THE
COMPANY APPROVE THE MERGER AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER.
INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Company's Board of Directors with
respect to the Merger, shareholders of the Company should be aware that the
Board of Directors and certain officers of the Company have interests that may
present them with potential conflicts of interest.
The Company previously has provided options under various stock option plans
to the directors and certain executive officers of the Company. Pursuant to
the terms of the Company's stock option plans, all the options granted
thereunder will be fully exercisable immediately prior to the Effective Time.
Prior to the Effective Time, each holder of an option will have the right to
surrender his or her option for cash in an amount per share equal to the
difference between the exercise price of the option and $8.50, less applicable
withholding taxes. The individuals below own the following number of options
to purchase the Company's Common Stock and the total spread between the Merger
Consideration and the exercise price of such options is: Chairman of the
Board, Chief Executive Officer, and President Robert A. Crist (205,000 shares,
$454,688); Karen Wagner, Chief Financial Officer and Vice President/Treasurer
(125,000 shares, $312,188); Director Stewart Bloom (30,000 shares, $97,813);
Director Stephen R. Chanecka (30,000 shares, $97,813), Director Stanley B.
Schneider (30,000 shares, $97,813); and Director Bruce Feuchter (13,000
shares, $40,625).
In March 1995, the Company entered into Severance Agreements with Robert A.
Crist, Chairman of the Board, Chief Executive Officer, and President of the
Company and Karen B. Wagner, Chief Financial Officer, Vice President and
Treasurer of the Company, which Severance Agreements were extended and amended
on December 20, 1996. Pursuant to the terms of the Severance Agreements, in
the event of the termination or resignation of either such person following a
change in control of the Company, the Company would be obligated to continue
paying such person's salary and providing all employee benefits (other than
ESOP/ESPP participation, option grants and bonuses) to such person for a
period of 28 months (in the case of Mr. Crist) or 12 months (in the case of
Ms. Wagner), following such termination or resignation, which payment may be
demanded by such persons in a lump sum. The Merger, if consummated, will
constitute a change in control. The severence payments thereunder would be
equal to $406,361 to Mr. Crist and $118,266 to Ms. Wagner.
Pursuant to the Merger Agreement, AMF is also obligated to provide certain
indemnification to the present and former directors and officers of the
Company and to maintain, subject to certain limitations, directors' and
officers' liability insurance policies comparable to these currently
maintained by the Company. See "THE MERGER AGREEMENT--Representations and
Warranties; Covenants."
The Company is obligated to pay certain legal fees in connection with the
Merger and related transactions to Stradling, Yocca, Carlson & Rauth, a
Professional Corporation, legal counsel to the Company. Bruce Feuchter, a
director of the Company, is a shareholder of Stradling, Yocca, Carlson &
Rauth.
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OPINION OF FINANCIAL ADVISOR
The Company engaged L.H. Friend on December 27, 1996, to render an opinion
with respect to the Merger. L.H. Friend was not retained to provide other
investment banking services not related to its fairness opinion, and did not
participate with the Company in any search for business combinations. L.H.
Friend provided to the Board, the Administrative Committee of the ESOP and the
Administrator of the ESPP its oral opinion on January 17, 1997, that, as of
that date, the $8.50 per share to be received by the Company's shareholders
upon the consummation of the Merger (the "Merger Consideration") was fair to
the Company's shareholders from a financial point of view. L.H. Friend's oral
opinion was subsequently confirmed in a written opinion dated January 24,
1997. The full text of the opinion of L.H. Friend, which sets forth
assumptions made, matters considered and limitations on the review undertaken,
is attached as Appendix C to this Proxy Statement and is incorporated herein
by reference. Shareholders are urged to read the opinion carefully and in its
entirety. The following discussion is a summary of all of the material matters
covered by the opinion of L.H. Friend; provided, however, that it is not a
complete discussion of all matters covered by the opinion, and therefore is
qualified in its entirety by reference to the full text of the opinion.
The terms of the Merger were determined through arms-length negotiations
between the Company, AMF and Noah. L.H. Friend did not materially participate
in the negotiation of and was not requested to and did not make any
recommendation to the Board regarding the terms of the Merger. In addition,
L.H. Friend's opinion is directed only to the fairness to shareholders of the
Company of the Merger from a financial point of view and does not constitute a
recommendation to any shareholder of the Company as to how to vote at the
Special Meeting.
In connection with its opinion, among other things, L.H. Friend (i)
discussed the Merger and related matters with the Company's management, (ii)
reviewed the Merger Agreement, (iii) reviewed documents filed by the Company
with the Securities and Exchange Commission for the fiscal years ended May 25,
1994, May 31, 1995 and May 29, 1996, the three and six month periods ended
August 28, 1996 and November 27, 1996, and the Company's proxy statement dated
August 26, 1996; (iv) examined certain operating and financial information and
financial projections dated October 21, 1996 prepared and provided to it by
management of the Company; (v) reviewed the historical market prices and
trading volume of the Company's Common Stock; (vi) analyzed publicly available
financial and market data regarding certain companies in the bowling and
recreation industries and compared them to the Company's financial and market
data; and (vii) performed such other studies, analyses, inquiries and
investigations as it deemed appropriate, as further described in this section.
No limitations were imposed by the Company on the scope of L.H. Friend's
investigation.
In rendering its opinion, L.H. Friend relied upon the accuracy and
completeness of all financial and other information that was supplied to L.H.
Friend and assumed that there has been no material change in the assets,
financial condition and business prospects of the Company since the date of
the most recent financial statements made available to L.H. Friend. With
respect to financial projections for the Company, L.H. Friend assumed that
such projections were reasonably prepared and reflect the best currently
available estimates of the future financial results and condition of the
Company.
The following is a brief summary of the various financial information
analyzed or otherwise considered by L.H. Friend in connection with rendering
its opinion:
(i) Comparison with Selected Companies. L.H. Friend reviewed and compared
selected historical stock market and financial statistics for the Company to
the corresponding data and statistics of five publicly traded companies. Two
companies, Brunswick Corporation ("Brunswick") and Bowl America, Inc. ("Bowl
America"), have all or a portion of their operations involved in owning and
operating bowling centers (the "Primary Comparables"). The other three
companies, Family Golf Centers, Inc. ("Family Golf"), Mountasia Entertainment
("Mountasia") and Vulcan International Corporation ("Vulcan") are involved in
either owning and operating near term family oriented recreation centers or
manufacturing various supplies for family entertainment activities (the
"Secondary Comparables"). The five companies are hereinafter referred to as
the
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"Comparable Group". L.H. Friend examined certain publicly available financial
data and statistics of the Comparable Group and the Company, including
revenue, gross profit, earnings before interest and taxes ("EBIT"), EBIT plus
depreciation and amortization ("EBITDA"), book value, gross profit margins,
EBIT margins, EBITDA margins, pretax margins, net income margins and the
multiple of Total Enterprise Value (defined as the market value of the common
equity, plus total debt, less cash and equivalents) to revenue, gross profit,
EBIT and EBITDA. In addition, L.H. Friend examined the multiples of total
market value of common equity to book value and the stock price per share
divided by earnings per share (the "P/E ratio"). With the exception of the P/E
ratio, all of the multiple comparisons were done for the latest 12 months of
reported results. P/E ratios were compared both for the latest 12 months of
reported results and for publicly available brokerage analysts' estimates of
earnings per share for each company's next fiscal year, if available.
The indicated Total Enterprise Value multiple ranges for the Primary
Comparables were 0.9x to 1.2x for revenues, 3.3x to 5.0x for gross profit,
9.0x to 9.8x for EBIT, and 5.7x to 7.0x for EBITDA. The multiple ranges were
1.2x to 2.2x for book value and the P/E ratios ranged from 14.1x to 15.3x for
the latest 12 months and was 14.1x for the one available forward looking P/E
ratio. The indicated Total Enterprise Value multiple ranges for the Secondary
Comparables were 0.9x to 12.3x for revenues, 6.4x to 38.9x for gross profit,
44.4x for the one available item for EBIT, and 24.8x to 37.2x for EBITDA. The
multiple ranges were 0.9x to 2.5x for book value and the P/E ratios ranged
from 36.1x to 64.2x for the latest 12 months and 9.1x to 51.4x for one year
forward P/E ratios. The indicated Total Enterprise Value multiples for the
Company were 1.4x for revenues, 6.8x for gross profit, 19.1x for EBIT, and
8.9x for EBITDA. The multiples were 1.1x for book value and the P/E ratios
were 37.0x for the latest 12 months and 23.6x for the estimated 1997 P/E
ratio. Except for the Company's equity value to book value multiple which was
lower than the range of values for the Primary Comparables, the Company's
multiples were all above the range of values for the Primary Comparables. L.H.
Friend reviewed the multiples for the Secondary Comparables but did not rely
on such figures since they did not find the Secondary Comparables similar
enough to the Company to rely on such figures.
L.H. Friend placed relatively more importance on the multiple comparison of
the Primary Comparables due to the greater similarity of their business and
operations to those of the Company. In reviewing such Primary Comparables,
L.H. Friend concluded that since the Company's multiples indicated that the
Merger Consideration is greater than the price per share that such multiples
would indicate for the Primary Comparables, such analysis supported the
fairness of the Merger Consideration.
(ii) Selected Mergers and Acquisition Transactions--Multiples Analysis. L.H.
Friend also reviewed the consideration paid in selected other merger and
acquisition transactions of companies in the bowling and near-term local
family entertainment industries. Specifically, L.H. Friend reviewed the
following transactions; the acquisition of The Great Escape by Premier Parks,
the acquisition of Bowling Corp. of America by AMF, the acquisition of S-K-I
Ltd. by LBO Enterprises, and the acquisition of Funtime Parks, Inc. by Premier
Parks, Inc. L.H. Friend calculated Total Enterprise Value to sales, EBITDA and
EBIT multiples, as well as equity value to book value multiples. The indicated
average and median Total Enterprise Value multiples were 1.5x and 1.4x for
sales, 7.5x and 7.3x for EBITDA, and 13.4x and 13.7x for EBIT, respectively.
The indicated average and median equity value to book value multiples were
3.1x and 3.3x, respectively. These multiples were then compared to those of
this Merger. The resulting multiples were as follows: Total Enterprise Value
to sales of 1.4x, Total Enterprise Value to EBITDA of 8.9x, Total Enterprise
Value to EBIT of 19.1x, and an equity value to book value multiple of 2.2x. In
addition, L.H. Friend noted that although four transactions were selected for
the above analysis, the AMF acquisition of Bowling Corp. of America was the
most comparable to the Merger, and therefore particular emphasis was placed on
the comparison between the multiples paid in that transaction and those of the
Merger. The multiples in the AMF acquisition of Bowling Corp. of America were:
Total Enterprise Value to sales of 1.6x, Total Enterprise Value to EBITDA of
7.9x, Total Enterprise Value to EBIT of 18.2x, and equity value to book value
multiple of 3.9x.
In reviewing the Selected Mergers and Acquisition Transactions--Multiples
Analysis, L.H. Friend concluded such analysis supported their determination of
the fairness of the Merger Consideration.
(iii) Selected Mergers and Acquisition Transactions--Premiums Paid
Analysis. L.H. Friend also reviewed the stock price premiums paid (the percent
change in price from the closing price in the indicated period to
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purchase price per share) one day prior to the announcement date of the
transaction, one week prior to the announcement date of the transaction and
four weeks prior to the announcement date of the transactions, in 27 recent
all cash transactions where Total Enterprise Values ranged between $20 million
and $100 million which closed between January 1, 1996 to January 17, 1997. The
indicated average and median premiums paid were 43.8% and 32.5% for the date
four weeks prior to the announcement date of the transactions, 45.1% and 31.6%
for the date one week prior to the announcement date of the transaction, and
33.7% and 22.0% for the date one day prior to the announcement date of the
transaction, respectively. These premiums were then compared to those of the
Merger which were 70.0% for the date four weeks prior to the announcement date
of the transaction, 33.3% for the date one week prior to the announcement date
of the transaction, and 15.3% for the date one day prior to the announcement
date of the transaction. L.H. Friend noted that the price of the Company's
Common Stock had increased in the four weeks prior to the Announcement Date
when compared to its average price of $6.12 since August 4, 1995.
(iv) Discounted Cash Flow Analysis. L.H. Friend performed a discounted cash
flow analysis of the Company using projections provided to it by the Company.
L.H. Friend calculated the present values of the estimated free cash flows of
the Company through May 21, 2001 and the estimated terminal value of the
Company at the end of such date. In calculating the estimated cash flows used
in its analysis, L.H. Friend made adjustments for certain items, which were
obtained from the Company's management, for assumed capital expenditures,
increases in working capital requirements, dividend payments, depreciation and
amortization. In calculating the estimated terminal value, L.H. Friend
utilized the average of the EBIT multiples of the Primary Comparables. The
average multiple was 9.4x and L.H. Friend's calculations utilized multiples of
8.5x, 9.5x and 10.5x. In calculating the present values of estimated free cash
flows and estimated terminal value, L.H. Friend used an implied discount rates
of 10.5%, 12.5%, and 14.5%, respectively. Such rates were determined by
calculating the Company's weighted average cost of capital, which was
determined to be approximately 12.5%. L.H. Friend then included higher and
lower discount rates to test the sensitivity of such analysis to different
rates. These calculations implied a present value of the Company of between
$5.44 and $8.17 per share.
(v) Adjusted Net Book Value Analysis. L.H. Friend also evaluated the
Company's assets and liabilities, discounting for third party's minority
interests in the Company's joint ventures. Using capitalization rates of 10.0%
and 12.0% to derive the implied market value of the Company's industrial
bowling centers, L.H. Friend determined the Company's implied net tangible
book value as $8.35 per share and $5.90 per share, with the mid-point being
$7.13 per share. L.H. Friend deemed this approach to be highly subjective and,
accordingly, decreased its relative reliance on this approach.
(vi) Stock Trading History. L.H. Friend examined the history of the trading
prices and volume of the Company's Common Stock for the period of August 4,
1995 to January 17, 1997, the volume of the Common Stock traded at specified
price ranges for the period August 4, 1995 to January 17, 1997, and the
percent change in the Company's Common Stock for the period August 4, 1995 to
January 17, 1997 compared to a composite index of Bowl America and Brunswick
Corporation, and the Russell 2000 Index. The Company sold its interest in its
majority owned subsidiary, The Right Start, Inc., on August 4, 1995, and
thereafter was principally a bowling business and no longer a business
consisting of a bowling operation and a retailing operation (see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
Discontinued Operations"). The analysis indicated that on a percentage change
basis the Company's Common Stock had underperformed both indices during the
entire period. Between August 4, 1995 and December 6, 1996 the Company's
Common Stock had fallen nearly 30% in value, while during the same period the
indices had increased approximately 20%. L.H. Friend determined that the
premium which the Merger Consideration represented over the Company's
historical stock prices and the underperformance of the Company's stock price
when compared to the indices supported its determination of the fairness of
the Merger Consideration.
No relative weight was assigned by L.H. Friend to any particular analysis.
As noted above, however, L.H. Friend did determine that the results of its
analyses under the headings: Comparison with Selected Companies; Selected
Merger and Acquisition Transactions--Multiples Analysis; Selected Merger and
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Acquisition Transactions--Premiums Paid Analysis; Discounted Cash Flow
Analysis; and Stock Trading History supported its determination of the
fairness of the Merger Consideration.
L.H. Friend was selected by the Company's Board of Directors based on L.H.
Friend's qualifications, experience, expertise and reputation. As part of its
investment banking business, L.H. Friend is regularly engaged in the valuation
of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and other transactions.
Pursuant to a letter agreement dated as of December 27, 1996, the Company
has paid L.H. Friend a fee of $250,000 for its services referred to above,
including rendering its opinion, and has agreed to reimburse L.H. Friend for
its reasonable expenses incurred in connection with its engagement by the
Company. The Company has also agreed to indemnify L.H. Friend and its
directors, officers, agents, employees, affiliates, and controlling persons
against any losses, claims or liabilities to which L.H. Friend becomes subject
to in connection with its rendering of services, except those that arise from
L.H. Friend's negligence or willful misconduct.
THE MERGER AGREEMENT
REPRESENTATIONS AND WARRANTIES; COVENANTS
Under the Merger Agreement, the Company, AMF and Noah made a number of
representations regarding such matters as their valid existence and good
standing and their authority to enter into the Merger Agreement and to
consummate the Merger.
The Company has made further representations regarding its subsidiaries and
joint ventures, its capital structure, its operations, the accuracy of its
Commission filings and disclosure documents, its licenses and government
approvals, its assets, environmental compliance, the absence of certain
changes or events since May 29, 1996, litigation involving the Company,
compliance with laws and regulations, certain benefit plans, taxes, contracts,
insurance and the absence of undisclosed broker's or similar fees owed in
connection with the transaction.
The Company agreed that, until the consummation of the Merger or the
termination of the Merger Agreement, it will maintain its business and it will
not take certain actions outside the ordinary course without AMF's consent.
The Company agreed to take certain actions necessary to effect the Merger,
such as filing its proxy materials with the Commission, complying with all
legal requirements of a Special Meeting, and, subject to the fiduciary duties
of the officers and directors, using its best efforts to obtain shareholder
approval of the Merger Agreement and the Merger. Also, the Company agreed to
provide AMF with full access to information about the Company upon AMF's
reasonable request, to cooperate with AMF regarding the prepayment of certain
of the Company's debt, and to purchase the minority interests in certain of
its joint ventures. The Company has agreed not to initiate, continue, solicit
or encourage any inquiries or the making of any proposal or offer with respect
to a merger, consolidation or similar transaction involving, or any purchase
of all or any significant portion of the assets or any equity securities of,
the Company or any of its subsidiaries (an "Acquisition Proposal"), except
that the Board of Directors may provide information to and engage in
negotiations with a third party regarding an Acquisition Proposal in
accordance with the Board's fiduciary duties as advised in writing by the
Company's outside counsel.
AMF has agreed, if the Merger is consummated, to provide employees of the
Company's subsidiaries retained by AMF with employee benefits in the aggregate
no less favorable than those benefits provided to AMF's similarly situated
employees for a period of six months following the effectiveness of the Merger
and to provide certain severance benefits to certain employees of the Company
terminated during such period. AMF has also agreed if the Merger is
consummated, to indemnify the officers and directors of the Company, subject
to any limitations imposed by applicable law, for a period of six years with
respect to any claim or liability arising out of or pertaining to (i) any act
or omission occurring prior to the Merger or (ii) the transactions
contemplated by the Merger Agreement to the extent provided under the
Company's Articles of Incorporation and Bylaws in effect on the date of the
Merger Agreement. AMF has further agreed to honor the existing Indemnification
Agreements between the Company and certain of its officers and shareholders.
AMF has further
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agreed, for a period of three years following consummation of the Merger,
subject to certain limitations, to cause the Company to use its best efforts
to provide directors and officers liability insurance coverage to the persons
currently covered by the Company's directors and officers liability insurance
policy comparable to that provided to such officers and directors prior to the
Merger.
CONDITIONS TO THE MERGER
In addition to the approvals of the shareholders of the Company sought
hereby, the obligations of the Company, AMF and Noah to consummate the Merger
are subject to the absence of any provision of any applicable law or
regulation, or any judgment, injunction, order, decree or other legal
restraint which would prohibit the consummation of the Merger. Each party's
obligations under the Merger Agreement are also conditioned upon the accuracy
in all material respects of the representations and warranties made by the
other party and the performance in all material respects of the covenants of
the other party. AMF's obligations under the Merger Agreement are also
conditioned upon the following: (i) the absence of any action by any
governmental entity, whether actually instituted or pending, seeking to delay,
restrain, prohibit or limit (or seeking to impose material damages or to
impose material restrictions relating to) the Merger, the Merger Agreement,
the transactions contemplated thereby, the ownership or operation of the
business of the Company, AMF, Noah, or any of their respective subsidiaries,
or seeking to require divestiture of or interfere with the full rights of
ownership of any shares of Common Stock of AMF or its subsidiaries, or that
would otherwise, in the reasonable judgment of AMF, be likely to materially
adversely affect any such rights; (ii) the absence of material adverse changes
in the value, condition, prospects, business or results of operations of the
Company; (iii) the receipt by AMF of all regulatory approvals, licenses and
certain other consents, including all consents and licenses relating to the
sale and service of alcoholic beverages and any gaming or gambling activities
required to be obtained prior to the consummation of the Merger and the
transactions contemplated by the Merger Agreement; and (iv) that AMF be
reasonably satisfied that, at or prior to the Effective Time, certain of the
Company's debt will be prepaid in full, and that the Company will consummate
the acquisition of all minority interests in certain of the Company's joint
ventures.
STOCK OPTIONS AND STOCK PLANS
Pursuant to the terms of the Company's stock option plans, all stock options
granted thereunder will be fully exercisable at the Effective Time. AMF and
the Company will take all actions necessary to provide that prior to the
Effective Time, the Company will offer to pay to each holder of Company
Options, in exchange for the cancellation of such holder's Company Options, an
amount of cash equal to the product of (i) the excess, if any, of the Merger
Consideration over the per share exercise price of each such Company Option
and (ii) the number of shares subject to such Company Option immediately prior
to the Effective Time.
The Company has amended the Company's Employee Stock Purchase Plan ("ESPP")
to provide that (i) immediately prior to the Effective Time, the rights of the
participants in the ESPP to all shares of the Company's Common Stock held
under the ESPP shall become fully vested, (ii) each holder of shares in trust
under the ESPP shall have the right to vote such shares at the Special
Meeting, and (iii) at the Effective Time, the ESPP will be terminated, all
shares of Common Stock will be delivered to the Exchange Agent, and as soon as
practicable, all cash proceeds will be distributed to the participants.
The Company has, as required by the Merger Agreement, also amended the
Company's Employee Stock Ownership Plan ("ESOP") to provide that, immediately
prior to the Effective Time, all participants in the ESOP will become fully
vested in their account balances, and at the Effective Time, subject to
receipt of a determination letter from the Internal Revenue Service, the ESOP
will be terminated. All participants shall receive distributions of their
account balances as soon as practicable following such termination.
Participants in the ESOP will have the right to vote their shares through a
pass-through voting procedure.
The Board of Directors of the Company, as required by the Merger Agreement,
has terminated the Company's Investor Stock Purchase Plan, effective as of the
Effective Time.
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AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT; REIMBURSEMENT OF EXPENSES
AND BREAKUP FEE
Amendment of Merger Agreement
The Merger Agreement may be amended by the Company, AMF and Noah at any time
before or after approval of the Merger by the shareholders of the Company,
except that, after such shareholder approval, no amendment may be made without
the further approval of such shareholders which would alter or change (i) the
amount or kind of consideration to be received in exchange for any shares of
capital stock of the Company, or (ii) any of the principal terms of the
Merger.
Termination of Merger Agreement
The Merger Agreement may be terminated by mutual agreement of AMF and the
Company or by either such party if (i) the other such party shall have failed
to comply in any material respect with any of its covenants or agreements in
the Merger Agreement to be complied with or performed by such party at or
prior to such date of termination, (ii) if the required approval of the
shareholders of the Company is not obtained by reason of the failure to obtain
the required vote, (iii) if the Merger has not been consummated by July 31,
1997 other than as a result of a material breach of the Merger Agreement by
the terminating party, or (iv) if there shall be any law or regulation that
makes consummation of the Merger illegal or otherwise prohibited or if any
judgment, injunction, order or decree enjoining AMF or the Company from
consummating the Merger is entered and such judgment, injunction, order or
decree shall become final and nonappealable.
The Merger Agreement may be terminated by the Board of Directors of AMF, if
the Board of Directors of the Company withdraws or modifies, or resolves to
withdraw or modify, in a manner adverse to AMF or Noah its approval or
recommendation of the Merger Agreement or the Merger. The Merger Agreement may
be terminated by the Board of Directors of the Company, if the Company
receives an Acquisition Proposal on terms the Company's Board of Directors
(after consultation with its financial advisors) determines to be more
favorable to the Company's shareholders than the terms of the Merger, and the
Company's Board of Directors determines in accordance with the written advice
of the Company's outside counsel, (x) that to continue to recommend that
holders of shares of the Company's Common Stock vote in favor of the Merger,
notwithstanding the receipt of such offer with respect to an Acquisition
Proposal, would violate the fiduciary duties of the Company's Board of
Directors to the Company's shareholders and (y) to accept such Acquisition
Proposal; provided, however, that the Company has provided AMF and Noah with
two business days prior written notice of its intent to so terminate this
Agreement together with a detailed summary of the terms and conditions
(including proposed financing, if any) of such Acquisition Proposal; and
provided, further, that AMF shall receive the fees described below.
Reimbursement of Expenses; Breakup Fee
The Merger Agreement provides for the reimbursement of AMF's fees and
expenses in connection with this transaction up to a maximum of $650,000 and
the payment of an additional breakup fee of $2 million by the Company if (i)
AMF terminates the Merger Agreement as a result of the Company's Board of
Directors withdrawal or modification of its approval or recommendation of (or
resolution to withdraw or modify) the Merger Agreement in a manner adverse to
AMF or Noah, (ii) the Company terminates the Agreement pursuant to a Company
Fiduciary Termination, or (iii) (A) after January 17, 1997 any person or group
other than AMF or Noah or any of their respective subsidiaries or affiliates
(collectively, an "Acquiring Person") shall have become the beneficial owner
of 10% or more of the outstanding shares of the Company's Common Stock (or any
person or group already beneficially owning 10% or more of the outstanding
shares of the Company's Common Stock increases such ownership by more than 5%
of the shares such person or group theretofore owned), or any Acquiring Person
shall have commenced, or shall have publicly announced an intention to
commence, a tender offer or exchange offer for or an intention to acquire (by
merger, consolidation, recapitalization or otherwise) 10% or more of the
outstanding shares of the Company's Common Stock or all or substantially all
of the assets of the Company, and (B) any Acquiring Person shall have become
the beneficial owner of a majority of the outstanding shares of the Company's
Common Stock.
22
<PAGE>
JOINT VENTURE AGREEMENTS
In connection with the Merger, the Company's partners in the joint ventures
that operate bowling centers in states other than California have entered into
written agreements to sell their interests in such joint ventures to the
Company. Such agreements are to be consummated at or immediately prior to the
Merger.
HSR ACT
Transactions such as the Merger are reviewed by the Department of Justice
and the Federal Trade Commission (the "FTC") to determine whether they comply
with applicable antitrust laws. Under the provisions of the HSR Act, the
Merger may not be consummated until such time as certain information has been
furnished to the Department of Justice and the FTC and the specified waiting
period requirements of the HSR Act have been satisfied. Notification forms
were filed by the Company and AMF with the Department of Justice and the FTC
under the HSR Act on January 24, 1997, and early termination of the waiting
period under the HSR Act was granted on January 31, 1997.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
to the shareholders of the Company pursuant to the Merger. The discussion may
not apply to shares received pursuant to the exercise of employee stock
options or otherwise as compensation, to holders of shares who are in special
tax situations (such as insurance companies, dealers in securities, tax-exempt
organizations or non-U.S. persons), or to holders who own shares that are
subject to Section 305(c) or 306 of the Internal Revenue Code. The discussion
is based on the assumptions that: (i) the shares of the stock constitute
capital assets in the hands of the shareholder, and (ii) the collapsible
corporation rules set forth in Section 341 of the Internal Revenue Code do not
apply to the Company. The discussion does not address state, local, or foreign
tax considerations.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE BASED UPON CURRENT
LAW. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE
RULES DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE PARTICULAR TAX EFFECTS OF
THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS.
The receipt of cash for shares pursuant to the Merger (including pursuant to
the exercise of dissenters' rights) will be a taxable transaction for federal
income tax purposes (and also may be a taxable transaction under applicable
state, local, foreign and other income tax laws). In general, for federal
income tax purposes, a holder of shares will recognize gain or loss equal to
the difference between his adjusted tax basis in the shares converted to cash
in the Merger and the amount of cash received therefor. Gain or loss must be
determined separately for each block of shares (i.e., shares acquired at the
same cost in a single transaction) converted to cash in the Merger. Such gain
or loss will be long term capital gain or loss if, on the date of the Merger,
such shares were held for more than one year. Amounts received, if any, with
respect to the exercise of dissenters' rights which are or are deemed to be
interest for federal income tax purposes will be taxed as ordinary income.
Federal tax laws significantly limit the deductibility of capital losses.
For corporate taxpayers, capital losses can be deducted only to the extent of
capital gains. For individual taxpayers, capital losses are similarly
deductible up to the extent of capital gains, but may be further deductible up
to a maximum of $3,000 in any one taxable year. Carryovers of unused capital
losses to other taxable years may be permitted in certain circumstances.
Payments in connection with the Merger may be subject to "backup
withholding" at a 31% rate. Backup withholding will generally be required if
the shareholder (a) fails to furnish his social security number or other
taxpayer identification number ("TIN"), (b) furnishes an incorrect TIN, (c)
fails properly to report interest or dividends or (d) under certain
circumstances, fails to provide a certified statement, signed under penalties
of
23
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perjury, that the TIN provided is his correct number and that he is not
subject to backup withholding. Backup withholding is not an additional tax but
merely an advance payment, which may be refunded to the extent it results in
an overpayment of tax. Certain persons generally are entitled to exemption
from backup withholding, including corporations and financial institutions.
Certain penalties apply for failure to furnish correct information and for
failure to include the reportable payments in income. Each shareholder should
consult with his own tax advisor as to his qualification for exemption from
withholding and the procedure for obtaining such exemption.
ACCOUNTING TREATMENT
AMF has informed the Company that it will treat the Merger as a purchase for
accounting purposes.
RIGHTS OF DISSENTING SHAREHOLDERS
The following is a discussion of all material provisions of California law
relating to dissenters' rights, however, it is not a complete statement of all
terms of such law, and is qualified in its entirety by reference to Appendix
D, which sets forth the full text of Sections 1300 through 1312 of the
California General Corporations Law (the "CGCL"). As used in this summary and
in Sections 1300 through 1312, the term "dissenting shareholder" means the
record holder of the Dissenting Shares. A person having a beneficial interest
in Common Stock which is held of record in the name of another person, such as
a broker or nominee, must act promptly to cause the record shareholder to
timely and properly follow the steps summarized below to perfect whatever
dissenter's rights the beneficial shareholder may have.
Pursuant to Sections 1300 through 1312 of the CGCL, any shareholder of the
Company entitled to vote at the Special Meeting may require the Company to
purchase his shares of Common Stock for cash if they qualify as Dissenting
Shares under said Sections. The purchase price of Dissenting Shares purchased
pursuant to said Sections is the fair market value as of the day before the
first announcement of the terms of the Merger, excluding any appreciation or
depreciation in consequence of the Merger.
Shares designated as National Market System Securities and listed on the
interdealer quotation of the National Association of Securities Dealers, Inc.
(a "NMS Security") immediately before a merger cannot qualify as Dissenting
Shares unless holders of at least five percent or more of the outstanding
shares demand payment pursuant to Sections 1300 through 1312 of the CGCL.
Assuming that the Common Stock continues to be an NMS Security immediately
prior to the Merger, dissenters' rights will not be available unless holders
of five percent or more of Common Stock file demands for payment.
Assuming that the Common Stock continues to be an NMS Security immediately
prior to the Merger, in order to qualify as Dissenting Shares, holders of the
shares may not abstain but must vote against the Merger, and shareholders must
make a separate written demand for purchase of such shares for cash at their
fair market value which must be received by the Company or its transfer agent
not later than the date of the Special Meeting. If Common Stock is not an NMS
Security immediately prior to the Merger, in order to qualify as Dissenting
Shares, the shares must not have been voted in favor, but need not be voted
against, the Merger, and the written demand must be received by the Company or
its transfer agent within 30 days of the date on which the Company mails a
Notice of Approval by Shareholders. Any demand which is not timely received is
not effective for any purpose. The Company expects that the Common Stock will
be an NMS Security immediately prior to the Merger.
The written demand must (i) state the number and class of shares which are
held of record by the shareholder which the shareholder demands that the
Company purchase, and (ii) state the amount which the shareholder claims to be
the fair market value as of January 16, 1997, the date before the first
announcement of the terms of the Merger. The claim as to fair market value
constitutes an offer by the shareholder to sell the shares at that price.
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<PAGE>
Assuming that the Common Stock continues to be an NMS Security, if, on or
before the date of the Special Meeting, demands to purchase are received with
respect to less than five percent of the Common Stock, no dissenters' rights
will be available with respect to the Merger. If demands are timely received
with respect to five percent or more of the Common Stock, the following
procedures will be applicable.
Assuming that the Merger is approved at the Special Meeting, the Company
will within 10 days thereafter mail a Notice of Approval by Shareholders to
each shareholder whose shares could qualify as Dissenting Shares. The Notice
will state the price determined by the Company as the fair market value as of
January 16, 1997, and will constitute an offer to purchase Dissenting Shares
at that price. Such price shall be $7.375, the closing price on the NASDAQ
National Market on January 16, 1997.
Certificates representing Dissenting Shares must be surrendered to the
Company or its transfer agent within 30 days after the Notice of Approval by
Shareholders is mailed by the Company. Surrendered certificates will be
stamped or endorsed with a statement that the shares are Dissenting Shares,
and returned to the dissenting shareholder.
If the Company and a shareholder agree that his shares qualify as Dissenting
Shares and agree on the price of the shares, payment for the Dissenting Shares
must be made by the Company within 30 days of such agreement upon surrender of
the certificates representing the Dissenting Shares. The purchase price will
bear interest from the date of agreement until paid at the legal rate on
judgments, currently ten percent (10%) per annum.
If the Company and a shareholder do not agree either that his shares qualify
as Dissenting Shares, or on the purchase price, the shareholder may, within
six months after the Company mails the Notice of Approval by Shareholders,
file a complaint in Superior Court. Two or more shareholders may join together
in any such action, or a shareholder may intervene in any pending action.
The Court will determine whether the shares which are the subject of that
complaint qualify as Dissenting Shares, if disputed by the Company, and may
determine or appoint appraisers to determine the fair market value of the
shares. The court will award costs and attorneys' fees in such an action in
the manner the court considers equitable. If the price determined in the court
action exceeds the price offered by the Company, the Company will be required
to pay costs and possibly attorneys' fees, and the court may award interest at
the legal rate on judgments if the appraisal price is more than 125% of the
price offered by the Company. If the price determined in the court action is
less than $8.50 per share, dissenting shareholders who joined in the court
action would receive the lower amount.
A dissenting shareholder may not withdraw a demand for payment without the
consent of the Company. Dissenting Shares may otherwise lose their status as
Dissenting Shares if the Merger is abandoned or, if the Company and the
dissenting shareholder disagree as to whether the shares qualify as Dissenting
Shares or as to the price, but the dissenting shareholder does not file a
complaint in Superior Court or intervene in a pending action within six months
of the mailing by the Company of the Notice of Approval by Shareholders.
EXCHANGE OF CERTIFICATES
Prior to the Effective Time, AMF will appoint a bank or trust company (the
"Exchange Agent") for the purpose of exchanging stock certificates
representing the Common Stock for the Merger Consideration. AMF or Noah will
make available to the Exchange Agent the Merger Consideration to be paid to
shareholders on surrender of their stock certificates (the "Exchange Fund").
Promptly after the Effective Time, AMF or the Exchange Agent will send to
each record holder of a certificate previously evidencing shares of the
Company's Common Stock a transmittal form advising the holder of the procedure
for surrendering his certificates. The transmittal form will state that the
delivery of the Merger Consideration will be made, and the risk of loss and
title will pass, only upon proper delivery of the certificates
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<PAGE>
to the Exchange Agent. Each holder of a certificate previously evidencing
shares of the Company's Common Stock will be entitled to receive, upon
surrender of the certificate to the Exchange Agent, along with other
documentation completed in accordance with the transmittal form, a check in
the amount of $8.50 per share, without interest, for the shares of the
Company's Common Stock previously represented by the surrendered certificate.
If payment is to be made to any person other than the registered holder of
shares of the Company's Common Stock surrendered as provided above, the
certificate(s) surrendered will be required to be properly endorsed or in
other proper form for transfer and the person requesting such payment will be
required to pay any stock transfer or similar taxes (whether imposed on the
registered holder or such person) that are due because of the payment to a
person other than the registered holder, or satisfy the Exchange Agent that
such tax has been paid or is not payable.
Any portion of the Exchange Fund made available to the Exchange Agent that
remains unclaimed by the record holders six months after the Effective Time
will be returned to AMF. Any holder who has not exchanged his certificates
shall look only to AMF for payment of the Merger Consideration.
Notwithstanding the foregoing, AMF will not be liable to any holder of the
shares of the Company's Common Stock for any amount paid to a public official
pursuant to and in accordance with the requirements of all applicable
abandoned property, escheat or similar laws. Any portion of the Merger
Consideration made available to the Exchange Agent to pay for shares of the
Company's Common Stock for which the holder has perfected dissenter's rights
(see "THE MERGER AND RELATED TRANSACTIONS--Rights of Dissenting
Shareholders"), will be returned to AMF upon AMF's demand.
PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY
The following table sets forth the high and low closing sale prices for the
Company's Common Stock for the periods set forth on the table, as reported on
the NASDAQ National Market.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
FISCAL YEAR ENDED MAY 31, 1995
First Quarter................................... $7.00 $6.375 $.06
Second Quarter.................................. $7.00 $5.875 $.06
Third Quarter................................... $6.50 $4.50 $.06
Fourth Quarter.................................. $7.625 $6.125 $.0625
FISCAL YEAR ENDED MAY 29, 1996
First Quarter................................... $7.375 $5.875 $.0625
Second Quarter.................................. $6.75 $5.75 $.0625
Third Quarter................................... $6.625 $5.875 $.0625
Fourth Quarter.................................. $7.125 $5.75 $.065
FISCAL YEAR ENDING MAY 28, 1997
First Quarter................................... $7.00 $6.125 $.065
Second Quarter.................................. $7.00 $5.00 $.065
Third Quarter................................... $8.50 $4.875 $.065
</TABLE>
On January 16, 1997, the last trading day prior to the public announcement
that the Company signed the Merger Agreement with AMF for the acquisition of
the Company at a price of $8.50 per share in cash, the closing sale price of
the shares (as reported on the NASDAQ National Market) was $7.375 per share.
On March 21, 1997, the last practicable date prior to the mailing of this
Proxy Statement, the last reported sale price for shares of the Company's
Common Stock was $8.25 per share. Shareholders are advised to obtain current
market quotations for their shares.
26
<PAGE>
BUSINESS OF AMF
AMF is a Virginia corporation principally engaged in the ownership and
operation of bowling centers. As of January 31, 1997, AMF owned and operated
264 U.S. bowling centers and 84 international bowling centers. AMF is a
subsidiary of AMF Group, Inc.
BUSINESS OF THE COMPANY
The Company is one of the largest chain operators of bowling centers in the
United States. As of January 31, 1997, it operated a total of 43 bowling
centers (18 in Northern California, three in Southern California, 10 in Texas,
seven in Wisconsin, three in Oklahoma and one each in Kentucky and Missouri)
containing an aggregate of 1,680 lanes. The Company's bowling centers range in
size from 24 to 72 lanes. Thirteen centers are located in buildings that are
leased from third parties; nine centers are located in buildings that are
owned by the Company or its wholly-owned subsidiaries; and 22 are operated by
joint ventures which own 21 of the buildings and in which the Company is an
85% owner. The Company's principal executive offices are located at 11171 Sun
Center Drive, Suite 120, Rancho Cordova, California 95670. Its telephone
number is (916) 852-8005.
The Company's bowling centers include food and beverage facilities and coin-
operated video and other games. The Company operates the beverage facilities
in all the bowling centers, each of which sells beer, wine and mixed drinks
with the exception of one center which sells only beer and wine. The Company
operates the snack bars in all centers except two older centers that lease
restaurants to independent operators. Beverage operations are profitable.
Profits from food operations are generally minimal; this service is offered
primarily for the convenience of bowling patrons. The bowling division
receives a percentage of the gross revenues from coin-operated video and other
games which are owned by third party vendors or, in the case of the California
bowls, by a wholly-owned subsidiary, ARC Games, Inc. Most centers contain pro
shops leased to independent operators. The Company does, however, operate the
pro shops in nine of its centers and these pro shops generate a modest profit.
All of the Company's bowling centers have child care facilities and parking.
The Company provides child care for the convenience of bowlers free of charge.
The Company's bowling centers have computerized cash receipt control systems
to control receipt of funds for all games bowled as well as computer terminals
that communicate with the corporate office computer system to further enhance
these controls.
Approximately 61% of the Company's bowling lineage revenues are derived from
bowling leagues that enter into league reservation agreements to use a
specified number of lanes for a specified time on a weekly, or other periodic
basis over the course of a bowling season. The seasons for league play are
generally nine months in the winter and three months in the summer. However,
shorter "midseason" leagues are also offered throughout the year.
The Company aggressively markets its primary product, league bowling,
through a continuous personal sales program at each of its centers. The
Company's sales personnel call on employers and a wide variety of nonprofit
organizations, such as churches, social clubs, civic clubs, P.T.A's and
fraternal groups, offering them free bowling parties as an inducement to visit
the bowling centers, try league bowling and hopefully contract for league
bowling. In numerous centers, the Company utilizes full-time direct sales
personnel. In addition the Company advertises in all the recognized mass
media--radio, television and newspaper--and engages inon-going direct mail
marketing programs aimed at specific age and demographic groups.
The bowling industry is highly competitive on a local basis. Most of the
Company's centers compete with a number of individually owned and operated
centers. Several of the Company's centers in Southern California, Texas and
the Midwest also compete with centers owned by bowling center chains of
equivalent or larger size. Further competition for the Company's bowling
centers could arise if bowling chains or independent owners construct new
bowling facilities in the same areas as the Company's existing centers. To
date, the Company has experienced modest competition for acquisition of
independently owned bowling centers, but expects that as the industry
consolidates, the Company could experience increased competition from other
chains.
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<PAGE>
The Company has access to bowling equipment from Brunswick Corporation, AMF
Bowling, Inc., an affiliate of AMF, and several smaller manufacturers as well
as through purchases of used equipment from other bowling centers. The Company
maintains a warehouse of used equipment, including wood lanes and automatic
pinsetters for replacements and repairs. The restaurant and beverage business
also have multiple sources of supply. The Company has not experienced problems
or interruptions as a result of inadequate supplies of any type.
The Company has approximately 1,800 employees in total. With the exception
of 17 people at the Company's headquarters, employees are bowling and
recreation operations employees and are based in individual bowling centers.
The Company maintains a variety of training programs and incentive
compensation plans, and believes that relations with its employees are good.
The Company has no organized labor agreements.
Over the past three fiscal years, revenue growth in the Company's bowling
business has been attributable to acquisitions, as thirteen bowling centers
were added. During the same period, revenue in comparable centers declined 3%
per year. The Company believes that the decline in comparable center revenue
reflects a nationwide decline in the popularity of bowling. Industry-wide,
bowling proprietors have been faced with heightened competition from other
entertainment and recreational venues, including the rapidly expanding movie
theater industry and formula restaurant chains. Military base closures and
anti-smoking legislation continue to impact business, particularly in the
Company's California centers. Lastly, the Company believes that league bowling
continues to decline due to societal changes including longer work weeks,
emphasis on family activities and other factors that have made bowlers less
likely to commit to league schedules.
Foreseeing the pressure on the bowling industry, management embarked upon a
plan to test the concept of broadening the Company's operations from one that
offers primarily bowling as family entertainment to one that offers a broader
menu of recreational activities, with bowling being only one of those
alternatives. The objective has been to create a broader base of entertainment
attractions that will increase the frequency and revenue per customer per
visit. Two test locations were completed in fiscal 1996.
Ten lanes of the 60-lane Pastimes Center in San Jose, California have been
converted to space that contains children's soft-play, redemption games and
branded food operations. These activities are targeted to families with young
children. Secondly, a 49,000 square foot family entertainment center in
Addison, Texas opened in December 1995. This facility, called Fun Fest,
features branded food operations, high tech electronic games including virtual
reality and laser-tag games, billiards, darts, and other recreational
attractions, all designed to attract young adult customers. Fun Fest generated
$1.3 million in revenues in its first five and one-half months of operations
and has been consistently profitable. The Pastimes concept has been slower to
gain consumer acceptance.
In addition to the two test concepts, the Company also expanded its
redemption games, darts and billiards operations in a number of centers and in
California converted its vending operations from the use of third party
vendors to in-house.
Based on the preliminary results of the two family entertainment center
concepts and on the continued decline in bowling-related revenue, the
Company's strategy has been to pursue adding new revenue sources to select
bowling centers. These include Pizza Hut Express, redemption games, darts,
billiards, themed bars, party rooms, virtual reality games and combinations
thereof. As of the date of this Proxy Statement, redemption centers and other
new entertainment attractions have already been introduced at a number of
centers. This new strategy has begun to change the overall sales mix and
profit margins of the Company. Revenue from bowling lineage, which has very
little direct cost associated with it, has been steadily declining. Revenue
from new entertainment attractions has been increasing but usually carries an
associated cost of goods and other direct costs. Consequently, profit margins
have been negatively impacted. Although the Company believes that refurbishing
and restaging its centers is necessary for revenue enhancement, no assurance
can be given that these actions will be successful or that similar or
different actions will not be required in the future.
Prior to the first quarter of fiscal 1996, the Company operated in two
business segments: bowling and direct marketing. On August 4, 1995, the
Company sold its 62.5 percent interest in The Right Start, Inc., a catalog
company and retailer of infants' and children's products that comprised the
operations of the direct marketing segment.
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<PAGE>
PROPERTIES
The following sets forth the name and address of each bowling center and the
number of lanes that it contains. Leased properties and properties owned in
partnership with other entities are indicated. All other properties are owned
by the Company. With one exception, the Company owns all of the equipment at
each center. Leases on the centers, giving the effect of option renewal
periods, expire as follows: one in 1999; six from 2000 through 2009; five from
2010 through 2019; and one from 2020 through 2029. The leases provide for
minimum and percentage rentals and, in a majority of cases, for the payment of
property taxes and insurance by the lessee. With a single exception, the
Company's leases with unaffiliated parties do not provide for cost of living
adjustments in the lease payments.
SACRAMENTO/
SAN JOAQUIN VALLEY
Mardi Gras Lanes(/1/)
(50 lanes)
4800 Madison Avenue
Sacramento, California
Alpine Valley Bowl
(40 lanes)
2326 Florin Road
Sacramento, California
Birdcage Bowl(/1/)
(40 lanes)
5850 Freeport Blvd.
Sacramento, California
Lane Park Bowl
(40 lanes)
5850 Freeport Blvd.
Sacramento, California
Rocklin Bowl
(40 lanes)
2325 Sierra Meadows Dr.
Rocklin, California
Rodeo lanes/(1)/
(40 lanes)
140 Shaw Avenue
Clovis, California
Sunnyside Lanes/(1)/
(36 lanes)
5693 E. Kings Canyon Rd.
Fresno, California
Visalia Lanes
(40 lanes)
1740 W. Caldwell Ave.
Visalia, California
SAN JOSE
Pastimes/(1)(2)/
(50 lanes)
5420 Thornwood Dr.
San Jose, California
Fiesta Lanes/(1)/
(40 lanes)
1523 West San Carlos
San Jose, California
Saratoga Lanes/(1)/
(32 lanes)
1585 Saratoga Ave.
San Jose, California
Mission Lanes
(40 lanes)
1287 South Park Victoria
Milpitas, California
SAN FRANCISCO BAY AREA
Mel's Southshore Bowl
(40 lanes)
300 Park Street
Alameda, California
Mowry Lanes
(40 lanes)
585 Mowry Avenue
Fremont, California
Pinole Valley lanes/(1)/
(40 lanes)
1580 Pinole Valley Rd.
Pinole, California
Valle Vista Lanes/(1)/
(42 lanes)
3345 Sonoma Blvd.
Vallejo, California
Mel's Redwood Bowl/(5)/
(40 lanes)
2580 El Camino Real
Redwood City, California
19th Avenue Bowl/(1)/
(32 lanes)
1830 South Delaware
San Mateo, California
SOUTHERN CALIFORNIA
Cerritos Lanes/(1)/
(40 lanes)
18811 Camenita Road
Cerritos, California
Friendly Hills Lanes
(32 lanes)
15545 East Whittier Blvd.
Whittier, California
Forest Lanes/(1)/
(40 lanes)
22771 Centre Drive
Lake Forest, California
TEXAS/(3)/
Triangle-Houston
(28 lanes)
650 West Crosstimbers
Houston, Texas
Triangle-Lewisville
(32 lanes)
1398 West Main Street
Lewisville, Texas
Triangle-Irving
(48 lanes)
1717 N. Beltline Road
Irving, Texas
Triangle-Richardson
(40 lanes)
2101 N. Central Expressway
Richardson, Texas
Triangle-DeSoto
(40 lanes)
121 Northgate Drive
DeSoto, Texas
Triangle-Arlington/(2)/
(24 lanes)
1801 E. Lamar Blvd.
Arlington, Texas
Triangle-Midland Park Lanes
(32 lanes)
5320 W. Loop 250 North
Midland, Texas
Fun Fest/(2)/
(30 lanes)
3805 Beltline Road
Addison, Texas
Grove Country Lanes
(32 lanes)
400 South Buckner Road
Dallas, Texas
Jupiter Bowl/(1)/
(24 lanes)
11336 Jupiter Road
Dallas, Texas
KENTUCKY/(4)/
Bowlodrome
(24 lanes)
600 East 14th Street
Owensboro, Kentucky
OKLAHOMA/(4)/
Moore Bowl
(40 lanes)
420 South West 6th St.
Moore, Oklahoma
Sunny Lanes
(24 lanes)
4330 South East 15th St.
Del City, Oklahoma
Windsor Lanes
(40 lanes)
4600 North West 23rd St.
Oklahoma City, Oklahoma
MISSOURI/(4)/
Capital Lanes
(24 lanes)
11611 Hickman Mill Rd.
Kansas City, Missouri
WISCONSIN/(4)/
Bowlero Bowl
(72 lanes)
11737 West Burleigh
Wauwatosa, Wisconsin
West Allis Bowl
(48 lanes)
10901 West Lapham
West Allis, Wisconsin
West Bowl
(48 lanes)
7505 West Oklahoma
Milwaukee, Wisconsin
South Park Bowl
(40 lanes)
305 North Chicago
S. Milwaukee, Wisconsin
Waukesha Bowl
(48 lanes)
901 Northview Road
Waukesha, Wisconsin
Regency Lanes
(60 lanes)
6014 North 76th Street
Milwaukee, Wisconsin
Bowl Aire Lanes
(32 lanes)
2547 Park Avenue
Beloit, Wisconsin
29
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- --------
(1) Leased Property.
(2) Family Entertainment Center.
(3) The bowling centers in Texas are owned and operated by Triangle Bowl
Associates in which the Company has an 85% interest.
(4) The bowling centers in these states are owned and operated by partnerships
in which the Company owns an 85% interest.
(5) The bowling center is owned by the Company, but the land is leased.
The Company's non-bowl real estate consists of the following: three vacant
lots located in Visalia, California, in Sacramento, California, and in
Rocklin, California (which is 87.5% owned by the Company in a partnership with
a non-affiliate of the Company, Fang, Eatough, and Borges, a Northern
California architecture and planning firm); two office buildings located in
Rancho Cordova, California and in Sacramento, California; a restaurant located
adjacent to the Lewisville, Texas Triangle Bowl; and a parking lot located in
Oakland, California, owned 60% by the Company in a partnership with Bernal
Investments, Inc., a Northern California real estate contractor and not an
affiliate of the Company.
LEGAL PROCEEDINGS
The Company is normally engaged in a number of cases of ordinary and routine
litigation incidental to its business, substantially all of which actions
involve personal injuries, minor wage disputes, or workers' compensation
claims, and occasional landlord-tenant disputes. Substantially all of the
claims under such routine litigation are covered by insurance or adequate
reserves, and most such cases are being defended by an insurance carrier at no
direct cost to the Company.
The Company is not engaged in any significant litigation, nor is it aware of
any significant claims or threatened litigation as of March 21, 1997.
30
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the periods ended May 25,
1994, May 31, 1995 and May 29, 1996 and as of May 31, 1995 and May 29, 1996
have been derived from the consolidated financial statements of the Company
which have been audited by Price Waterhouse LLP, independent accountants,
included elsewhere in this Proxy Statement. The following selected financial
data for the periods ended May 27, 1992 and May 28, 1993 and as of May 27,
1992, May 25, 1993 and May 25, 1994 have been derived from the consolidated
financial statements of the Company which have been audited but are not
contained herein. The selected consolidated financial data at November 29,
1995 and November 27, 1996 and for the six months ended November 29, 1995 and
November 27, 1996 are derived from unaudited financial statements which, in
the opinion of management of the Company, reflect all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for
a fair presentation of the financial position and results of operations for
these periods. Interim operating results for the twenty-six weeks ended
November 27, 1996 are not necessarily the results that may be expected for the
entire year ending May 28, 1997.
<TABLE>
<CAPTION>
TWENTY-
SIX WEEKS ENDED FISCAL YEAR ENDED
-------------------- -------------------------------------------
DOLLARS IN THOUSANDS, NOV. 27, NOV. 29, MAY 29, MAY 31, MAY 25, MAY 26, MAY 27,
EXCEPT PER SHARE AMOUNTS 1996 1995 1996 1995 1994 1993 1992
- ------------------------ ----------- -------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue....... $21,043 $20,300 $46,080 $45,694 $41,196 $38,783 $37,868
Net income (loss):
Continuing operations.. (11) (271) 738 1,566 1,904 1,364 1,358
Property transactions.. 0 0 173 1,361 (127) (178) 908
Discontinued
operations............ 360 2,035 2,035 (1,316) 112 655 720
------- ------- ------- ------- ------- ------- -------
349 1,764 2,946 1,611 1,889 1,841 2,986
Net income from
continuing operations
as a percent of
operating revenue...... (0.1%) (1.3%) 1.6% 3.4% 4.6% 3.5% 3.6%
Earnings (Loss) per
share:
Continuing operations.. $ .00 ($ .05) $ .15 $ .31 $ .38 $ .27 $ .27
Property transactions.. .00 .00 .03 .27 (.02) (.03) .18
Discontinued
operations............ .08 .46 .46 (.26) .02 .14 .15
------- ------- ------- ------- ------- ------- -------
$ .08 $ .41 $ .64 $ .32 $ .38 $ .38 $ .60
------- ------- ------- ------- ------- ------- -------
Cash dividends per
share.................. $ .13 $ .125 .2525 .2425 .225 .205 .185
Shareholders' equity per
share.................. 6.12 6.14 6.18 5.87 5.77 5.56 5.36
Return on equity........ 1.2% 6.6% 11% 5% 7% 7% 12%
Total assets............ 71,385 75,276 72,131 76,925 73,439 70,020 65,932
Long-term debt and
capital leases
(includes current
maturities)............ 27,224 26,006 27,990 30,800 31,315 30,516 28,822
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YEARS ENDED MAY 29, 1996, MAY 31, 1995, AND MAY 25, 1994
For an understanding of the significant factors that influenced the
Company's performance during the past three fiscal years, this discussion and
analysis should be read in conjunction with the consolidated financial
statements. See "Financial Statements."
The Company's operating revenue increased 1% in 1996 and 11% in 1995 due to
acquisitions. Revenue from comparable operating units declined in both years.
Net income from continuing operations, which totaled $911,000 in 1996,
$2,927,000 in 1995 and $1,777,000 in 1994, was significantly impacted each
year by non-operating transactions. These transactions and operating results
are discussed below.
Bowling revenue increased 1% in 1996 and 12% in 1995 due to acquisitions. In
addition, 1995 was a 53 week fiscal year, whereas 1996 and 1994 each comprised
52 weeks. 1996 additions included the construction of the Fun Fest family
entertainment center in Addison, Texas and the acquisition of a 32-lane center
in Beloit, Wisconsin. Six bowling centers comprising most of the former Red
Carpet chain in Milwaukee, Wisconsin were acquired in the second quarter of
1995. These centers aggregated 316 lanes.
Comparable center revenue declined nearly 5% in 1996 and 1% in 1995. The
comparable center declines were 3% in both years when the impact of the 53rd
week in fiscal 1995 is eliminated. Revenue from bowling lineage comprised 55%
of total revenue in 1996, 57% in 1995, and 58% in 1994. For comparable
centers, 1996 lineage revenues were down 5% when the 53rd week is eliminated.
This decline was a combination of a 4% price increase which was offset by a
nearly 9% decline in volume. In 1995, a 2% price decrease combined with a
1% decline in bowler traffic to produce a 3% decrease in lineage revenue. With
the decline in bowler traffic both years, ancillary revenue from beverage,
food, video games and other sources were also impacted. Consequently, total
revenue per lane bed was $28,200 in 1996, $30,200 in 1995, and $31,000 in
1994. These numbers also reflect the 1995 purchase of the Red Carpet centers
which have much lower revenue per lane bed results than the Company's
historical average but were acquired for their opportunity for growth.
Operating income in 1996 declined 28% overall and 32% for comparable
centers. Operating income in 1995 was even with 1994 levels as operating
income from newly acquired centers was offset by a 15% decline in
profitability for comparable centers. For both periods, the decline in
profitability was principally due to the overall drop in revenue which was so
pronounced in certain centers due to the factors discussed above that cost
controls could not mitigate the loss of revenue. Such cost control efforts
focused primarily on payroll and cost of goods sold. Additionally, in 1996 the
introduction of new non-bowling activities added new revenues but at a lower
margin than traditional bowling activities.
Operating income in fiscal 1996 included a $134,000 pre-tax charge for the
restructuring of the California bowling division which includes 21 centers.
The reorganization eliminated a layer of management that was expected to
result in an effective management and less costly corporate expense.
Other operating activities include the Company's non-bowling real estate
activities. The decline in "Other" revenue and operating income in 1996 and
1995 relates primarily to the sale of certain commercial real estate. It is
the Company's policy to strategically sell its non-bowling real estate and
redeploy the proceeds to operating activities. Gains and losses on the
disposition of such assets have been recognized in 1996, 1995 and 1994 and are
described in Note 3 to the consolidated financial statements, included in this
proxy statement.
Corporate expense includes the costs of the corporate office and staff,
shareholder relations, directors' fees, professional and consulting fees, and
other costs not allocable to bowling. Corporate expense decreased 4% in 1996
and increased 14% in 1995 primarily due to the costs of investment banking and
related services incurred in connection with an unsolicited offer for the
acquisition of the Company in 1995.
32
<PAGE>
DISCONTINUED OPERATIONS
Discontinued operations include the operations and gain on sale of the
Company's majority interest in Right Start, a catalog company and retailer of
infants' and children's products. During the first quarter of fiscal 1996, the
Company sold its 62.5% ownership in Right Start for $11,811,000 in cash plus
an option to repurchase Right Start stock and recorded a $2,251,000 after-tax
gain, equal to $.45 per share. In connection with the transaction, the Company
had agreed to reimburse Right Start up to $680,000 should it be unable to
sustain ordinary loss treatment for its deferred loss tax carry-forward and it
have sufficient taxable income in or before its fiscal year 2000. During the
first quarter of fiscal 1997, the Company received a favorable ruling from the
IRS allowing it to reverse the reserve established for the reimbursement
agreement at the time of the sale. This resulted in a $360,000 or $.08 per
share, increase in the gain on sale which has been reported in discontinued
operations. As noted above, the Company sold the option during the Company's
first fiscal 1997 quarter for $800,000 in cash.
THREE MONTHS ENDED NOVEMBER 27, 1996, AND NOVEMBER 29, 1995
Revenue for the second quarter of fiscal 1997 increased nearly 5% to $12.0
million from $11.5 million while income from continuing operations declined to
$308,000, or $.07 per share, from $383,000, or $.08 per share.
The overall increase in revenue for the quarter was attributable to
acquisitions and new revenue attractions. The Company's new Bowl Aire Center
in Wisconsin, the new Fun Fest family entertainment center ("FEC") in Texas
and other FEC-type attractions installed at existing locations produced a
total of over $1.0 million in revenue and contributed $122,000 in incremental
operating income.
Revenue for comparable centers and comparable bowling operations declined
$442,000, or 4%. $80,000 of the decline was attributable to the Company's
Arlington, Texas center where 24 bowling lanes have been removed and
construction is underway to convert it to a Fun Fest FEC. The balance of the
decrease was due to a decline in bowler traffic which contributed to a 4% drop
in the volume of games bowled which led to a similar decrease in bowling
lineage revenue. Ancillary revenue sources such as beverage and food declined
3% and 2%, respectively from the decrease in bowler traffic.
Operating income for the second quarter of fiscal 1997 increased slightly to
$1,154,000 from $1,140,000. This was due to the incremental operating income
generated by new locations and new revenue attractions as discussed above.
These increases were partially offset by a decline in operating income from
comparable centers due to the drop in revenue at these centers. However, the
impact of the decline in revenue on operating income was partially mitigated
by a reduction in operating costs for comparable center operations. The
primary focus for cost reductions was centered on payroll and cost of goods
sold, which accounted for a 2.1% cut in payroll costs and a 2.3% cut in the
cost of goods sold on comparable centers in the first quarter. In addition,
operating expenses and repair costs were tightened providing additional
savings of 6.8% and 6.9% respectively over last year's first quarter
expenditure levels. Special attention was given to general and administrative
costs which declined by 6.0% over comparable first quarter levels.
Second quarter interest expense increased to $649,000 from $626,000 due
primarily to additional debt incurred to finance the Bowl Aire acquisition and
construction of the first Fun Fest. These increases were partially offset by
reductions in interest expense due to $2.6 million in debt that was retired
during last year's fourth quarter in connection with the sale of a commercial
real estate project. Interest and other income declined to $76,000 from
$193,000 because last year's numbers reflect the short-term investment of some
of the proceeds from the sale of the Company's majority interest in The Right
Start, Inc. ("Right Start") (see "Discontinued Operations" below).
SIX MONTHS ENDED NOVEMBER 27, 1996, AND NOVEMBER 29, 1995
Revenue for the six months ended November 27, 1996 rose almost 4% to $21.0
million from $20.3 million. The net loss from continuing operations for the
same period improved to ($11,000), or $.00 per share, from ($271,000), or
($.05) per share. However, during this year's six month period an option to
repurchase
33
<PAGE>
400,000 shares of Right Start's common stock was sold for $800,000 in cash,
resulting in an after-tax gain of $480,000, or $.10 per share. The option had
been retained after last year's first quarter sale of Right Start and
contained exercise prices ranging from $3.60 to $6.00 over a seven year
period. The option was sold when Right Start's common stock was trading at $6
3/8.
As was the case with the results for the second quarter, the overall
increase in revenue was attributable to acquisitions and new revenue
attractions. These new revenue sources contributed over $2.0 million in new
revenue and nearly $250,000 in incremental operating income. Revenue for
comparable centers was off almost 6% for the period due to the decline in
bowler traffic. Ancillary revenue sources were down correspondingly. Beverage
sales were down 4% and food sales were down slightly less than 4%.
Operating income for the six month period declined from $608,000 last year
to $299,000 this year. Incremental operating income from new revenue sources
was not sufficient to offset the decline in comparable center, comparable
operations revenue. However, some of the comparable center revenue decline was
offset by cost reductions. These cost reductions, which were implemented in
the first quarter and carried on throughout the second quarter of fiscal 1997,
were aimed at reducing comparable center payrolls and cost of goods sold. For
the six months ended November 27, 1996, these reductions amounted to 2.3% in
payroll and 2.7% in cost of goods sold. Additionally, savings of 7% were
realized in operating expenses and savings of 7.4% were achieved in repairs.
General and administrative expenses were reduced 15.6% for the six months over
comparable centers last year.
Interest expense was reduced from $1,375,000 last year to $1,295,000 this
year for the period. Increases in interest expense due to additional debt
incurred to finance the Bowl Aire acquisition and Fun Fest construction were
offset by the reduction in interest associated with the repayment of certain
debt upon the sale of a commercial real estate project as discussed above and
last year's prepayment at the beginning of the second quarter of approximately
$2.5 million in debt using a portion of the proceeds from the sale of Right
Start. Some of the Right Start proceeds were invested on a short-term basis
during last year's six month period which contributed to a decline in interest
income from $319,000 last year to $173,000 this year.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from continuing operations was $4,374,000 in 1996 after
adding back $4,679,000 in taxes paid on the gain on sale of Right Start.
Financing activities included repayment of $8,827,000 in long-term debt, new
long-term debt totaling $6,017,000 to finance acquisitions and other capital
expenditures, payment of $1,236,000 in dividends to shareholders, and the
repurchase of $2,928,000 (net of stock issued for stock operations) of the
Company's common stock in connection with a stock repurchase plan previously
authorized by the Board of Directors. Between October 1995 and December 31,
1996, the Company had repurchased 499,530 shares, representing nearly 10% of
its common stock outstanding when the plan was approved. The total cost of the
reacquired shares was $3,337,000. The repurchased shares were retired by the
Company and not held as treasury shares. The plan expired December 31, 1996.
Investing activities included the receipt of $7,132,000 (net of $4,679,000
in taxes) in connection with the sale of the Company's discontinued
operations, receipt of $2,840,000 in proceeds form the sale of commercial real
estate and bowling equipment, and capital expenditures totaling $8,254,000.
At November 27, 1996, the Company had $10,168,000 available under an unused
bank commitment. Advances can be used to acquire, construct or refurbish
bowling centers or to acquire other compatible recreation businesses and would
bear interest at the prime rate plus .75%. The Company also maintains various
line-of-credit arrangements to augment seasonal shortfalls in working capital.
At November 27, 1996, there were no advances outstanding under the Company's
$2,000,000 outstanding line-of-credit. Advances under this line would bear
interest at the prime rate plus 1%. The Company's long-term debt at November
27, 1996, totaled $27,224,000.
34
<PAGE>
The Company has paid quarterly cash dividends for 28 consecutive years. Cash
dividends for 1996 of $.2525 per share represent a 4% increase of 1995's
dividend which was up 8% over 1994's dividend.
While the Company has adequate credit lines in place for both its short term
cash needs and long term cash needs, currently, cash from operations has not
provided adequate cash resources to fulfill the growth plans the Company is
undertaking. In addition, the Company has a history of selling off non-bowling
real estate and other non-operating assets to supplement its cash needs for
operating purposes. The Company believes its resources will permit it to
continue with its strategy of periodically acquiring bowling centers and
converting a limited number of is facilities to its Family Entertainment
Concept.
At November 27, 1996, the Company had several major capital outlay plans in
various stages of progress which included major remodeling projects at a
number of bowling centers as well as the conversion of the Arlington, Texas
bowling center into a Fun Fest family entertainment facility. These projects
are either currently financed or for those projects not yet started, the
Company would be able to cancel them in the event adequate funds were
unavailable. There are no unfunded capital commitments.
35
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table set forth certain information regarding the beneficial
ownership of Common Stock of the Company as of February 28, 1997 as to (i)
each person known by management to be the beneficial owner of more than 5% of
the Company's Common Stock, (ii) each director of the Company, (iii) each of
the executive officers paid in excess of $100,000 in fiscal 1996 and (iv) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE OF CLASS
NAME OF BENEFICIAL OWNERSHIP BENEFICIALLY OWNED
---- ----------------------- -------------------
<S> <C> <C>
American Recreation Centers,
Inc.
Employee Stock Ownership Plan
(ESOP)......................... 742,604(/1/) 15.56%
P.O. Box 580
Rancho Cordova, CA 95741
David L. Babson & Company, Inc.. 640,100 13.42%
One Memorial Drive
Cambridge, MA 02142-300
Robert A. Crist................. 134,095(/2/)(/3/) 2.81%
Chairman of the Board, Chief
Executive Officer and President
Karen B. Wagner................. 73,206(/2/)(/3/) 1.51%
Chief Financial Officer and Vice
President/Treasurer
Stephen R. Chanecka............. 16,350(/2/) *
Director
Stanley B. Schneider............ 16,250(/2/) *
Director
Stewart Bloom................... 9,500(/2/) *
Director
Bruce Feuchter.................. 5,000(/2/) *
Director
All of the Company's Directors
and Officers as a group........ 254,401(/2/)(/3/) 5.33%
(6 persons)
</TABLE>
- --------
* Less than 1%.
(/1/)The Trustee of the ESOP holds these shares for the participants in the
ESOP pursuant to the Plan. The trustee has no beneficial interest in these
shares, as such. Shares held in the ESOP for officers are included in
individual totals and in the ESOP totals.
(/2/)Includes vested options for the purchase of common stock as follows:
Robert A. Crist, 85,000; Karen B. Wagner, 55,000; Stephen R. Chanecka,
5,000; Stanley B. Schneider, 5,000; Stewart Bloom, 5,000; and Bruce
Feuchter, 5,000. However, upon consummation of the Merger, the vesting of
the options of the above holders will accelerate so that at the Effective
Time, the above holders will own the following number of vested options:
Robert A. Crist, 205,000; Karen B. Wagner, 125,000; Stephen R. Chanecka,
30,000; Stanley B. Schneider, 30,000; Stewart Bloom, 30,000; and Bruce
Feuchter 13,000.
(/3/)Includes shares beneficially owned in the Employee Stock Ownership Plan
and Employee Stock Purchase Plan.
36
<PAGE>
EXPENSES OF SOLICITATION
The total costs of this solicitation, including the fees and costs of
MacKenzie Partners, Inc., which total costs are currently estimated to be
$45,000, will be borne by the Company. It is anticipated that banks, brokerage
houses, and other custodians, nominees and fiduciaries will forward soliciting
material to beneficial owners of the Common Stock entitled to vote at the
Special Meeting, and such persons will be reimbursed for their out-of-pocket
expenses incurred in this connection. In addition to solicitation by mail,
proxies may be solicited by directors, officers and employees of the Company
by personal interviews, telephone, telegraph and facsimile.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE A COPY OF ITS ANNUAL REPORT ON FORM
10-K, INCLUDING FINANCIAL STATEMENTS AND RELATED SCHEDULES, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION UPON REQUEST IN WRITING FROM ANY PERSON WHO
WAS A HOLDER OF RECORD, OR WHO REPRESENTS IN GOOD FAITH THAT HE OR SHE WAS A
BENEFICIAL OWNER, OF COMMON STOCK OF THE COMPANY AS OF THE CLOSE OF BUSINESS
ON MARCH 3, 1997. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE
COMPANY AT P.O. BOX 580, RANCHO CORDOVA, CALIFORNIA 95741.
SUBMISSION OF SHAREHOLDER PROPOSALS
Assuming that the Merger is approved and completed, no proxies will be
solicited for the Company's 1997 Annual Meeting. If the Merger is not approved
and completed, a proposal by a shareholder intended to be presented at the
1997 Annual Meeting must be received by the Company at its principal executive
offices by May 25, 1997, to be included in the Proxy Statement for that
Meeting, and all other conditions for such inclusion must be satisfied.
EXPERTS
The consolidated balance sheets of the Company as of May 29, 1996, and May
31, 1995, and the consolidated statements of income, retained earnings, and
cash flows of the Company for each of the three years in the period ended May
29, 1996, included in this Proxy Statement, have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing. No
representative of Price Waterhouse LLP is expected to be present at the
Special Meeting.
OTHER BUSINESS
The Board of Directors does not intend to bring any other matters before the
Special Meeting and does not know of any matters to be brought before the
Special Meeting by others. No other matters may be brought before the Special
Meeting in accordance with California law.
By Order of the Board of Directors
AMERICAN RECREATION CENTERS, INC.
/s/ ROBERT A CRIST
Robert A. Crist
Chairman of the Board
Rancho Cordova, California
March 26, 1997
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of American Recreation Centers,
Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statement of income and retained earnings and of cash flows
appearing on the following pages of this proxy statement present fairly, in
all material respects, the financial position of American Recreation Centers,
Inc. and its subsidiaries at May 29, 1996 and May 31, 1995 and the results of
their operations and their cash flows for each of the three years in the
period ended May 29, 1996, in conformity with generally accepted accounting
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
Sacramento, California
July 22, 1996
38
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
AMERICAN RECREATION CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
NOVEMBER 27, MAY 29, MAY 31,
DOLLARS IN THOUSANDS 1996 1996 1995
- -------------------- ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................... $ 3,553 $ 3,489 $ 4,508
Accounts and notes receivable................ 765 810 274
Inventories.................................. 653 609 510
Current deferred income tax benefits......... 520 520 --
Other current assets......................... 1254 1,327 1,510
Net investment in discontinued operations.... -- -- 6,683
-------- -------- --------
Total current assets........................ 6,745 6,755 13,485
-------- -------- --------
Property, equipment and leaseholds, at cost:
Land and buildings........................... 41,636 41,965 40,466
Machinery and equipment...................... 38,517 37,777 34,922
Leaseholds and leasehold improvements........ 8,913 8,532 7,201
Construction in progress..................... -- -- 892
-------- -------- --------
89,066 88,274 83,481
Less--Accumulated depreciation and
amortization................................ (30,194) (28,572) (26,018)
-------- -------- --------
58,872 59,702 57,463
-------- -------- --------
Other assets.................................. 5,768 5,674 5,977
-------- -------- --------
$ 71,385 $ 72,131 $ 76,925
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........ $ 5,578 $ 4,952 $ 4,191
Short-term borrowings........................ 300 -- --
Current maturities of long-term debt and
capital leases.............................. 1,764 1,796 2,053
Accrued salaries and related expenses........ 998 1,182 987
Current deferred taxes....................... -- -- 2,311
-------- -------- --------
Total current liabilities................... 8,640 7,930 9,542
-------- -------- --------
Long-term debt and capital leases............. 25,460 26,194 28,747
-------- -------- --------
Income taxes deferred to future years......... 7,209 7,209 7,233
-------- -------- --------
Minority interests............................ 1,849 2,060 1,732
======== ======== ========
Shareholders' equity:
Common stock:
Authorized--21,484,375 shares
Issued and outstanding--November 27, 1996,
4,611,287, May 29, 1996, 4,647,899 shares;
1995, 5,054,259 shares...................... 9,584 9,845 12,773
Preferred stock:
Authorized--5,000,000 shares
Issued and outstanding--None
Retained earnings............................. 18,643 18,893 16,898
-------- -------- --------
Total shareholders' equity................... 28,227 28,738 29,671
-------- -------- --------
Commitments and contingencies ................ $ 71,385 $ 72,131 $ 76,925
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
TWENTY-
SIX WEEKS ENDED FISCAL YEAR ENDED
------------------ -------------------------
DOLLARS IN THOUSANDS, EXCEPT PER NOV. 27, NOV. 29, MAY 29, MAY 31, MAY 25,
SHARE AMOUNTS 1996 1995 1996 1995 1994
- -------------------------------- -------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenue:
Bowling.......................... $20,719 $19,859 $45,222 $44,687 $39,690
Other............................ 324 441 858 1,007 1,506
------- ------- ------- ------- -------
21,043 20,300 46,080 45,694 41,196
------- ------- ------- ------- -------
Operating, general and
administrative expense:
Bowling.......................... 20,035 18,824 40,777 38,505 33,540
Other............................ 218 292 550 535 770
Corporate........................ 491 516 1,094 1,141 1,002
------- ------- ------- ------- -------
20,744 19,692 42,421 40,181 35,312
------- ------- ------- ------- -------
Operating income (loss):
Bowling.......................... 684 975 4,445 6,182 6,150
Other............................ 106 149 308 472 736
Corporate........................ (491) (516) (1,094) (1,141) (1,002)
------- ------- ------- ------- -------
OPERATING INCOME.................. 299 608 3,659 5,513 5,884
Interest expense................. (1,295) (1,375) (2,677) (2,984) (2,759)
Interest and other income........ 173 319 584 331 242
Gain (Loss) on property
transactions, net............... -- -- 411 2,483 (509)
Gain on sale of stock option..... 800 -- -- -- --
Gain on sale of subsidiary's
stock........................... -- -- -- -- 297
------- ------- ------- ------- -------
taxes and minority interests.... (23) (448) 1,977 5,343 3,155
Provision for income taxes....... (2) 179 (705) (1,867) (1,102)
Minority interests............... 14 (2) (361) (549) (276)
------- ------- ------- ------- -------
INCOME FROM CONTINUING OPERATIONS. (11) (271) 911 2,927 1,777
Discontinued operations:
Gain on sale of investment in The
Right Start, Inc., net of
applicable income taxes of $320
of $1,568 and $1,568............ 360 2,251 2,251 -- --
Income (Loss) from operations of
The Right Start, Inc., net of
applicable income taxes of $49,
$49, ($1,254) and $102.......... -- 54 54 (1,316) 112
------- ------- ------- ------- -------
NET INCOME........................ 349 2,034 3,216 1,611 1,889
Retained earnings, beginning of
period........................... 18,893 16,898 16,898 16,494 15,678
Cash dividends ($.065, $.0625,
$.2525, $.2425 and
$.225 per share)................. (599) (630) (1,236) (1,220) (1,116)
Income tax benefits............... -- -- 15 13 43
------- ------- ------- ------- -------
Retained earnings, end of year.... $18,643 $18,302 $18,893 $16,898 $16,494
======= ======= ======= ======= =======
Earnings per share:
Continuing operations............ $ .00 ($ .01) $ .18 $ .58 $ .36
Discontinued operations.......... .08 .46 .46 (.26) .02
------- ------- ------- ------- -------
$ .08 $ .41 $ .64 $ .32 $ .38
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-
SIX WEEKS ENDED FISCAL YEAR ENDED
-------------------- --------------------------
DOLLARS IN THOUSANDS, NOV. 27, NOV. 29, MAY 29, MAY 31, MAY 25,
EXCEPT PER SHARE AMOUNTS 1996 1995 1996 1995 1994
- ------------------------ ----------- -------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income............... $ 349 $ 2,034 $ 3,216 $ 1,611 $ 1,889
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization............ 1,907 1,813 3,662 3,390 3,137
(Income) Loss from
discontinued operations. (360) (2,305) (2,305) 1,316 (112)
Gain on sale of
subsidiary's stock...... -- -- -- -- (297)
(Gain) Loss from property
transactions............ -- -- (411) (2,483) 509
Gain on sale of stock
option.................. (800) -- -- -- --
Results attributed to
minority interests...... (14) 2 361 549 276
(Decrease) Increase in
deferred income taxes... -- -- (3,406) 2,193 1,132
Decrease (Increase) in
accounts receivable..... 45 9 104 180 227
Decrease (Increase) in
inventories............. (44) (60) (99) (119) (48)
Decrease (Increase) in
other current assets.... 73 127 183 (371) 235
(Decrease) Increase in
accounts payable and
accrued expenses........ 802 (2,742) (1,610) 1,898 (608)
------- ------- ------- -------- -------
Net cash (used in) from
operations.............. 1,958 (1,122) (305) 7,164 6,340
------- ------- ------- -------- -------
Cash Flows from (used in)
Investing Activities:
Proceeds from sale of
subsidiary's stock...... -- 11,811 11,811 -- 425
Gain on sale of stock
option.................. 800 -- -- -- --
Expenditures for
property, equipment and
leaseholds.............. (1,023) (3,829) (8,254) (12,866) (5,757)
Proceeds from sale of
property and equipment.. -- -- 2,840 8,479 --
Payments received on loan
to ESOP................. -- -- -- 54 239
Other.................... (345) (2) (137) 31 (215)
------- ------- ------- -------- -------
Net cash from (used in)
investing activities..... (568) 7,980 6,260 (4,302) (5,308)
------- ------- ------- -------- -------
Cash Flows from (used in)
Financing Activities:
Short term borrowings.... 300 (415) -- -- --
Issuance of long-term
debt.................... -- 2,200 6,017 11,401 5,755
Repayment of long-term
debt.................... (766) (4,856) (8,827) (12,381) (5,091)
Dividends to
shareholders............ (599) (630) (1,236) (1,220) (1,116)
(Retirement) Issuance of
common stock............ (261) (64) (2,928) 333 655
------- ------- ------- -------- -------
Net cash (used in) from
financing activities... (1,326) (3,765) (6,974) (1,867) 203
------- ------- ------- -------- -------
Net (decrease) increase in
cash and equivalents..... 64 3,093 (1,019) 995 1,235
Cash and equivalents at
beginning of year........ 3,489 4,508 4,508 3,513 2,278
------- ------- ------- -------- -------
Cash and equivalents at
end of year.............. $ 3,553 $ 7,601 $ 3,489 $ 4,508 $ 3,513
======= ======= ======= ======== =======
Supplementary schedule of
noncash investing and
financing activities:
Assets received in lieu
of payment of note
receivable.............. $ 465
Note receivable as
partial payment for real
property sold........... $ 650
Stock issued and retired
in connection with
exercise of stock
options................. $ 525
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
American Recreation Centers, Inc. and its subsidiaries (the Company) operate
bowling centers in California, Texas, Wisconsin, Kentucky, Missouri and
Oklahoma. The Company's non-California bowling centers are owned and operated
by three 85 percent owned partnerships; Triangle Bowl Associates, Mid-America
Associates and American Red Carpet. The accompanying financial statements
include the accounts of American Recreation Centers, Inc., its wholly and
majority-owned corporate subsidiaries and general partnerships in which the
Company has controlling financial interests.
Discontinued operations include the operations and gain on sale of the
Company's majority interest in The Right Start, Inc. (Right Start), a catalog
company and retailer of infants' and children's products. Significant data
related to discontinued operations is disclosed in Note 2.
Certain financial statement reclassifications of 1995 or 1994 amounts have
been made for comparative purposes.
There have been no changes in the Company's significant accounting policies
as set forth in the Company's 1996 annual report. These unaudited financial
statements as of November 27, 1996 and for the three and six month periods
ended November 27, 1996 and November 29, 1995 have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.
A summary of the accounting principles and practices used in the preparation
of the consolidated financial statements follows.
Financial Statement Presentation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Fiscal Year. The Company's fiscal year is a fifty-two week or fifty-three
week period ending on the last Wednesday in May. Fiscal years 1996 and 1994
each comprised 52 weeks. Fiscal year 1995 comprised 53 weeks.
Earnings Per Share of Common Stock. Earnings per share is computed on the
weighted average number of shares of common stock and common stock equivalents
outstanding during each period. Average shares outstanding were 4,968,484,
5,020,649 and 4,940,461 in 1996, 1995 and 1994. Common stock equivalents
include the Company's stock options. Common stock equivalents in the aggregate
are not dilutive and, accordingly, are excluded from the computations of
earnings per share.
Cash and Equivalents. Cash equivalents include certificates of deposit,
money market accounts, and demand deposits all of which have original
maturities of three months or less.
Inventories. Inventories consist of products purchased for resale and are
stated at the lower of cost, determined on a first-in, first-out basis, or
market value.
Property, Equipment and Leaseholds. Additions, major renewals and
betterments are included in the asset accounts at cost. Maintenance, repairs
and minor renewals are charged to operations when incurred. Generally,
depreciation for financial statement purposes is computed using the straight-
line method over the estimated useful life of the asset. Accelerated methods
are used for income tax purposes. The estimated lives of the assets for
42
<PAGE>
financial statement purposes are as follows: building, 25-40 years; equipment,
3-25 years; and leaseholds and leasehold improvements, 10 years or life of
lease. The costs and related accumulated depreciation of assets retired or
otherwise disposed of are eliminated from the accounts. Gains and losses from
disposals are included in operations.
Sale of Stock by Subsidiaries. Upon the sale of stock by its corporate
subsidiaries, the Company has elected to reflect in its consolidated income
statement the difference between the book value of its interest in such
subsidiaries after the sale of stock, and the book value of its interest in
such subsidiaries prior to the sale of stock.
Income Taxes. The Company accounts for income taxes using an asset and
liability approach under which deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of other assets and
liabilities.
NOTE 2--DISCONTINUED OPERATIONS:
During fiscal 1996, the Company sold its 62.5% in Right Start to an
investment group led by Kayne, Anderson Investment Management Inc. for
$11,811,000 cash plus an option to repurchase 400,000 shares of Right Start's
common stock at exercise prices ranging from $3.30 to $6.00 over a seven year
period. The Company recorded a $2,251,000 after-tax gain, equal to $.45 per
share, in the first quarter of fiscal 1996. In connection with the
transaction, the Company had agreed to reimburse Right Start up to $680,000
should it be unable to sustain ordinary loss treatment for its deferred tax
loss carryforward and it have sufficient taxable income in or before its
fiscal year 2000. During the first quarter of fiscal 1997 the Company received
a favorable ruling from the IRS allowing ARC to reverse the reserve
established for the agreement at the time of the sale. This resulted in a
$360,000 increase in the gain on sale which has been reported in discontinued
operations.
The Company's share of Right Start's results of operations up to the date of
sale, is included in the consolidated statement of income as discontinued
operations. Income (Loss) from operations of Right Start, net of applicable
income taxes, is summarized as follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1996 1995 1994
-------------------- ------ ------- -------
<S> <C> <C> <C>
Revenue......................................... $7,830 $45,741 $50,515
------ ------- -------
Operating income (loss)......................... 118 (1,659) 2204
Interest and other income and expense, net...... 16 43 54
Loss on sale of Children's Wear Digest.......... -- (1,744) --
------ ------- -------
Income (loss) from operations of Right Start
before income taxes and minority interest...... 134 (3,360) 278
Income taxes.................................... (49) 1,254 (102)
Minority interest............................... (31) 790 (64)
------ ------- -------
$ 54 $(1,316) $ 112
====== ======= =======
</TABLE>
NOTE 3--ACQUISITIONS AND DISPOSITIONS AND SALES OF SUBSIDIARY'S STOCK:
1997. During the first quarter of fiscal 1997 the Company sold its option to
repurchase up to 400,000 shares of Right Start common stock for $800,000 cash,
resulting in an after-tax gain of $480,000, equal to $.10 per share.
1996. In 1996's fourth quarter, the Company's seventy percent owned Union
Square Associates partnership sold its commercial real estate holdings in
Union City, California for $2,580,000. A pre-tax, pre-minority interest gain
of $411,000 was realized on the sale.
43
<PAGE>
AMERICAN RECREATION CENTERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the fourth quarter of 1996, the American Red Carpet joint venture
acquired the land, building and equipment of a 32-lane bowling center in
Beloit, Wisconsin for $1,400,000.
1995. During the first quarter of 1995, the Company's 90 percent owned
partnership, sold its Budget Mini-Storage facility in Milpitas, California for
$3,600,000. Proceeds were used to retire long-term debt of $2,487,000 and to
acquire bowling centers in Milwaukee, Wisconsin (see below). A pre-tax, pre-
minority interest gain of $2,007,000 was recorded on the sale. The sale of the
Budget Mini-Storage and the acquisition of the Milwaukee centers was accounted
for as a like-kind exchange for income tax purposes.
In the second quarter, the Company formed the American Red Carpet joint
venture to acquire substantially all of the Red Carpet bowling chain in
Milwaukee, Wisconsin. The $8,000,000 purchase price included the land.
buildings and equipment of six bowling centers totaling 316 lanes. 1995
acquisitions also included the purchase of the $700,000 Fun Fest building site
in Addison, Texas by Triangle Bowl Associates.
In the third quarter of 1995, the Company sold the land and building housing
its 60-lane bowling center in San Pablo, California for $2,500,000. Proceeds
were used to retire $1,768,000 in long-term debt. A pre-tax gain of $533,000
was recognized on the sale which will be deferred for income tax purposes
provided the Company reinvests the proceeds from the sale in similar assets
within three years.
1994. During the first quarter of 1994, the Company sold 63,000 shares of
The Right Start, Inc.'s common stock for a pre-tax gain of $297,000. Cash
proceeds totaled $425,000. The sale reduced the Company's ownership in Right
Start from 63.5 percent to 62.5 percent.
1994 acquisitions included the purchase by Triangle Bowl Associates of a 32-
lane bowling center in Midland, Texas for $600,000. The purchase included a
ten year lease on the land and building with a stated option price exercisable
anytime during the ten years. The purchase option for $1,000,000 was exercised
during the third quarter of 1995. Mid-America Associates acquired a 24-lane
center in Kansas City, Missouri and two 40-lane centers in Oklahoma City,
Oklahoma. The total purchase price for all three centers, which included land
and buildings, was approximately $3,400,000.
During the fourth quarter of 1994, a $398,000 pre-tax charge was recorded in
anticipation of the pending sale of a real estate investment in Oakland,
California. The sale was completed during the second quarter of 1995.
Subsequent to year-end, the Company repossessed the operating assets of a
36-lane bowling center in Fresno, California in lieu of payment on a note
receivable and assumed the center's lease. A loss of $111,000 reflecting the
excess of the note balance over the fair market value of the assets received
was recorded in 1994.
NOTE 4--LONG-TERM DEBT AND LEASE COMMITMENTS:
<TABLE>
<CAPTION>
NOVEMBER 27, MAY 29, MAY 31,
DOLLARS IN THOUSANDS 1996 1996 1995
-------------------- ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Secured notes payable in monthly installments
with weighted average interest rate of
8.94%....................................... $ 26,488 $27,095 $29,554
Other........................................ 736 895 1,246
-------- ------- -------
27,224 27,990 30,800
Less--Amounts due within one year............ 1,764 1,796 2,053
-------- ------- -------
$ 25,460 $26,194 $28,747
======== ======= =======
</TABLE>
44
<PAGE>
AMERICAN RECREATION CENTERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes payable and installment contracts are secured by real property and
equipment with a cost of $43,702,000 and assignment of rents under real
property leases. Installment contracts, which bear interest at annual rates
varying from 7.5% to 10.25%, are payable in fixed monthly amounts.
Maturities of long-term indebtedness at May 29, 1996, excluding capital
lease obligations, during the next five years are: 1997-$1,456,000; 1998-
$3,485,000; 1999-$2,595,000; 2000-$5,108,000; 2001-$2,225,000.
At November 27, 1996, the Company had $10,168,000 available under an unused
bank commitment. Proceeds from the unused commitment can be used to acquire,
construct or refurbish bowling centers or to acquire other compatible
recreational businesses. Advances would bear interest at the prime rate plus
.75%.
The Company also maintains a secured line-of-credit arrangement with a bank
whereby the Company may borrow up to $2,000,000 for short-term cash needs.
Interest is payable on the outstanding balance at a rate of .5% over the
bank's prime rate. The line-of-credit requires a 30 day out-of-debt period
each fiscal year. At November 27, 1996, May 29, 1996 and May 31, 1995 there
were no borrowings outstanding under the line-of-credit.
The Company's wholly-owned subsidiary, ARC Games, Inc., maintains a
$1,000,000 unsecured bank line-of-credit. Advances bear interest at the bank's
prime rate plus 1%. $300,000, $0 and $415,000 were outstanding under the line
as of November 27, 1996, May 29, 1996 and May 31, 1995 and is included in
current maturities of long-term debt. The line-of-credit agreement requires
that the Company maintain a $250,000 interest bearing minimum balance with the
bank.
Of the forty-three bowling centers operated by the Company at November 27,
1996, fourteen are leased under noncancelable agreements expiring from 1999
through 2020. The other bowling centers are owned by the Company or leased
from partnerships in which the Company owns majority interests. The Company's
minimum rental commitments under noncancelable operating leases at May 29,
1996 are as follows:
<TABLE>
<CAPTION>
OPERATING
DOLLARS IN THOUSANDS LEASES
-------------------- ---------
<S> <C>
1997............................................................ $1,568
1998............................................................ 1,582
1999............................................................ 1,574
2000............................................................ 1,317
2001............................................................ 1,205
2002 and after.................................................. 4,272
</TABLE>
The leases provide for minimum and percentage rentals and in the majority of
cases, for the payment of property taxes and insurance by the lessee. Rental
expense under operating leases, including property taxes of $242,000, $270,000
and $239,000 was $2,027,000, $1,845,000 and $2,064,000 in 1996, 1995 and 1994.
Included in the rental expense above are additional rents of $236,000,
$270,000 and $317,000 based on sales volume above minimums. The Company is
also contingently liable for rent payments on a lease assigned to a third
party in the event of nonpayment by the assignee.
45
<PAGE>
NOTE 5--COMMON STOCK ACTIVITY AND STOCK OPTIONS:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS SHARES ISSUED AMOUNT
-------------------- ------------- -------
<S> <C> <C>
Balance, May 26, 1993.............................. 4,886,291 $11,784
Issued............................................. 117,262 655
--------- -------
Balance, May 25, 1994.............................. 5,003,553 12,440
Issued............................................. 50,706 333
--------- -------
Balance, May 31, 1995.............................. 5,054,259 12,773
Issued............................................. 131,333 660
Repurchase of stock................................ (537,693) (3,588)
--------- -------
Balance, May 29, 1996.............................. 4,647,899 $ 9,845
========= =======
</TABLE>
The Company has an employee stock ownership plan (ESOP) and an employee
stock purchase plan (ESPP) for the benefit of its eligible employees as
defined in the plans. The ESOP is funded exclusively by employer contributions
made at the discretion of the Board of Directors. Contributions to the ESOP
totaled $300,000 in 1996 and $425,000 in 1995 and 1994. The ESOP held 710,882
and 686,479 shares of the Company's common stock at May 29, 1996 and May 31,
1995. All of the shares were allocated to the benefit of plan participants.
Under the ESPP, employees' contributions are matched by the Company at a rate
of fifty percent. Employer contributions to the ESPP totaled $65,000, $73,000
and $84,000 in 1996, 1995 and 1994.
In accordance with the 1988 Key Employee Incentive Stock Option Plan, as
amended (Employee Plan), options to purchase 850,000 common shares of the
Company can be issued to key employees. Under the 1988 Stock Option Plan for
Non-Employee Directors, as amended (Directors' Plan), options to purchase
150,000 common shares of the Company can be issued to non-employee directors
for services to the Company.
Under both plans, options are required to be granted at the fair market
value of the stock at the date of grant. Options may be granted until
September 30, 1998. Participants are generally required to exercise their
options within five years of vesting or within sixty days of termination.
Under the Employee Plan, options granted generally can vest up to five years
(or less at the discretion of the Board of Directors). Under the Directors'
Plan, directors automatically receive a grant of 5,000 options three months
after becoming a director and 2,500 options for each of the next four years to
a maximum of 15,000 options. Such options are vested at the date of grant.
At May 29, 1996, 227,207 and 90,000 options were available for grant under
the Employee and Directors' Plans, respectively. Transactions for stock
options are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Balance, beginning of year....... 594,617 651,450 565,901
Granted.......................... 100,000 12,500 197,900
Exercised........................ (131,333) (21,000) (60,000)
Canceled......................... (130,834) 48,333) (52,351)
----------- ----------- ------------
Balance at end of year........... 432,450 594,617 651,450
----------- ----------- ------------
Exercisable at end of year....... 281,250 488,183 417,700
----------- ----------- ------------
Range of exercise prices at end
year............................ $5.00-$8.75 $5.00-$8.75 $5.00-$ 8.75
----------- ----------- ------------
Grant prices..................... $ 6.375 $ 6.25 $6.00-$6.375
----------- ----------- ------------
</TABLE>
46
<PAGE>
AMERICAN RECREATION CENTERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--INCOME TAXES:
The Company files a consolidated federal income tax return which includes
the results of operations of its partnerships and corporate subsidiaries, with
the exception of The Right Start, Inc. which filed a separate federal return.
Tax payments in 1996, 1995 and 1994 were $5,295,000, $72,000 and $113,000.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Current:
Federal......................................... $ 4,856 $ (383) $ (274)
State........................................... 823 36 20
------- ------ ------
5,679 (347) (254)
------- ------ ------
Deferred:
Federal......................................... (3,138) 1,899 1,110
State........................................... (268) 315 246
------- ------ ------
(3,406) 2,214 1,356
------- ------ ------
Total provision.................................. $ 2,273 $1,867 $1,102
======= ====== ======
</TABLE>
The effective income tax rates on pre-tax earnings from continuing
operations are 44% in 1996, 39% in 1995 and 38% in 1994. The following table
details the major differences between the effective tax rates and the
statutory federal income tax rate of 34%.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate................................... 34% 34% 34%
Increase (Decrease) in tax rate resulting from:
State income taxes, net of federal tax benefits.......... 7 5 6
Rate differentials applied to reversing of temporary
differences............................................. 3 -- --
Dividends on ESOP SHARES................................. -- -- (2)
--- --- ---
44% 39% 38%
=== === ===
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TAX LIABILITIES (ASSETS) ARE COMPRISED OF THE MAY 29, MAY 31,
FOLLOWING (IN THOUSANDS): 1996 1995
------------------------------------------------------ ------- -------
<S> <C> <C>
Depreciation.......................................... $ 5,113 $ 5,258
Gain on sale of stock by subsidiary................... -- 2,991
Real property transactions............................ 1,940 2,026
Other................................................. 452 171
------- -------
Gross deferred tax liabilities....................... 7,505 10,446
------- -------
State taxes........................................... (605) (442)
Other................................................. (520) (129)
------- -------
Gross deferred tax assets............................ (1,125) (571)
------- -------
Net deferred tax liability............................ $ 6,380 $ 9,875
======= =======
</TABLE>
Tax benefits of $15,000 in 1996 and $13,000 in 1995 resulting from
employees' exercise of stock options have been credited directly to equity. At
May 29, 1996, the Company has a net operating loss carryforward which can be
used to offset future income. This carryforward is expected to generate a
future tax benefit of $103,000.
47
<PAGE>
AMERICAN RECREATION CENTERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The American Red Carpet joint venture is currently being audited by the
Wisconsin Department of Revenue. While the audit has not been finalized, based
on preliminary results, the Company believes it has adequately provided for
any additional taxes that may result.
NOTE 7--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practical to estimate
that value:
Cash and cash equivalents: The carrying amount reported in the balance sheet
approximates fair value due to their short-term maturities.
Long-term debt: Fair value was determined by discounting future cash flows
using the Company's current incremental borrowing rates for similar types of
borrowing arrangements. At May 29, 1996 the fair value of long-term debt
approximates the carrying amount reported in the balance sheet.
NOTE 8--LITIGATION AND CONTINGENCIES:
The Company is a party to legal actions arising in the ordinary course of
its business. Management and the Company's legal counsel are of the opinion
that none of these legal actions will have a significant effect on the
Company's financial position.
NOTE 9--SUBSEQUENT EVENT:
On December 20, 1996 the Company's 85% owned joint venture, Triangle Bowl
Associates (TBA), completed the acquisition of two bowling centers, comprising
56 lanes, in the Dallas, Texas area. The purchase price for the businesses,
equipment, liquor licenses and suppliers for both centers and the land and
building for one of the centers totaled $1.62 million. TBA entered into a
long-term lease for the land and building of the second center. $1.325 million
of the purchase price was financed under a long-term bank loan.
48
<PAGE>
APPENDIX A
CONFORMED COPY
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JANUARY 17, 1997
AMONG
AMF BOWLING CENTERS, INC.,
NOAH ACQUISITION CORP.
AND
AMERICAN RECREATION CENTERS, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
THE MERGER
<S> <C>
SECTION 1.1. The Merger.................................................... A-5
SECTION 1.2. Closing....................................................... A-6
SECTION 1.3. Effective Time of the Merger.................................. A-6
SECTION 1.4. Effects of the Merger......................................... A-6
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1. Conversion of Shares.......................................... A-6
SECTION 2.2. Surrender and Payment......................................... A-6
SECTION 2.3. Dissenting Shares............................................. A-7
SECTION 2.4. Stock Options and Stock Plans................................. A-8
ARTICLE III
THE SURVIVING CORPORATION
SECTION 3.1. Articles of Incorporation..................................... A-9
SECTION 3.2. Bylaws........................................................ A-9
SECTION 3.3. Directors and Officers........................................ A-9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of the Company................. A-9
(a) Organization, Standing and Corporate Power........................ A-9
(b) Subsidiaries and Joint Ventures................................... A-10
(c) Capital Structure................................................. A-10
(d) Authority; Noncontravention....................................... A-11
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities... A-11
(f) Disclosure Documents.............................................. A-12
(g) Licenses, Approvals, Etc.......................................... A-12
(h) Real Properties................................................... A-13
(i) Tangible Personal Property; Sufficiency of Assets................. A-14
(j) Intellectual Property............................................. A-15
(k) Environmental Compliance.......................................... A-15
(l) Absence of Certain Changes or Events.............................. A-16
(m) Litigation........................................................ A-17
(n) Compliance with Laws.............................................. A-17
(o) Absence of Changes in Stock or Benefit Plans...................... A-17
(p) ERISA Compliance.................................................. A-17
(q) Taxes............................................................. A-19
(r) Contracts; Debt Instruments....................................... A-20
(s) Insurance......................................................... A-21
(t) Interests of Officers and Directors............................... A-21
(u) State Takeover Statutes........................................... A-22
(v) Brokers........................................................... A-22
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 4.2. Representations and Warranties of Parent and Merger Subsidi-
ary...................................................................... A-22
(a) Organization, Standing and Corporate Power....................... A-22
(b) Authority; Noncontravention...................................... A-22
(c) Disclosure Documents............................................. A-23
(d) Brokers.......................................................... A-23
(e) Financing........................................................ A-23
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.1. Conduct of Business.......................................... A-23
SECTION 5.2. Shareholder Meeting; Proxy Material.......................... A-25
SECTION 5.3. Access to Information........................................ A-25
SECTION 5.4. No Solicitation.............................................. A-25
SECTION 5.5. Fair Price Structure......................................... A-26
SECTION 5.6. Covenants Regarding Certain Benefit Plans.................... A-26
SECTION 5.7. Cooperation in Arrangements with Lenders..................... A-26
SECTION 5.8 Title Insurance............................................... A-27
ARTICLE VI
COVENANTS OF PARENT
SECTION 6.1. Confidentiality.............................................. A-27
SECTION 6.2. Obligations of Merger Subsidiary............................. A-27
SECTION 6.3. Voting of Shares............................................. A-27
SECTION 6.4. Director and Officer Liability............................... A-27
SECTION 6.5. Employees.................................................... A-28
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
SECTION 7.1. HSR Act Filings; Reasonable Efforts; Notification............ A-28
SECTION 7.2. Public Announcements......................................... A-30
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.1. Conditions to the Obligations of Each Party.................. A-30
SECTION 8.2. Conditions to the Obligations of Parent and Merger Subsidi-
ary...................................................................... A-30
SECTION 8.3. Conditions to the Obligations of the Company................. A-31
ARTICLE IX
TERMINATION
SECTION 9.1. Termination.................................................. A-31
SECTION 9.2. Effect of Termination........................................ A-32
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Notices..................................................... A-32
SECTION 10.2. Survival of Representations and Warranties.................. A-33
SECTION 10.3. Amendments; No Waivers...................................... A-33
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 10.4. Fees and Expenses............................................ A-33
SECTION 10.5. Successors and Assigns; Parties in Interest.................. A-34
SECTION 10.6. Governing Law................................................ A-34
SECTION 10.7. Counterparts; Effectiveness; Interpretation.................. A-34
</TABLE>
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AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of January 17,
1997, among American Recreation Centers, Inc., a California corporation (the
"Company"), AMF Bowling Centers, Inc., a Virginia corporation ("Parent"), and
Noah Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent ("Merger Subsidiary").
WHEREAS, the Board of Directors of the Company has unanimously (i)
determined that this Agreement and the transactions contemplated hereby,
including the Merger (as defined herein), are fair to and in the best
interests of the shareholders of the Company, (ii) determined that the
consideration to be paid in the Merger is fair to and in the best interests of
the shareholders of the Company, (iii) approved this Agreement and the
transactions contemplated hereby, including the Merger, and (iv) resolved to
recommend approval and adoption of this Agreement, the Merger and the other
transactions contemplated hereby by such shareholders;
WHEREAS, the respective Boards of Directors of Parent, Merger Subsidiary and
the Company have approved the merger of Merger Subsidiary into the Company as
set forth below (the "Merger"), upon the terms and subject to the conditions
set forth in this Agreement, the General Corporation Law of the State of
Delaware (the "DGCL") and the General Corporation Law of the State of
California (the "CGCL"), whereby each issued and outstanding share of common
stock, no par value per share, of the Company (the "Shares") (excluding shares
owned, directly or indirectly, by the Company or any subsidiary of the Company
or by Parent, Merger Subsidiary or any other subsidiary of Parent and
Dissenting Shares (as defined herein)), shall be converted into the right to
receive the Merger Consideration (as defined herein);
WHEREAS, simultaneously with the execution hereof, Neil Hupfauer has agreed
to sell his entire interest in Triangle Bowl Associates ("Triangle") to the
Company concurrent with the Effective Time (as defined herein) and, upon such
acquisition, the Company and its wholly-owned subsidiaries will own all of the
equity interests in Triangle;
WHEREAS, simultaneously with the execution hereof, William M. Kratzenberg
has agreed to sell his entire interest in Mid-America Associates and American
Red Carpet ("America and Carpet") to a subsidiary of the Company concurrent
with the Effective Time, and upon such acquisition, the Company and its
wholly-owned subsidiaries will own all of the equity interests in America and
Carpet; and
WHEREAS, Parent, Merger Subsidiary and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to consummation thereof.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the DGCL and the CGCL, Merger
Subsidiary shall be merged with and into the Company at the Effective Time (as
defined herein). At the Effective Time, the separate corporate existence of
Merger Subsidiary shall cease, and the Company (i) shall continue as the
surviving corporation as a direct or indirect wholly-owned subsidiary of
Parent (Merger Subsidiary and the Company are sometimes hereinafter referred
to as "Constituent Corporations" and, as the context requires, the Company,
after giving effect to the Merger, is sometimes hereinafter referred to as the
"Surviving Corporation"), (ii) shall succeed to and assume all the rights and
obligations of Merger Subsidiary in accordance with the DGCL and CGCL, (iii)
shall continue under the name "American Recreation Centers, Inc." and (iv)
shall be governed by the laws of the State of California.
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SECTION 1.2. Closing. The closing of the Merger (the "Closing") shall take
place as soon as practicable, but in any case on or prior to the third
business day, after which all of the conditions set forth in Article VIII
hereof shall be fulfilled or waived in accordance with this Agreement. At the
time of the Closing, the Company and Merger Subsidiary will file a certificate
of merger with the Secretary of State of the State of Delaware and a copy of
the merger agreement with an officers' certificate of each Constituent
Corporation, or a certificate of ownership, as applicable, with the Secretary
of State of the State of California and make all other filings or recordings
required by the DGCL and the CGCL in connection with the Merger.
SECTION 1.3. Effective Time of the Merger. The Merger shall, subject to the
DGCL and the CGCL, become effective as of such time as the certificate of
merger is duly filed with the Secretary of State of the State of Delaware and
a copy of the merger agreement with an officers' certificate of each
Constituent Corporation is duly filed with the Secretary of State of the State
of California or at such later time as is specified in the certificate of
merger and the merger agreement (the "Effective Time").
SECTION 1.4. Effects of the Merger. From and after the Effective Time, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises and be subject to all of the restrictions, disabilities and duties
of the Company and Merger Subsidiary, all as provided under the DGCL and the
CGCL. The Surviving Corporation may be served with process in the State of
Delaware in any proceeding for enforcement of any obligation of Merger
Subsidiary, as well as for enforcement of any obligation of the Surviving
Corporation arising from the Merger, including any suit or other proceeding to
enforce the right of any shareholders as determined in appraisal proceedings
pursuant to the provisions of Section 262 of the DGCL or Chapter 13 of the
CGCL, as applicable, and irrevocably appoints the Secretary of State of the
State of Delaware as its agent to accept service of process in any such suit
or proceedings. The address to which a copy of such process shall be mailed by
such Secretary of State is 8100 AMF Drive, Mechanicsville, VA 23111, Attn:
Corporate Secretary.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1. Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any Shares or any
shares of capital stock of Merger Subsidiary:
(a) each Share owned by the Company or owned by Parent, Merger Subsidiary
or any subsidiary of any of the Company, Parent or Merger Subsidiary (which
shall not include Shares owned by the Company's Employee Stock Ownership
Plan or Employee Stock Purchase Plan) immediately prior to the Effective
Time shall be canceled, and no payment shall be made with respect thereto;
(b) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one fully paid and nonassessable share of common stock of the Surviving
Corporation and shall constitute the only outstanding shares of capital
stock of the Surviving Corporation; and
(c) each Share outstanding immediately prior to the Effective Time shall,
except as otherwise provided in Section 2.1(a) or as provided in Section
2.3 with respect to Dissenting Shares, be converted into the right to
receive $8.50 in cash without interest (the "Merger Consideration").
SECTION 2.2. Surrender and Payment. (a) Prior to the Effective Time, Parent
shall appoint a bank or trust company (the "Exchange Agent") for the purpose
of exchanging certificates representing Shares for the Merger Consideration.
Parent will, or will cause Merger Subsidiary to, make available to the
Exchange Agent, as needed, the Merger Consideration to be paid in respect of
the Shares (the "Exchange Fund"). For purposes of determining the Merger
Consideration to be made available, Parent shall assume that no holder of
Shares will perfect his right to demand cash payment of the fair market value
of his Shares pursuant to Chapter 13 of the
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CGCL. Promptly after the Effective Time, Parent will send, or will cause the
Exchange Agent to send, to each holder of Shares at the Effective Time a
letter of transmittal for use in such exchange (which shall specify that the
delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of the certificates representing Shares to the Exchange
Agent). The Exchange Agent shall, pursuant to irrevocable instructions, make
the payments provided in this Section 2.2. The Exchange Fund shall not be used
for any other purpose, except as provided in this Agreement.
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a
properly completed letter of transmittal covering such Shares and other
customary documentation, will be entitled to receive the Merger
Consideration payable in respect of such Shares. As of the Effective Time,
all such Shares shall no longer be outstanding and shall automatically be
cancelled and retired and shall cease to exist, and each holder of a
certificate previously representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration, without interest, upon surrender of the certificates
representing such Shares, as contemplated hereby.
(c) If any portion of the Merger Consideration is to be paid to a person
other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such
payment to a person other than the registered holder of such Shares or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable. For purposes of this Agreement, "person" means an
individual, a corporation, a partnership, an association, a trust or any
other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
(d) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall
be canceled and exchanged for the consideration provided for, and in
accordance with the procedures set forth, in this Article II.
(e) Any portion of the Exchange Fund made available to the Exchange Agent
pursuant to this Agreement that remains unclaimed by the holders of Shares
six months after the Effective Time shall be returned to Parent, upon
Parent's demand, and any such holder who has not exchanged his Shares for
the Merger Consideration in accordance with this Section 2.2 prior to that
time shall thereafter look only to Parent for payment of the Merger
Consideration in respect of his Shares. Notwithstanding the foregoing,
Parent shall not be liable to any holder of Shares for any amount paid to a
public official pursuant to and in accordance with the requirements of
applicable abandoned property, escheat or similar laws.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 2.2(a) to pay for Shares for which the
right to a determination of fair market value, as contemplated by Section
2.3, have been perfected shall be returned to Parent upon Parent's demand.
SECTION 2.3. Dissenting Shares. Notwithstanding Section 2.1, Shares
outstanding immediately prior to the Effective Time and held by a holder who
is entitled to and has demanded cash payment of the fair market value for such
Shares in accordance with Section 1301 of the CGCL and submitted certificates
representing such Shares for endorsement in accordance with Section 1302 of
the CGCL (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration as provided in Section 2.1(c) of this
Agreement, unless and until such holder fails to perfect or withdraws or
otherwise loses his right to a determination of the fair market value of the
shares and payment under the CGCL. If, after the Effective Time, any such
holder fails to perfect or withdraws or loses his right to a determination of
the fair market value of the Shares under the CGCL, such Dissenting Shares
shall thereupon be treated as if they had been converted as of the Effective
Time into the right to receive the Merger Consideration to which such holder
is entitled, without interest thereon. As
A-7
<PAGE>
soon as practicable after the approval of the Merger by the Company's
shareholders (including, without limitation, by written consent thereto), to
the extent required by the CGCL, and in any event not later than ten (10) days
following such approval, Parent shall mail to each shareholder of the Company
who is entitled to such notice pursuant to Chapter 13 of the CGCL, a notice of
such approval of the Merger, such notification to include the information and
materials required by Section 1301(a) of the CGCL (including, without
limitation, the price determined by Parent to represent the fair market value
of any Dissenting Shares).
SECTION 2.4. Stock Options and Stock Plans. (a) Parent and the Company shall
take all actions necessary to provide that, as to those holders who so agree,
at the Effective Time, (i) each Company Option (defined below) so surrendered
for cash, shall be cancelled, and (ii) in consideration of such cancellation,
and except to the extent that Parent or Merger Subsidiary and the holder of
any such Company Option otherwise agree, the Company shall pay to each such
holder of Company Options an amount in cash in respect thereof equal to the
product of (1) the excess, if any, of the Merger Consideration over the per
share exercise price thereof and (2) the number of Shares subject thereto
immediately prior to the Effective Time. The Company represents that the Board
of Directors of the Company has determined pursuant to the Company's 1988 Key
Employee Incentive Stock Option Plan (the "Employee Option Plan"), in
accordance with the first sentence of Section 12.1 thereof, that holders of
Company Options thereunder who do not elect to surrender their Company Options
for cancellation pursuant to the first sentence of this Section 2.4(a), upon
exercise of such Company Options after the Effective Time, shall receive upon
such exercise and payment of the aggregate exercise price contemplated thereby
an amount in cash (subject to applicable withholding taxes) equal to the
product of (1) the Merger Consideration and (2) the number of Shares subject
thereto immediately prior to the Effective Time. "Company Option" means any
option granted, whether or not exercisable (it being understood that all
Company Options shall be deemed to be, and shall be treated under this Article
II as though, such Company Options were fully vested immediately prior to the
Effective Time), and not exercised or expired, to a current or former
employee, director or independent contractor of the Company or any of its
subsidiaries or any predecessor thereof to purchase Shares pursuant to the
Employee Option Plan, the 1988 Stock Option Plan for Non-Employee Directors
(the "Director Formula Plan") or the 1996 Director Plan (the "Director Plan"
and together with the Employee Option Plan and the Director Formula Plan,
collectively, the "Option Plans").
(b) The Company represents that each director of the Company who holds
Company Options has agreed for the benefit of Parent and Merger Subsidiary
to exercise all of his Company Options prior to the Effective Time or to
surrender such Company Options in the manner prescribed by Section 2.4(a)
and each such director has agreed that he shall provide notice to the
Company of his decision to exercise or surrender his Company Options prior
to the Effective Time.
(c) Prior to the Effective Time, the Company shall use its best efforts
to (i) obtain any consents from holders of Company Options and (ii) make
any amendments to the terms of such stock option or compensation plans or
arrangements that, in the case of either clauses (i) or (ii), are necessary
to give effect to the transactions contemplated by this Section 2.4.
(d) Pursuant to Section 10 of the Director Formula Plan, the Company
represents that the Plan Administrator thereunder has accelerated the
expiration date of all Company Options thereunder to immediately prior to
the Effective Time and each of the holders of Company Options issued
pursuant to the Director Formula Plan has acknowledged and agreed to such
acceleration. Prior to the Effective Time, the Company shall terminate the
Option Plans.
(e) Prior to the Effective Time, the Board of Directors of the Company
shall take all actions necessary to (i) amend the Company's Employee Stock
Purchase Plan ("ESPP") so that immediately prior to the Effective Time, all
Shares held thereunder become aged and vested, (ii) allow the holders of
Shares in trust under the ESPP, whether or not their rights are then
vested, to vote such Shares at the Company Shareholder Meeting (as defined
herein) and (iii) provide that at the Effective Time, the ESPP shall be
terminated and any cash thereunder will be distributed to the respective
participants in the ESPP, including any cash received in respect of any
unvested shares.
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(f) The Company represents that 83,000 options have been granted under
the Director Plan and prior to the Effective Time the Company agrees that
it shall not issue any additional options under the Director Plan and that
pursuant to Section 8.1 of the Director Plan the Board of Directors of the
Company shall terminate the Director Plan concurrent with the Effective
Time. The Company also represents that all Company Options issued pursuant
to the Director Plan shall expire by their terms upon consummation of the
Merger.
(g) The Board of Directors of the Company shall take all actions
necessary to terminate the Company's Investor Stock Purchase Plan ("ISPP")
effective concurrent with the Effective Time.
ARTICLE III
THE SURVIVING CORPORATION
SECTION 3.1. Articles of Incorporation. The articles of incorporation of the
Company in effect at the Effective Time shall be the articles of incorporation
of the Surviving Corporation until amended in accordance with applicable law,
except that Article Fourth of the articles of incorporation of the Surviving
Corporation shall be amended and restated to read as follows:
FOURTH: The number of Directors of this Corporation shall be as provided
in the bylaws of the Corporation.
SECTION 3.2. Bylaws. The bylaws of the Company in effect at the Effective
Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law, except that Section 2 of Article III of the
bylaws of the Surviving Corporation shall be amended and restated to read as
follows:
NUMBER OF DIRECTORS. The number of directors of the corporation shall be
one (1), which number may be changed from time to time, by a resolution
duly adopted by the shareholders.
SECTION 3.3. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance
with applicable law, the officers and directors of Merger Subsidiary at the
Effective Time shall be the officers and directors of the Surviving
Corporation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. Representations and Warranties of the Company. The Company
represents and warrants to Parent and Merger Subsidiary, subject to the
exceptions and qualifications set forth in the Disclosure Schedule (as defined
herein), as follows (for purposes of this Section 4.1, references to the
"Knowledge of the Company" shall mean the actual knowledge of the following
individuals: Robert A. Crist, Karen B. Wagner, Neil Hupfauer and William
Kratzenberg):
(a) Organization, Standing and Corporate Power. Each of the Company and
each of its Significant Subsidiaries (as defined below) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate
power and authority to carry on its business as now being conducted. Each
of the Company and, except as disclosed in Section 4.1(a) of the Disclosure
Schedule, each of its subsidiaries is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature
of its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) could not reasonably be expected to (i) have a material adverse
effect on the value, condition (financial or otherwise), prospects,
business, or results of operations of the Company and its subsidiaries
taken as a whole, (ii) impair the ability of any party hereto
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to perform its obligations under this Agreement or (iii) prevent or
materially delay consummation of any of the transactions contemplated by
this Agreement (a "Material Adverse Effect"). The Company has delivered to
Parent complete and correct copies of its articles of incorporation and
bylaws, the articles of incorporation and bylaws of its Significant
Subsidiaries, and the joint venture, partnership and other governing
agreements and documents ("Joint Venture Documents") of any such
partnership, joint venture or similar business or entity in which the
Company, directly or indirectly has any ownership interests (the "Joint
Ventures"), in each case as amended to the date of this Agreement. For
purposes of this Agreement, a "subsidiary" of any person means another
person in which such first person, directly or indirectly, owns 50% or more
of the equity interests or has the right, through ownership of equity,
contractually or otherwise, to elect at least a majority of its Board of
Directors or other governing body; and a "Significant Subsidiary" means any
subsidiary of a person that constitutes a significant subsidiary of such
person within the meaning of Rule 1-02 of Regulation S-X of the Securities
and Exchange Commission (the "SEC").
(b) Subsidiaries and Joint Ventures. Section 4.1(b) of the disclosure
schedule delivered by the Company to Parent and Merger Subsidiary prior to
the execution of this Agreement (the "Disclosure Schedule") lists each
subsidiary of the Company, its form of organization, its respective
jurisdiction of incorporation or formation, if applicable, and the holders
of the outstanding capital stock or other equity interests of such
subsidiaries and indicates whether such subsidiary is a Significant
Subsidiary. Section 4.1(b) of the Disclosure Schedule also lists all Joint
Venture Documents to which the Company or any of its subsidiaries is a
party or otherwise governing any such subsidiary. All the outstanding
shares of capital stock or other ownership interests of each such
subsidiary of the Company have been validly issued and are fully paid and
nonassessable and, all such shares or ownership interests indicated as
being owned by the Company or any of its subsidiaries are owned by the
Company, by another subsidiary of the Company or by the Company and another
such subsidiary, free and clear of all Liens (as defined herein) and free
of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or equity
interests). Except for the capital stock of its subsidiaries, the Company
does not own, directly or indirectly, any capital stock or other ownership
interest, with a fair market value in excess of $100,000, in any person. In
addition, Section 4.1(b)(i) of the Disclosure Schedule lists all of the
bowling centers owned or leased by Triangle; Section 4.1(b)(ii) of the
Disclosure Schedule lists all of the bowling centers owned or leased by
America; and Section 4.1(b)(iii) lists all bowling centers owned or leased
by Carpet.
(c) Capital Structure. The authorized capital stock of the Company
consists of 21,484,375 Shares and 5,000,000 shares of Preferred Stock, no
par value per share. As of December 31, 1996, (i) 4,606,199 Shares were
issued and outstanding, (ii) no Shares were held by the Company or by any
of the Company's subsidiaries, (iii) 633,450 Shares were reserved for
issuance pursuant to the outstanding Company Options, (iv) no Shares were
reserved for issuance pursuant to the ESPP and (v) no shares of Preferred
Stock were issued, reserved for issuance or outstanding. Except as set
forth above, no shares of capital stock or other equity or voting
securities of the Company are issued, reserved for issuance or outstanding,
except for Shares referred to in clause (iii) above which may be issued
upon exercise of the outstanding Company Options. All outstanding shares of
capital stock of the Company are, and all Shares which may be issued
pursuant to the Option Plans will, when issued, be duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are not any bonds, debentures, notes or other indebtedness or
securities of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which shareholders of the Company may vote. Except as set forth above and
in Section 4.1(c) of the Disclosure Schedule, there are not any securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its subsidiaries is
a party or by which any of them is bound obligating the Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity or
voting securities of the Company or of any of its subsidiaries or
obligating the Company or any of its subsidiaries to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. There are
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no outstanding rights, commitments, agreements, arrangements or
undertakings of any kind obligating the Company or any of its subsidiaries
to repurchase, redeem or otherwise acquire or dispose of any shares of
capital stock or other equity or voting securities of the Company or any of
its subsidiaries or any securities of the type described in the two
immediately preceding sentences.
(d) Authority; Noncontravention. The Company has the requisite corporate
power and authority to enter into this Agreement and, subject to the
Company Shareholder Approval (as defined below) required in connection with
the consummation of the Merger, to consummate the transactions contemplated
by this Agreement. The Merger requires the approval by the affirmative vote
of the holders of a majority of the outstanding Shares (the "Company
Shareholder Approval"), which approval is the only vote of the holders of
any class or series of the capital stock of the Company necessary to
approve the Merger and this Agreement and the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on
the part of the Company, except for the Company Shareholder Approval in
connection with the consummation of the Merger. This Agreement has been
duly executed and delivered by the Company and, assuming this Agreement
constitutes a valid and binding agreement of Parent and Merger Subsidiary,
constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms. The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, modification
or acceleration of any obligation or to a loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of
the Company or any of its subsidiaries under, (i) the articles of
incorporation or bylaws of the Company or the comparable charter or
organizational documents of any of its subsidiaries, (ii) except for those
consents listed in Section 4.1(d) of the Disclosure Schedule, any loan or
credit agreement, note, bond, mortgage, indenture, lien, lease or any other
contract, agreement, instrument, permit, commitment, concession, franchise
or license applicable to the Company or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its subsidiaries or their respective
properties or assets other than, in the case of clauses (ii) and (iii)
above, any such conflicts, violations, defaults, rights, losses or Liens
that individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect. No consent, approval, franchise, order,
license, permit, waiver or authorization of, or registration, declaration
or filing with or exemption, notice, application, or certification by or to
(collectively, "Consents") any federal, state or local government or any
arbitral panel or any court, tribunal, administrative or regulatory agency
or commission or other governmental authority, department, bureau,
commission or agency, domestic or foreign (a "Governmental Entity"), is
required by or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated by this
Agreement, except for (i) the required consents listed on Section 4.1(d) of
the Disclosure Schedule, (ii) the filing of the documents referred to in
Section 1.3 hereof in accordance with the DGCL and CGCL and similar
documents with the relevant authorities of other states in which the
Company is qualified to do business, (iii) the filing of a premerger
notification and report form by the Company under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (iv)
compliance with any applicable requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), and (v) such other Consents as to which the failure to
obtain or make could not reasonably be expected to have a Material Adverse
Effect.
(e) SEC Documents; Financial Statements; No Undisclosed Liabilities. (i)
The Company has filed, and delivered to Parent true and complete copies of,
all required reports, schedules, forms, statements, exhibits and other
documents filed with the SEC since January 1, 1994 (the "SEC Documents").
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the
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Securities Act of 1933, as amended, and the rules and regulations
thereunder (the "Securities Act"), or the Exchange Act, as the case may be,
applicable to such SEC Documents, and none of the SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii) The financial statements of the Company included in the SEC
Documents comply in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States
generally accepted accounting principles (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on
a consistent basis throughout the periods involved ("GAAP") (except as
may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of
their operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit
adjustments).
(iii) Except as set forth in the SEC Documents or in Section 4.1(e)
of the Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise), except for liabilities and
obligations which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(f) Disclosure Documents. (i) The proxy statement of the Company (the
"Company Proxy Statement") to be filed with the SEC in connection with the
Merger, and any amendments or supplements thereto will, when filed, comply
in all material respects with the applicable requirements of the Exchange
Act.
(ii) At the time of filing the Company Proxy Statement with the SEC,
at the time the Company Proxy Statement or any amendment or supplement
thereto is first mailed to shareholders of the Company, at the time
such shareholders vote on adoption of this Agreement, and at the
Effective Time, the Company Proxy Statement, as supplemented or
amended, if applicable, will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The representations and
warranties contained in this Section 4.1(f)(ii) will not apply to
statements or omissions included in the Company Proxy Statement based
upon information furnished to the Company in writing by Parent or
Merger Subsidiary specifically for use therein.
(g) Licenses, Approvals, etc. (i) Each of the Company and its
subsidiaries possesses or has been granted all registrations, filings,
applications, certifications, notices, consents, licenses, permits,
approvals, certificates, franchises, orders, qualifications, authorizations
and waivers of any Governmental Entity (federal, state and local) necessary
to entitle it to conduct its business in the manner in which it is
presently being conducted (the "Licenses"), except as set forth in Section
4.1(g)(i)(A) of the Disclosure Schedule and except those Licenses whose
failure to possess or have granted, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect or give rise
to any material fine or any criminal liability or any other material civil
penalties. Section 4.1(g)(i)(B) of the Disclosure Schedule lists (i) all
licenses to serve or sell alcoholic beverages which have been granted to,
or are used in the business of, the Company and its subsidiaries (the
"Company Liquor Licenses") and (ii) all gaming, lottery and gambling
licenses which have been granted to, or are used in the business of, the
Company and its subsidiaries ("Company Gaming Licenses"). Except as
described in Section 4.1(g)(i)(C) of the Disclosure Schedule, (A) all of
the Company Liquor Licenses and Company Gaming Licenses are in full force
and effect and (B) all of the Licenses (excluding the Company Liquor
Licenses and Company Gaming Licenses) are in full force and effect except
for those covered by this clause (B) whose failure to be in full force and
effect, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect. Except as described in Section
4.1(g)(i)(D) of the Disclosure Schedule, no Action (as defined herein) is
pending or, to the Knowledge of the Company, threatened seeking the
revocation or limitation of (A) any
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of the Company Liquor Licenses or Company Gaming Licenses or (B) any
License (excluding the Company Liquor Licenses or Company Gaming Licenses)
that, in the case of Licenses covered by this clause (B), individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(ii) Section 4.1(g)(ii) of the Disclosure Schedule lists all entities
("Concession Entities") other than the Company and its subsidiaries
that hold licenses to serve or sell alcoholic beverages in locations on
the premises of or associated with or contiguous to the facilities
operated by the Company and its subsidiaries in connection with the
Business (as defined herein). Section 4.1(g)(ii) of the Disclosure
Schedule also lists all management agreements, leases and other
significant agreements or arrangements relating to the relationships
between the Company and its subsidiaries, on the one hand, and the
Concession Entities, on the other hand (complete and correct copies of
which (or descriptions of oral arrangements, to the extent material)
have been provided to Parent and Merger Subsidiary). Except as
disclosed on Section 4.1(g)(ii) of the Disclosure Schedule, all such
agreements are in full force and effect, legal, valid and binding and
enforceable against the Company and its subsidiaries and, to the
Knowledge of the Company, each other Concession Entity or other party
thereto in accordance with their terms, except where the failure to so
be in full force and effect, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
(h) Real Properties. (i) Section 4.1(h)(i) of the Disclosure Schedule
sets forth a list of all real property owned in fee by the Company or any
of the Company's subsidiaries (individually, an "Owned Property" and,
collectively, the "Owned Properties"). To the Knowledge of the Company,
except as set forth on Section 4.1(h)(i) of the Disclosure Schedule, the
Company has good and marketable fee title to each Owned Property, including
the buildings, structures and other improvements located thereon, in each
case free and clear of all mortgages, liens, claims, charges, security
interests, easements, restrictive covenants, rights-of-way, leases,
purchase agreements, options and other encumbrances and agreements
("Liens"), except (i) Liens which, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect and (ii) Liens
for taxes and other governmental charges, assessments or fees which are not
yet due and payable (the items described in clauses (i) and (ii) are
collectively referred to herein as "Permitted Liens"). Except as disclosed
on Section 4.1(h)(i) of the Disclosure Schedule, to the Knowledge of the
Company, there are no condemnations or eminent domain (which term, as used
herein, shall include other compulsory acquisitions or takings by
Governmental Authorities) proceedings pending or, to the Knowledge of the
Company, threatened against any Owned Property or any material portion
thereof. To the Knowledge of the Company, except as disclosed in Section
4.1(h)(i) of the Disclosure Schedule, the Company has not received any
notice from any city, village or other Governmental Entity of any zoning,
ordinance, land use, building, fire or health code or other legal violation
in respect of any Owned Property, other than violations which have been
corrected or which, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect. To the Knowledge of the
Company there are no structural defects relating to the Owned Property,
except for such structural defects which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(ii) Section 4.1(h)(ii) of the Disclosure Schedule lists all real
property (including all land and buildings) which is leased by the
Company or any of its subsidiaries as lessee or sublessee (the "Leased
Real Estate"). The Company has delivered or caused to be delivered to
Parent and Merger Subsidiary complete and accurate copies of the
written leases and subleases which are described in Section 4.1(h)(ii)
of the Disclosure Schedule. Except as disclosed in Section 4.1(h)(ii)
of the Disclosure Schedule, to the Knowledge of the Company, the
Company has not received written notice of condemnation or eminent
domain proceedings pending or threatened against any Leased Real Estate
property. Except as disclosed in Section 4.1(h)(ii) of the Disclosure
Schedule, to the Knowledge of the Company, the Company has not received
any notice from any city, village or other Governmental Entity of any
zoning, ordinance, building, fire or health code or other legal
violation in respect of any Leased Real Estate, other than violations
which have been corrected or which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. To
the Knowledge of
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<PAGE>
the Company, there are no structural defects relating to any Leased
Real Estate, except for such structural defects which, individually or
in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. To the Knowledge of the Company, other than for
exceptions to the following which are set forth in Section 4.1(h)(ii)
of the Disclosure Schedule or which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect:
(A) the leases relating to the Leased Real Estate (the "Leases")
are in full force and effect and are valid, binding and enforceable
in accordance with their respective terms;
(B) no amount payable under any Lease is past due;
(C) the Company is in compliance in all material respects with all
commitments and obligations on its part to be performed or observed
under such Lease and is not aware of the failure by any other party
to such Leases to comply in all material respects with all of its
commitments and obligations;
(D) the Company has not received any written notice (1) of a
default (which has not been cured), offset or counterclaim under any
Lease, or, any other communication calling upon it to comply with
any provision of any Lease or asserting noncompliance, or asserting
the Company has waived or altered its rights thereunder, and no
event or condition has happened or presently exists which
constitutes a default or, after notice or lapse of time or both,
would constitute a default under any Lease on the part of the
Company or any other party, or (2) of any complaint, claim,
prosecution, indictment, action, suit, arbitration, investigation or
proceeding by or before any Governmental Entity (an "Action")
against any party under any Lease which if adversely determined
would result in such Lease being terminated or cut off;
(E) the Company has not assigned, mortgaged, pledged or otherwise
encumbered its interest, if any, under any Lease; and
(F) the Company has exercised within the time prescribed in each
Lease any option provided therein to extend or renew the term
thereof.
(iii) The Owned Properties and the Leased Real Estate constitute, in
the aggregate, all of the real property used to conduct the business of
the Company and its subsidiaries (collectively, the "Business") in the
manner in which such business was conducted during the fiscal year
ending May 29, 1996 and since such time.
(i) Tangible Personal Property; Sufficiency of Assets. (i) Except as
disclosed in Section 4.1(i)(i) of the Disclosure Schedule, to the Knowledge
of the Company, the Company and its subsidiaries (1) have good and valid
title to all the tangible personal property material to the Business and
reflected in the latest audited financial statements included in the SEC
Documents as being owned by the Company and its subsidiaries or acquired
after the date thereof (except properties sold or otherwise disposed of in
the ordinary course of business since the date thereof), free and clear of
all Liens except (A) statutory Liens securing payments not yet due and
(B) such imperfections or irregularities of title or Liens as do not affect
the use of the properties or assets subject thereto or affected thereby or
otherwise materially impair business operations at such properties, in
either case in such a manner as to have a Material Adverse Effect, and (2)
are collectively the lessee of all tangible personal property material to
the Business and reflected as leased in the latest audited financial
statements included in the SEC Documents (or on the books and records of
the Company as of the date thereof) or acquired after the date thereof
(except for leases that have expired by their terms) and are in possession
of the properties purported to be leased thereunder, and each such lease is
valid and in full force and effect without default thereunder by the lessee
or the lessor, other than defaults that would not have a Material Adverse
Effect. Each of the Company and each of its subsidiaries, to the Knowledge
of the Company, enjoys peaceful and undisturbed possession under all such
leases. Such owned and leased
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<PAGE>
tangible personal property is, to the Knowledge of the Company, in good
working order, reasonable wear and tear excepted, and is suitable for the
use for which it is intended, except that, which individually or in the
aggregate, would not have a Material Adverse Effect.
(ii) The tangible personal property of the Company which is currently
used or useful in the Business is, in the aggregate, to the Knowledge
of the Company, all of the tangible personal property used to conduct
such business in the manner in which such business was conducted during
the fiscal year ending May 29, 1996 and since such time, except for
additions thereto and deletions therefrom in the ordinary course of
business which could not reasonably be expected to have a Material
Adverse Effect.
(j) Intellectual Property. The ownership, operation and conduct by the
Company and its subsidiaries of the Business, as presently owned, operated,
and conducted, does not, to the Knowledge of the Company, infringe upon or
conflict in any respect with any patent, copyright, trademark, trade name,
service mark, brand name, any related regulations or other intellectual
property rights of any other person, and to the Knowledge of the Company no
other person is infringing upon any such rights of the Company and its
subsidiaries, in each case, except as would not have a Material Adverse
Effect.
(k) Environmental Compliance. (i) For purposes of this Section 4.1(k),
(A) "Hazardous Substance" means any pollutant, contaminant, hazardous or
toxic substance or waste, solid waste, petroleum or any fraction thereof,
or any other chemical, substance or material listed or identified in or
regulated by or under any Environmental Law; (B) "Environmental Law" means
the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. (S) 9601 et seq., the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the
Clean Water Act, 33 U.S.C. (S) 1251 et seq., the Clean Air Act, 42 U.S.C.
(S) 7401 et seq., the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et
seq., the Safe Drinking Water Act, 42 U.S.C. (S) 300f et seq., the
Emergency Planning and Community Right to Know Act, 42 U.S.C. (S) 11001 et
seq., the Occupational Safety and Health Act, 29 U.S.C. (S) 651 et seq.,
the Occupational Safety and Health Act, 29 U.S.C. (S) 651 et seq., the Oil
Pollution Act, 33 U.S.C. (S) 2701 et seq., in each case as amended from
time to time and all regulations promulgated thereunder, and any other
statute, law, regulation, ordinance, bylaw, rule, judgment, order, decree
or directive of any Governmental Entity dealing with the pollution or
protection of natural resources or the indoor or ambient environment or
with the protection of human health or safety; and (C) "RCRA Hazardous
Waste" means a solid waste that is listed or classified as a hazardous
waste, as that term is defined in or pursuant to the Resource Conservation
and Recovery Act, as amended, 42 U.S.C. (S) 6901 et seq.
(ii) Except as set forth on Section 4.1(k)(ii) of the Disclosure
Schedule, to the Knowledge of the Company, there are no claims pending
against the Company or any of its subsidiaries (the "Company
Interests") relating to or arising out of a Hazardous Substance nor are
any such claims threatened against Company Interests, nor have the
Company or its subsidiaries received any notice, alleging or warning
that any Owned Property or Leased Real Estate or any real property
previously owned or operated by any Company Interests is, has been or
may be in violation of or in noncompliance with any Environmental Law.
(iii) Except as set forth in Section 4.1(k)(iii) of the Disclosure
Schedule, to the Knowledge of the Company, no Hazardous Substances are
now present in amounts, concentrations or conditions requiring removal,
remediation or any other response, action or corrective action under,
or forming the basis of a claim pursuant to, any Environmental Law, in,
on, from or under the Owned Property or Leased Real Estate or any real
property previously owned or operated by any Company Interests.
(iv) Except as set forth in Section 4.1(k)(iv) of the Disclosure
Schedule, to the Knowledge of the Company, the Owned Property and
Leased Real Estate are not being and have not been during the period of
time they have been owned or leased by any Company Interests used in
connection with the business of manufacturing, storing or transporting
Hazardous Substances, and, to the Knowledge of
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<PAGE>
the Company, no RCRA Hazardous Wastes are being or have been during the
period of time owned or operated by any Company Interests treated,
stored or disposed of there in violation of any Environmental Law.
(v) Except as set forth in Section 4.1(k)(v) of the Disclosure
Schedule, to the Knowledge of the Company, there neither are nor have
been during the period of time they have been owned or operated by any
Company Interests any underground storage tanks, lagoons or other
containment facilities of any kind which contain or contained any
Hazardous Substances on the Owned Property and Leased Real Estate.
(vi) The Company has made available to the Parent and Merger
Subsidiary, true and correct copies of, all environmental audits or
assessments, analyses of soil, groundwater, indoor and outdoor air,
sediment, surface water and asbestos containing materials conducted on
or after January 1, 1993 relating in whole or in part to the Company
and/or its subsidiaries undertaken by or on behalf of any of the
Company Interests, and any written communications received by the
Company since January 1, 1993 from any Governmental Authorities
relating in whole or in part to the existence of Hazardous Substances
at any Owned Property and Leased Real Estate or any real property
previously owned or operated by any Company Interests or the compliance
of the owners, operators or lessees thereof with respect to any
Environmental Law.
(l) Absence of Certain Changes or Events. Except as disclosed in Section
4.1(l) of the Disclosure Schedule, since May 29, 1996, the Company and its
subsidiaries have conducted the Business only in the ordinary course
consistent with past practice, and there has not been (i) any event,
occurrence or development of a state of circumstances which has had or
could reasonably be expected to have a Material Adverse Effect, (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
capital stock or any repurchase, redemption or other acquisition by the
Company or any of its subsidiaries of any outstanding shares of capital
stock or other securities of the Company or any of its subsidiaries, (iii)
any adjustment split, combination or reclassification of any of its capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iv) (A) any granting by the Company or any of its
subsidiaries to any current or former director, officer or employee of the
Company or any of its subsidiaries of any material increase in compensation
or benefits, except for grants to employees who are not officers or
directors in the ordinary course of business consistent with past practice,
(B) any granting by the Company or any of its subsidiaries to any such
director, officer or employee of any increase in severance or termination
pay (including the acceleration in the vesting of Shares (or other
property) or the provision of any tax gross-up), or (C) any entry by the
Company or any of its subsidiaries into any employment, deferred
compensation, severance or termination agreement or arrangement with or for
the benefit of any such current or former director, officer or employee,
(v) any damage, destruction or loss, whether or not covered by insurance,
that has had or could have a Material Adverse Effect, (vi) any change in
accounting methods, principles or practices by the Company or any of its
subsidiaries, (vii) any amendment, waiver or modification of any material
term of any outstanding security of the Company or any of its subsidiaries
or any of the Joint Venture Documents (or any material change in the
operations or financial arrangements relating to any of the Joint
Ventures), (viii) any incurrence, assumption or guarantee by the Company or
any of its subsidiaries of any material indebtedness for borrowed money or
other material obligations, (ix) any creation or assumption by the Company
or any of its subsidiaries of any Lien on any asset other than in the
ordinary course of business consistent with past practice, but in no event
with respect to assets with a value of, or obligations in an amount of,
more than $100,000 for any one transaction or $250,000 in the aggregate,
(x) any making of any loan, advance or capital contributions to or
investment in any person other than in the ordinary course of business
consistent with past practice, but in no event in the amount of more than
$100,000 for any one transaction or $250,000 in the aggregate, and other
than investments in cash equivalents made in the ordinary course of
business consistent with past practice, (xi) any transaction or commitment
made, or any contract or agreement entered
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into, by the Company or any of its subsidiaries relating to its assets or
business on behalf of the Company or any of its subsidiaries of more than
$100,000 for any transaction or $250,000 for any series of transactions,
(xii) any acquisition or disposition of any assets or any merger or
consolidation with any person on behalf of the Company or any of its
subsidiaries of more than $100,000 for any transaction or $250,000 for any
series of transactions, (xiii) any relinquishment by the Company or any of
its subsidiaries of any contract or other right, in either case, material
to the Company and its subsidiaries taken as a whole, other than
transactions and commitments in the ordinary course of business consistent
with past practice and those contemplated by the Agreement, or (xiv) any
agreement, commitment, arrangement or undertaking by the Company or any of
its subsidiaries to perform any action described in clauses (i) through
(xiii).
(m) Litigation. Except as disclosed in Section 4.1(m) of the Disclosure
Schedule, to the Knowledge of the Company, there is no Action or proceeding
pending or threatened against or affecting the Company or any of its
subsidiaries that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity outstanding
against the Company or any of its subsidiaries which could reasonably be
expected to have a Material Adverse Effect.
(n) Compliance with Laws. Except as disclosed in Section 4.1(n) of the
Disclosure Schedule, to the Knowledge of the Company, the conduct by the
Company and its subsidiaries of the Business is and has been in compliance
with all statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees, applicable thereto, except for violations or failures so to
comply, if any, that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect or give rise to
material fines or other material civil penalties or any criminal
liabilities. To the Knowledge of the Company, except as set forth on
Section 4.1(n) of the Disclosure Schedule, the Company has not received any
notice or other communications relating to any alleged violation of any
statute, law, regulation, ordinance, rule, judgment, order or decree from
any Governmental Entity, or of any investigation with respect thereto,
applicable to the Company or its subsidiaries which has not been
satisfactorily addressed except for violations, if any, that, individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect and could not reasonably be expected to give rise to
material fines or other material civil penalties or any criminal
liabilities.
(o) Absence of Changes in Stock or Benefit Plans. Except as disclosed in
Section 4.1(o) of the Disclosure Schedule or as required under this
Agreement, since May 29, 1996, there has not been (i) any acceleration,
amendment or change of the period of exercisability or vesting of any
Company Options under the Option Plans (including any discretionary
acceleration of the exercise periods or vesting by the Company's Board of
Directors or any committee thereof or any other persons administering an
Option Plan) or authorization of cash payments in exchange for any Company
Options under any of such Option Plans, (ii) any adoption or material
amendment by the Company or any of its subsidiaries of any collective
bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, stock appreciation right, retirement,
vacation, severance, disability, death benefit, hospitalization, medical,
worker's compensation, disability, supplementary unemployment benefits, or
other plan, arrangement or understanding (whether or not legally binding)
or any employment agreement providing compensation or benefits to any
current or former employee, officer, director or independent contractor of
the Company or any of its subsidiaries or any beneficiary thereof or
entered into, maintained or contributed to, as the case may be, by the
Company or any of its subsidiaries (collectively, "Benefit Plans"), or
(iii) any adoption of, or amendment to, or change in employee participation
or coverage under, any Benefit Plans which would increase materially the
expense of maintaining such Benefit Plans above the level of the expense
incurred in respect thereof for the fiscal year ended on May 29, 1996.
(p) ERISA Compliance. (i) Section 4.1(p) of the Disclosure Schedule
contains a list of all "employee pension benefit plans" (defined in Section
3(2) of the Employee Retirement Income Security Act of 1974,
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as amended ("ERISA")), "employee welfare benefit plans" (defined in Section
3(l) of ERISA) and all other Benefit Plans. With respect to each Benefit
Plan, the Company has delivered or made available to Parent a true, correct
and complete copy of: (A) each writing constituting a part of such Benefit
Plan, including without limitation all plan documents, benefit schedules,
trust agreements, and insurance contracts and other funding vehicles; (B)
the most recent Annual Report (Form 5500 Series) and accompanying schedule,
if any; (C) the current summary plan description, if any; (D) the most
recent annual financial report, if any; and (E) the most recent
determination letter from the United States Internal Revenue Service, if
any.
(ii) Section 4.1(p) of the Disclosure Schedule identifies each
Benefit Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code ("Qualified Plans"). The Internal
Revenue Service has issued a favorable determination letter with
respect to each Qualified Plan that has not been revoked, and there are
no existing circumstances nor any events that have occurred that could
adversely affect the qualified status of any Qualified Plan or the
related trust.
(iii) The Company and its subsidiaries have complied, and are now in
compliance, in all material respects with all provisions of ERISA, the
Internal Revenue Code of 1986, as amended (the "Code"), and all laws
and regulations applicable to the Benefit Plans. Except as set forth in
Section 4.1(p) of the Disclosure Schedule, no prohibited transaction
has occurred with respect to any Benefit Plan. All contributions
required to be made to any Benefit Plan by applicable law or regulation
or by any plan document or other contractual undertaking, and all
premiums due or payable with respect to insurance policies funding any
Benefit Plan, for any period through the date hereof have been timely
made or paid in full or, to the extent not required to be made or paid
on or before the date hereof, have been fully reflected in the SEC
Documents.
(iv) No Benefit Plan is subject to Title IV or Section 302 of ERISA
or Section 412 or 4971 of the Code. None of the Company, its
subsidiaries and their respective ERISA Affiliates (as defined below)
has at any time since September 2, 1974, contributed to or been
obligated to contribute to any "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA or any plan with two or more
contributing sponsors at least two of whom are not under common
control, within the meaning of Section 4063 of ERISA. There does not
now exist, nor do any circumstances exist that could result in, any
Controlled Group Liability (as defined below) that would be a liability
of the Company or any of its subsidiaries following the Closing. "ERISA
Affiliate" means, with respect to any entity, trade or business, any
other entity, trade or business that is a member of a group described
in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of
ERISA that includes the first entity, trade or business, or that is a
member of the same "controlled group" as the first entity, trade or
business pursuant to Section 4001(a)(14) of ERISA. "Controlled Group
Liability" means any and all liabilities under (i) Title IV of ERISA,
(ii) Section 302 of ERISA, (iii) Sections 412 and 4971 of the Code,
(iv) the continuation coverage requirements of Section 601 et seq. of
ERISA and Section 4980B of the Code, and (v) corresponding or similar
provisions of foreign laws or regulations, other than such liabilities
that arise solely out of, or relate solely to, the Benefit Plans.
(v) Except as set forth in the SEC Documents or in Section 4.1(p)(v)
of the Disclosure Schedule, neither the Company nor any of its
subsidiaries has any liability for life, health, medical or other
welfare benefits to former employees or beneficiaries or dependents
thereof, except for health continuation coverage as required by Section
4980B of the Code or Part 6 of Title I of ERISA and at no expense to
the Company and its subsidiaries.
(vi) Except as set forth in Section 4.1(p) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (either alone
or in conjunction with any other event) result in, cause the
accelerated vesting or delivery of, or increase the amount or value of,
any payment or benefit to any employee of the Company or any of its
subsidiaries. Without limiting the generality of the foregoing, no
amount paid or payable by the
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Company or any of its subsidiaries in connection with the transactions
contemplated hereby (either solely as a result thereof or as a result
of such transactions in conjunction with any other event) will be an
"excess parachute payment" within the meaning of Section 280G of the
Code.
(vii) No labor organization or group of employees of the Company or
any of its subsidiaries has made a pending demand for recognition or
certification, and there are no representation or certification
proceedings or petitions seeking a representation proceeding presently
pending or threatened to be brought or filed, with the National Labor
Relations Board or any other labor relations tribunal or authority.
There are no organizing activities, strikes, work stoppages, slowdowns,
lockouts, material arbitrations or material grievances, or other
material labor disputes pending or threatened against or involving the
Company or any of its subsidiaries.
(viii) There are no pending or threatened claims (other than claims
for benefits in the ordinary course), lawsuits or arbitrations which
have been asserted or instituted against the Benefit Plans, any
fiduciaries thereof with respect to their duties to the Benefit Plans
or the assets of any of the trusts under any of the Benefit Plans which
could reasonably be expected to result in any material liability of the
Company or any of its subsidiaries to the Pension Benefit Guaranty
Corporation, the Department of Treasury, the Department of Labor or any
multiemployer Benefit Plan.
(q) Taxes. As used in this Agreement, "tax" or "taxes" shall include all
federal, state and local income, property, sales, excise and other taxes,
tariffs or governmental charges or assessments of any nature whatsoever as
well as any interest, penalties and additions thereto. Except as disclosed
in Section 4.1(q) of the Disclosure Schedule:
(i) The Company and each of its subsidiaries have timely filed all
income tax returns, statements, reports and forms and all other
material tax returns (collectively, "Returns") required to be filed
with any tax authority and in accordance with all applicable laws. All
such Returns are correct and complete in all material respects. All
material taxes owed by the Company and any of its subsidiaries (whether
or not shown on any tax return) have been paid. There are no material
Liens on any of the assets of the Company or any of its subsidiaries
that arose in connection with any failure (or alleged failure) to pay
any tax.
(ii) The Company and each of its subsidiaries has withheld and timely
paid all material taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder, or other third party.
(iii) Neither the Company nor any of its subsidiaries expects any
authority to assess any additional material taxes against the Company
or any of its subsidiaries for any period for which tax returns have
been filed. No dispute or claim concerning any material tax liability
of the Company or any of its subsidiaries has been proposed or claimed
in writing by any authority.
(iv) Neither the Company nor any of its subsidiaries has waived any
statute of limitations in respect of material taxes or agreed to any
extension of time with respect to a tax assessment or deficiency.
(v) Neither the Company nor any of its subsidiaries has filed a
consent pursuant to Section 341(f) of the Code concerning collapsible
corporations. Neither the Company nor any of its subsidiaries is a
party to any tax allocation or sharing agreement. Neither the Company
nor any of its subsidiaries has any material liability for the taxes of
any person (other than the Company and any of its subsidiaries that is
currently a member of the Company's affiliated group filing a
consolidated federal income tax return) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
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(vi) Neither the Company nor any of its subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the Code
(or similar provisions of other law or regulations) in its current or
in any future taxable period by reason of a change in accounting
method; nor to the Knowledge of the Company or any of its subsidiaries
has the Internal Revenue Service (or other taxing authority) proposed
or is considering proposing, any such change in accounting method.
Except as disclosed in Section 4.1(q)(vi) of the Disclosure Schedule,
neither the Company nor any of its subsidiaries is a party to any
agreement, contract, or arrangement that, individually or collectively,
could give rise to the payment of any amount (whether in cash or
property, including Shares or other equity interests) that would not be
deductible pursuant to the terms of Sections 162(a)(1), 162(m), 162(n)
or 280G of the Code.
(r) Contracts; Debt Instruments. (i) Except as otherwise disclosed in
Section 4.1(r) of the Disclosure Schedule, neither the Company nor any of
its subsidiaries is a party to or subject to:
(A) any collective bargaining or other agreements with labor
unions, trade unions, employee representatives, work committees,
guilds or associations representing employees of the Company and its
subsidiaries;
(B) any employment consulting, severance, termination, or
indemnification agreement, contract or arrangement, written or oral,
with any current or former officer, consultant, director or employee
which (1) provides for payments in excess of $75,000 per annum or
(2) requires aggregate payments over the life of such agreement,
contract or arrangement in excess of $150,000 or which in any case
is not terminable by the Company or its subsidiaries on 60 days'
notice or less without penalty or obligation to make payments
related to or after such termination;
(C) any joint venture contract or arrangement or any other
agreement which has involved or is expected to involve a sharing of
revenues of $100,000 per annum or more with other persons;
(D) any lease for real or personal property in which the amount of
payments which the Company is required to make, or is expected to
receive, on an annual basis exceeds $50,000;
(E) any material agreement, contract, policy, License, document,
instrument, arrangement or commitment which has not been terminated
or performed in its entirety and not renewed which may be, by its
terms, terminated, impaired or adversely affected by reason of the
execution of this Agreement, the closing of the Merger, or the
consummation of the other transactions contemplated hereby;
(F) any agreement, contract, policy, License, document,
instrument, arrangement or commitment that materially limits the
freedom of the Company or any of its subsidiaries to compete in any
line of business or with any person or in any geographic area or
which would so materially limit the freedom of the Company or any of
its subsidiaries or Parent, Merger Subsidiary or any of their
subsidiaries after the Effective Time;
(G) any agreement or contract relating to any outstanding
commitment for capital expenditures in excess of $50,000
individually or $200,000 in the aggregate, or any partially or fully
executory agreement or contract relating to the acquisition or
disposition of rights or assets having a value of in excess of
$50,000 individually or $200,000 in the aggregate;
(H) any sale-leaseback, conditional sale, exclusive dealing,
brokerage, finder's fee or take-or-pay contract or agreement; or
(I) any other agreement, contract, policy, License, document,
instrument, arrangement or commitment not made in the ordinary
course of business which is material to the Company and its
subsidiaries taken as a whole.
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(ii) None of the Company, its subsidiaries and, to the Knowledge
of the Company, none of the other parties to any of the contracts
and agreements identified in Section 4.1(r)(i) of the Disclosure
Schedule or otherwise disclosed in the SEC Documents is in default
under or has terminated any such contract or agreement, or in any
way expressed an intent to materially reduce or terminate the amount
of, its business with the Company or any of its subsidiaries in the
future.
(iii) Set forth in Section 4.1(r)(iii) of the Disclosure Schedule
is (A) a list of all loan or credit agreements, notes, bonds,
mortgages, indentures and other agreements and instruments pursuant
to which any indebtedness of the Company or any of its subsidiaries
is outstanding or may be incurred and (B) the respective principal
amounts currently outstanding thereunder. Except as set forth in
Section 4.1(r)(iii) of the Disclosure Schedule, all such
indebtedness is prepayable at any time without penalty, subject to
the notice provisions of the agreements governing such indebtedness
(which, except as set forth in Section 4.1(r)(iii) of the Disclosure
Schedule, shall not require a notice period of more than thirty
days). For purposes of this Section 4.1(r)(iii), "indebtedness"
shall mean, with respect to any person, without duplication, (A) all
obligations of such person for borrowed money, or with respect to
deposits or advances of any kind to such person, (B) all obligations
of such person evidenced by bonds, debentures, notes or similar
instruments, (C) all obligations of such person upon which interest
charges are customarily paid, (D) all obligations of such person
under conditional sale or other title retention agreements relating
to property purchased by such person, (E) all obligations of such
person issued or assumed as the deferred purchase price of property
or services (excluding obligations of such person to creditors for
raw materials, inventory, services and supplies incurred in the
ordinary course of such person's business), (F) all capitalized
lease obligations of such person, (G) all obligations of others
secured by any Lien on property or assets owned or acquired by such
person, whether or not the obligations secured thereby have been
assumed, (H) all obligations of such person under interest rate or
currency swap transactions (valued at the termination value
thereof), (I) all letters of credit issued for the account of such
person (excluding letters of credit issued for the benefit of
suppliers to support accounts payable to suppliers incurred in the
ordinary course of business), (J) all obligations of such person to
purchase securities (or other property) which arises out of or in
connection with the sale of the same or substantially similar
securities or property, and (K) all guarantees and arrangements
having the economic effect of a guarantee of such person of any
indebtedness of any other person.
(s) Insurance. The Company and its subsidiaries are covered by valid and
currently effective insurance policies issued in favor of the Company that
are customary for companies of similar size and financial condition. Except
as set forth on Section 4.1(s) of the Disclosure Schedule, to the Knowledge
of the Company, all such policies are in full force and effect, all
premiums due thereon have been paid and the Company has complied with the
provisions of such policies. Except as disclosed, the Company has not been
advised of any defense to coverage in connection with any claim to coverage
asserted or noticed by the Company under or in connection with any of its
extant insurance policies. The Company has not, to the Knowledge of the
Company, received any written notice from or on behalf of any insurance
carrier issuing policies or binders relating to or covering the Company and
its subsidiaries that there will be a cancellation or non-renewal of
existing policies or binders, or that alteration of any equipment or any
improvements to real estate occupied by or leased to or by the Company or
its subsidiaries, purchase of additional equipment, or material
modification of any of the methods of doing business, will be required.
(t) Interests of Officers and Directors. None of the Company's or any of
its subsidiaries' officers or directors has any interest in any property,
real or personal, tangible or intangible, used in or pertaining to the
business of the Company or its subsidiaries, or any supplier, distributor
or customer of the Company or its subsidiaries, except for the normal
rights of a shareholder and rights under the Benefit Plans and the Option
Plans.
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(u) State Takeover Statutes. No "fair price," "moratorium," "control
share acquisition," or other anti-takeover statute or similar statute or
regulation, applies or purports to apply to the Merger, this Agreement or
any of the transactions contemplated hereby.
(v) Brokers. L.H. Friend, Weinreiss, Frankson & Presson, Inc. ("L.H.
Friend") has orally delivered to the Company's Board of Directors its
opinion that the consideration to be paid in the Merger is fair to the
holders of Shares from a financial point of view, and shall deliver such
opinion in writing to the Company's Board of Directors prior to the date
the Company files the Company Proxy Statement with the SEC. In addition, no
broker, investment banker, financial advisor or other person, other than
L.H. Friend, the fees and expenses of which will be paid by the Company
(and copies of whose engagement letters and a calculation of the fees that
would be due thereunder has been provided to Parent), is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based
upon arrangements made by or on behalf of the Company or any of its
subsidiaries. No such engagement letters obligate the Company to continue
to use their services or pay fees or expenses in connection with any future
transaction.
SECTION 4.2. Representations and Warranties of Parent and Merger
Subsidiary. Parent and Merger Subsidiary represent and warrant to the Company
as follows:
(a) Organization, Standing and Corporate Power. Each of Parent and Merger
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its respective state of incorporation and has
the requisite corporate power and authority to carry on its business as now
being conducted.
(b) Authority; Noncontravention. Parent and Merger Subsidiary have all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Parent and Merger Subsidiary. This
Agreement has been duly executed and delivered by Parent and Merger
Subsidiary and, assuming this Agreement constitutes a valid and binding
agreement of the Company, constitutes a valid and binding obligation of
such party, enforceable against such party in accordance with its terms.
The execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, modification
or acceleration of any obligation or to a loss of a material benefit under,
or result in the creation of any Lien upon any of the properties or assets
of Parent or any of its subsidiaries under, (i) the certificate of
incorporation or bylaws of Parent or Merger Subsidiary, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or any other
contract, agreement, instrument, permit, concession, franchise or license
applicable to Parent or Merger Subsidiary or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent, Merger
Subsidiary or any other subsidiary of Parent or their respective properties
or assets, other than, in the case of clause (ii) or (iii), any such
conflicts, violations, defaults, rights, losses or Liens that individually
or in the aggregate would not impair the ability of Parent and Merger
Subsidiary to perform their respective obligations under this Agreement or
prevent the consummation of any of the transactions contemplated by this
Agreement (a "Parent Material Adverse Effect"). Other than those Consents
referred to in the Disclosure Schedule on the part of the Company, no
Consent of any Governmental Entity is required by or with respect to
Parent, Merger Subsidiary or any other subsidiary of Parent in connection
with the execution and delivery of this Agreement or the consummation by
Parent or Merger Subsidiary, as the case may be, of any of the transactions
contemplated by this Agreement, except for (i) the filing of the documents
referred to in Section 1.3 hereof in accordance with the DGCL and the CGCL
and similar documents with the relevant authorities of other states in
which the Company is qualified to do business,
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(ii) the filing of a premerger notification and report form under the HSR
Act, (iii) compliance with any applicable requirements of the Exchange Act,
(iv) such Consents as may be required under relevant state and local
alcohol, lottery, gaming and gambling licensing laws and (v) such other
Consents as to which the failure to obtain or make could not reasonably be
expected to have a Parent Material Adverse Effect.
(c) Disclosure Documents. (i) The information with respect to Parent and
its subsidiaries that Parent furnishes to the Company in writing,
specifically for use in the Company Proxy Statement will not contain, any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading at the time of
filing the Company Proxy Statement with the SEC, at the time the Company
Proxy Statement or any amendment or supplement thereto is first mailed to
shareholders of the Company, at the time the shareholders vote on adoption
of this Agreement and at the Effective Time.
(d) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission from the Company in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent or Merger Subsidiary.
(e) Financing. Parent will have available sufficient financing and
provide or cause to be provided to Merger Subsidiary the funds necessary to
consummate the Merger in accordance with their terms and the terms of this
Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.1. Conduct of Business. During the period from the date of this
Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, carry on their business in the ordinary course of business in
substantially the same manner as heretofore conducted and, to the extent
consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees (as a group) and preserve their relationships with
customers, suppliers, licensors, licensees, distributors and others having
business dealings with them. Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the Effective Time,
except as disclosed on Schedule 5.1 of the Disclosure Schedule, the Company
shall not, and shall not permit any of its subsidiaries to, without the prior
written approval of Parent:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its capital stock, other than dividends and distributions by any direct or
indirect wholly-owned subsidiary of the Company to its parent; provided the
Company may continue to declare and pay its regular quarterly cash
dividends on the Shares in an amount not to exceed $.065 (six and one-half
cents) per share per quarter, with its usual record and payment dates for
such dividends, in accordance with the Company's past practice, (ii)
adjust, split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) purchase, redeem
or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities (other than in
connection with the exercise of Company Options in accordance with the
terms thereof as in effect on the date hereof or as contemplated by Section
2.4 hereof);
(b) issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock, any other voting securities or any securities convertible
into, or any rights, warrants or options, including Company Options, to
acquire, any such shares, voting securities or convertible securities
(other than the issuance of Shares upon the exercise of Company Options
outstanding as of the date hereof);
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(c) amend its articles of incorporation, bylaws or other comparable
charter or organizational documents;
(d) amend, modify or waive any provision of any of the Joint Venture
Documents or make any material change to the operations or financial
arrangements relating to any of the Joint Ventures;
(e) mortgage or otherwise encumber or subject to any Lien or, except in
the ordinary course of business consistent with past practice and pursuant
to existing contracts or commitments, sell, lease, license, transfer or
otherwise dispose of any material properties or assets;
(f) amend, modify or waive any material term of any outstanding security
of the Company and its subsidiaries;
(g) incur, assume, guarantee or become obligated with respect to any
indebtedness (as defined in Section 4.1(r) hereof), other than drawings on
existing revolving credit facilities listed in Section 4.1(r) of the
Disclosure Schedule, in the ordinary course of business, consistent with
past practice and in accordance with the terms thereof, or incur, assume,
guarantee or become obligated with respect to any other material
obligations other than in the ordinary course of business and consistent
with past practice;
(h) make or agree to make any new capital expenditures or acquisitions of
assets or property or other acquisitions or commitments in excess of
$50,000 individually or $200,000 in the aggregate or otherwise acquire or
agree to acquire any material assets or property;
(i) make any material tax election or take any material tax position
(unless required by law) or change its fiscal year or accounting methods,
policies or practices (except as required by changes in GAAP) or settle or
compromise any material income tax liability;
(j) make any loan, advance or capital contributions to or investment in
any person other than in the ordinary course of business consistent with
past practice, but in no event in the amount of more than $50,000 for any
one transaction or $250,000 in the aggregate, and other than investments in
cash equivalents made in the ordinary course of business consistent with
past practice;
(k) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction thereof, in the ordinary course
of business consistent with past practice and in accordance with their
terms, modify, amend or terminate any material contract or agreement to
which it is a party, or release or waive any material rights or claims, or
subject to the fiduciary duties of the Board of Directors of the Company
under the CGCL as determined by the Board of Directors in accordance with
the written advice of Stradling, Yocca, Carlson & Rauth, counsel to the
Company, and upon prior written notice to Parent, waive the benefits of, or
agree to modify in any manner, any confidentiality, standstill or similar
agreement to which the Company or any of its subsidiaries is a party;
(l) (i) grant to any current or former director, officer or employee of
the Company or any of its subsidiaries any material increase in
compensation or benefits, except for employees who are not officers or
directors in the ordinary course of business consistent with past practice,
(ii) grant to any such director, officer, or employee any increase in
severance or termination pay (including the acceleration in the
exercisability of Company Options or in the vesting of Shares (or other
property) except for automatic acceleration in accordance with the terms of
the Option Plans, ESOP, or ESPP or the provision of any tax gross-up), or
(iii) enter into any employment, deferred compensation, severance or
termination agreement or arrangement with or for the benefit of any such
current or former director, officer, or employee;
(m) (i) take or agree or commit to take any action that would make any
representation or warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time
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or (ii) omit or agree or commit to omit to take any action necessary to
prevent any such representation or warranty from being inaccurate in any
material respect at any such time; or
(n) authorize any of, or commit or agree to take any of, the foregoing
actions.
SECTION 5.2. Shareholder Meeting; Proxy Material. The Company shall cause a
meeting of its shareholders (the "Company Shareholder Meeting") to be duly
called and held as soon as reasonably practicable for the purpose of voting on
the approval and adoption of this Agreement and the Merger. The Directors of
the Company shall, subject to their fiduciary duties under the CGCL as
determined by the Board of Directors in accordance with the written advice of
Stradling, Yocca, Carlson & Rauth, counsel to the Company, recommend approval
and adoption of this Agreement and the Merger by the Company's shareholders.
In connection with such meeting, the Company (i) will promptly prepare and
file with the SEC, will use its best efforts to have cleared by the SEC and
will thereafter mail to its shareholders as promptly as practicable the
Company Proxy Statement and all other proxy materials for such meeting, (ii)
subject to the fiduciary duties of the Board of Directors of the Company under
the CGCL as determined by the Board of Directors in accordance with the
written advice of Stradling, Yocca, Carlson & Rauth, counsel to the Company,
will use its best efforts to obtain the necessary approvals by its
shareholders of this Agreement and the transactions contemplated hereby and
(iii) will otherwise comply with all legal requirements applicable to such
meeting. The Company has been advised that all of its directors and executives
currently intend to vote all shares owned by them in favor of the Merger. The
Company will provide Parent with a copy of the preliminary proxy statement and
all modifications thereto prior to filing or delivery to the SEC and will
consult with Parent in connection therewith. The Company will notify Parent
promptly of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for amendments or supplements to the Company
Proxy Statement or for additional information and will supply Parent with
copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Company Proxy Statement or the Merger. If at any time
prior to the Company Shareholder Meeting there shall occur any event that
should be set forth in an amendment or supplement to the Company Proxy
Statement, the Company will promptly prepare and mail to its shareholders such
an amendment or supplement. The Company will not mail any Company Proxy
Statement, or any amendment or supplement thereto, to which Parent reasonably
objects.
SECTION 5.3. Access to Information. From the date hereof until the Effective
Time, the Company will give Parent, its counsel, financial advisors, auditors
and other authorized representatives full access (during normal business hours
and upon reasonable notice) to the offices, properties, officers, employees,
accountants, auditors, counsel and other representatives, books and records of
the Company and its subsidiaries (including to perform any environmental
studies), will furnish to Parent, its counsel, financial advisors, auditors
and other authorized representatives such financial, operating and property
related data and other information as such persons may reasonably request, and
will instruct the Company's and its subsidiaries' employees, counsel and
financial advisors to cooperate with Parent in its investigation of the
business of the Company and the subsidiaries including without limitation, in
connection with Parent's obtaining title reports, surveys, environmental
reports and similar reports or studies with respect to the Owned Properties or
the Leased Real Estate, and will exercise all reasonable efforts to obtain
from landlords such estoppel certificates as Parent may request; provided that
no investigation pursuant to this Section 5.3 shall affect any representation
or warranty given by the Company hereunder.
SECTION 5.4. No Solicitation. The Company agrees that neither the Company
nor any of its subsidiaries nor any of the respective officers and directors
of the Company or its subsidiaries shall, and the Company shall direct and use
its best efforts to cause its employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its subsidiaries) not to, initiate,
continue, solicit or encourage, directly or indirectly, any inquiries or the
making of any proposal or offer (including, without limitation, any proposal
or offer to shareholders of the Company) with respect to a merger,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company or
any of its subsidiaries (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal") or, subject to the fiduciary duties of the
Board of Directors of the
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Company under the CGCL as determined by the Board of Directors in accordance
with the written advice of Stradling, Yocca, Carlson & Rauth, counsel to the
Company, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to
an Acquisition Proposal, or otherwise facilitate any effort or attempt to make
or implement an Acquisition Proposal or, enter into any agreement or
understanding with any other person or entity with the intent to effect any
Acquisition Proposal. The Company will take all necessary steps to inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 5.4. The Company will notify Parent
immediately, orally and in writing (including the names of any party making
and the principal terms of any such proposal), if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with the
Company. Immediately following the execution of this Agreement, the Company
will request each person which has heretofore executed a confidentiality
agreement in connection with its consideration of acquiring the Company or any
portion thereof (the "Confidentiality Agreements") to return all confidential
information heretofore furnished to such person by or on behalf of the
Company. The Company will keep Parent fully informed of the status and details
(including amendments or proposed amendments) of any such request, proposal or
inquiry.
SECTION 5.5. Fair Price Structure. If any "fair price," "control share
acquisition" or "moratorium" statute or other anti-takeover or similar statute
or regulation or any state "blue sky" statute shall become applicable to the
transactions contemplated hereby, the Company and the members of the Board of
Directors of the Company shall grant such approvals and take such actions as
are necessary so that the transactions contemplated hereby and thereby may be
consummated as promptly as practicable on the terms contemplated hereby and
thereby and otherwise act to minimize the effects of such statute or
regulation on the transactions contemplated hereby or thereby.
SECTION 5.6. Covenants Regarding Certain Benefit Plans. (a) The Company
shall take all steps necessary and appropriate so that the Company's Employee
Stock Ownership Plan (the "ESOP") is amended as follows: (i) all participants
in the ESOP shall be fully vested in their account balances immediately prior
to the Effective Time, (ii) no further contributions shall be made to the ESOP
(except as set forth in Section 4.1(p) of the Disclosure Schedule), and (iii)
the ESOP shall be terminated as of the Effective Time and all participants
thereunder shall receive distributions of their account balances as promptly
as reasonably practicable thereafter.
(b) If the Effective Time occurs during fiscal year 1997, then as of the
Effective Time, the Company's Management Incentive Bonus Plan, previously
provided to Parent, for fiscal 1997 shall terminate, and the participants
therein shall be entitled to receive, as soon as practicable thereafter,
bonuses under such plan to the extent earned, based upon the Company's
pretax earnings from the beginning of fiscal 1997 through the Effective
Time, but in any case not to exceed $200,000 in the aggregate.
(c) If the Effective Time occurs during fiscal year 1997, then as of the
Effective Time, the Cash Flow Incentive Plans for America and Carpet,
previously provided to Parent, for fiscal 1997 shall terminate, and the
participants thereunder shall be entitled to receive bonuses under such
plans to the extent earned, based upon such joint ventures' cash flow from
the beginning of fiscal 1997 through the Effective Time, but in any case
not to exceed $200,000 in the aggregate.
(d) If the Effective Time occurs during fiscal year 1997, then as of the
Effective Time, the Triangle Bowl Bonus Plan for fiscal 1997, previously
provided to Parent, shall terminate, and the participants thereunder shall
be entitled to receive bonuses under such plan to the extent earned, based
upon such partnership's operating profit, cash flow, revenue and otherwise
from the beginning of fiscal 1997 through the Effective Time, but in any
case not to exceed $200,000 in the aggregate.
SECTION 5.7. Cooperation in Arrangements with Lenders. The Company shall,
and shall cause its subsidiaries to, cooperate with and assist Parent and its
professionals and advisors in arranging for the prepayment at the Effective
Time of all indebtedness (as defined in Section 4.1(r)) of the Company and its
subsidiaries (the "Prepayment Debt") and shall provide whatever other
assistance and cooperation Parent and its professionals and advisors might
reasonably request in connection therewith.
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SECTION 5.8. Title Insurance. The Company shall provide to Parent at or
prior to the Effective Time such affidavits and other documents as may be
reasonably required by Parent in order to obtain customary title insurance
coverage with respect to the Owned Properties and the Leased Real Estate,
including, without limitation, non-imputation endorsements to the Company's
existing title insurance policies and the deletion of all standard exceptions
from any title insurance policies purchased at or prior to the Effective Time.
ARTICLE VI
COVENANTS OF PARENT
Parent agrees that:
SECTION 6.1. Confidentiality. Prior to the Effective Time and after any
termination of this Agreement, Parent will hold, and will use its reasonable
best efforts to cause its officers, directors, employees, accountants,
counsel, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
Company and its subsidiaries furnished to Parent in connection with the
transactions contemplated by this Agreement except to the extent that such
information can be shown to have been (i) previously known on a
nonconfidential basis by Parent, (ii) in the public domain through no fault of
Parent or (iii) later lawfully acquired by Parent from sources other than the
Company; provided that Parent may disclose such information to its officers,
directors, employees, accountants, counsel, consultants, advisors and agents
in connection with the transactions contemplated by this Agreement and to its
(and its parent entities') lenders and equity investors in connection with
obtaining the financing for the transactions contemplated by this Agreement so
long as such persons are informed by Parent of the confidential nature of such
information and are directed by Parent to treat such information
confidentially. Parent's obligation to hold any such information in confidence
shall be satisfied if it exercises the same care with respect to such
information as it would take to preserve the confidentiality of its own
similar information. If this Agreement is terminated, Parent will, and will
use its best efforts to cause its officers, directors, employees, accountants,
counsel, consultants, advisors and agents to, deliver to the Company, upon
request, or, at the election of Parent, destroy, all documents and other
materials and all copies thereof, obtained by Parent or on its behalf from the
Company in connection with this Agreement that are subject to such
confidentiality.
SECTION 6.2. Obligations of Merger Subsidiary. Parent will take all action,
and provide all financing, necessary to cause Merger Subsidiary to perform its
obligations under this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement.
SECTION 6.3. Voting of Shares. Parent agrees to vote all Shares beneficially
owned by it, if any, in favor of adoption of this Agreement at the Company
Shareholder Meeting.
SECTION 6.4. Director and Officer Liability. (a) For six years after the
Effective Time, Parent will cause the Surviving Corporation to indemnify and
hold harmless the present and former officers, directors, employees and agents
of the Company (the "Indemnified Parties") in respect of acts or omissions
occurring on or prior to the Effective Time or arising out of or pertaining to
the transactions contemplated by this Agreement to the extent provided under
the Company's articles of incorporation and bylaws in effect on the date
hereof; provided that such indemnification shall be subject to any limitation
imposed from time to time under applicable law. Parent and Surviving
Corporation shall not amend the articles of incorporation or bylaws of the
Surviving Corporation to amend the indemnification provisions therein in a
manner inconsistent with this Section 6.4 for the six year period referred to
above. For three years after the Effective Time, Parent will cause the
Surviving Corporation to use its best efforts to provide officers' and
directors' liability insurance in respect of acts or omissions occurring on or
prior to the Effective Time covering each such person currently covered by the
Company's officers' and directors' liability insurance policy on terms
substantially similar to those of such policy in effect on the date hereof,
provided that in satisfying its obligation under this Section 6.4, Parent
shall not be obligated to cause the
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Surviving Corporation to pay premiums in excess of 150% of the amount per
annum the Company paid in its last full fiscal year, which amount has been
disclosed to Parent, and if the Surviving Corporation is unable to obtain the
insurance required by this Section 6.4, it shall obtain as much comparable
insurance as possible for an annual premium equal to such maximum amount.
(b) After the Effective Time, Parent and the Surviving Corporation will
fulfill and honor in all respects the obligations of the Company pursuant
to the indemnification agreements with the Company's officers, directors
and key employees listed on Section 6.4 of the Disclosure Schedule as is in
existence on the date hereof. Such indemnification agreements have been
provided to Parent.
(c) The Indemnified Parties are intended third party beneficiaries of
this Section 6.4 to the extent such provisions benefit any such Indemnified
Party.
SECTION 6.5. Employees. (a) Parent agrees to honor in accordance with their
terms all Benefit Plans delivered to Parent prior to the date hereof and all
accrued benefits vested thereunder; it being understood and agreed that
nothing in this Section 6.5(a) shall prevent Parent from amending or
terminating any such Benefit Plan in any manner permitted in accordance with
the terms thereof.
(b) Parent agrees for a period of six months following the Effective Time
to provide employees of the Company and its subsidiaries retained by Parent
with employee benefits in the aggregate no less favorable than those
benefits provided to Parent's similarly situated employees; provided that
Parent shall be under no obligation to retain any employee or group of
employees of the Company or its subsidiaries.
(c) Parent and the Surviving Corporation shall make severance payments to
any employee of the Company set forth on Section 6.5(c) of the Disclosure
Schedule hereto, who is terminated during the six month period following
the Effective Time for reasons other than cause or failure of performance.
The amount of such severance payments shall be in an amount equal to (i) if
such employee is listed on Section 6.5(c) of the Disclosure Schedule as an
hourly employee, one (1) week of such employee's current base pay for each
year of service of the employee with the Company or its affiliates
("Service"), or (ii) if such employee is listed on Section 6.5(c) of the
Disclosure Schedule as a salaried employee, two (2) weeks of such
employee's current base pay for each year of Service, in either such case
not to exceed an aggregate of (x) if such employee is listed on Section
6.5(c) of the Disclosure Schedule as having less than ten (10) years of
Service, thirteen (13) weeks of such severance, or (y) if such employee is
listed on Section 6.5(c) of the Disclosure Schedule as having more than ten
(10) years of Service, twenty-six (26) weeks of such severance. Each
employee set forth in Section 6.5(c) of the Disclosure Schedule hereto
shall be entitled to enforce the provisions hereof to the extent such
employee becomes entitled to severeance as described in this Section 6.5.
ARTICLE VII
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
SECTION 7.1. HSR Act Filings; Reasonable Efforts; Notification. (a) Each of
Parent and the Company shall (i) promptly make or cause to be made the filings
required of such party or any of its subsidiaries under the HSR Act with
respect to the transactions contemplated by this Agreement, (ii) comply at the
earliest practicable date with any request under the HSR Act for additional
information, documents, or other material received by such party or any of its
subsidiaries from the Federal Trade Commission or the Department of Justice or
any other Governmental Entity in respect of such filings or such transactions,
and (iii) cooperate with the other party in connection with any such filing,
and in connection with resolving any investigation or other inquiry of any
such agency or other Governmental Entity under the HSR Act, the Sherman Act,
as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other federal or state statutes, rules,
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regulations, orders or decrees that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint
of trade with respect to any such filing or any such transaction. Each party
shall promptly inform the other party of any communication with, and any
proposed understanding, undertaking, or agreement with, any Governmental
Entity regarding any such filings or any such transaction. Neither party shall
participate in any meeting, with any Governmental Entity in respect of any
such filings, investigation, or other inquiry without giving the other party
notice of the meeting and, to the extent permitted by such Governmental
Entity, the opportunity to attend and participate.
(b) Each of Parent and the Company shall use all reasonable efforts to
take such action as may be required to cause the expiration of the notice
periods under the HSR Act or any state statutes, rules, regulations, orders
or decrees that are designed to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade with
respect to the transactions contemplated hereby as promptly as possible
after the execution of this Agreement.
(c) Subject to the fiduciary duties of the Board of Directors of the
Company, each of the parties agrees to use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most
expeditious manner practicable the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all other
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all other necessary registrations
and filings (including other filings with Governmental Entities, if any),
(ii) the obtaining of all necessary consents, approvals or waivers from
third parties, (iii) the preparation of the Company Proxy Statement, (iv)
the repayment of all of the Company's indebtedness as contemplated by
Section 5.7 hereof at the Effective Time, and (v) the execution and
delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
(d) Notwithstanding anything to the contrary in Section 7.1(a), (b) or
(c), (i) neither Parent nor any of its subsidiaries shall be required to
divest, or cause or permit the Company or its subsidiaries or affiliates to
divest, any of their respective businesses, product lines or assets, or to
take or agree to take any other action or agree to any limitation that
could reasonably be expected to have a material adverse effect on the
value, condition (financial or otherwise), prospects, business or results
of operations or prospects of Parent and its subsidiaries taken as a whole
or of the Company and its subsidiaries taken as a whole, or all such
entities taken together, and (ii) neither Parent nor Merger Subsidiary
shall be required to waive any of the conditions to the Merger set forth in
Article VIII.
(e) The Company shall give prompt notice to Parent of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any respect or (ii) the failure by it to comply
with or satisfy in any respect any covenant, condition or agreement to be
compiled with or satisfied by it under this Agreement; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations
of the parties under this Agreement.
(f) The Company shall give prompt notice to Parent, and Parent or Merger
Subsidiary shall give prompt notice to the Company, of:
(i) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any Governmental Entity
in connection with the transactions contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating
to or involving or otherwise affecting it or any of its subsidiaries
which, if pending on the date of this Agreement would have been
required to have been disclosed
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pursuant to Section 4.1(l), 4.1(m), 4.1(n), 4.1(p) or 4.1(q) or which
relate to the consummation of the transactions contemplated by this
Agreement.
SECTION 7.2. Public Announcements. Parent and Merger Subsidiary, on the one
hand, and the Company, on the other hand, will consult with each other before
issuing, and provide each other the opportunity to review and comment upon,
any press release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or with NASDAQ. The parties agree that the initial press release to
be issued with respect to the transactions contemplated by this Agreement will
be in the form previously agreed to by the parties.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.1. Conditions to the Obligations of Each Party. The obligations of
the Company, Parent and Merger Subsidiary to consummate the Merger are subject
to the satisfaction of the following conditions:
(a) this Agreement shall have been approved and adopted by the
outstanding Shares of the Company within the meaning and in accordance with
the CGCL;
(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired; and
(c) no provision of any applicable law or regulation and no judgment,
injunction, order, decree or other legal restraint shall prohibit the
consummation of the Merger.
SECTION 8.2. Conditions to the Obligations of Parent and Merger Subsidiary.
The obligations of Parent and Merger Subsidiary to consummate the Merger are
further subject to the satisfaction of the following conditions:
(a) there shall not be instituted or pending any action by any
Governmental Entity (i) challenging or seeking to make illegal, to delay
materially or otherwise directly or indirectly to restrain or prohibit the
consummation by Parent or Merger Subsidiary of the Merger, seeking to
obtain material damages or imposing any material adverse conditions in
connection therewith or otherwise directly or indirectly relating to the
transactions contemplated by this Agreement or the Merger, (ii) seeking to
restrain or prohibit Parent's or Merger Subsidiary's ownership or operation
(or that of their respective subsidiaries or affiliates) of all or any
portion of the business or assets of the Company and its subsidiaries, or
of Parent and its subsidiaries or affiliates, or to compel Parent or any of
its subsidiaries or affiliates to dispose of or hold separate all or any
material portion of the business or assets of the Company and its
subsidiaries, or of Parent and its subsidiaries and affiliates, (iii)
seeking to impose limitations on the ability of Parent or any of its
subsidiaries or affiliates effectively to exercise full rights of ownership
of the Shares, including, without limitation, the right to vote any Shares
acquired or owned by Parent or any of its subsidiaries or affiliates on all
matters properly presented to the Company's shareholders, (iv) seeking to
require divestiture by Parent or any of its subsidiaries or affiliates of
any Shares, or (v) that otherwise, in the reasonable judgment of Parent, is
likely to materially adversely affect the value, condition (financial or
otherwise), prospects, business, or results of operations of the Company
and its subsidiaries, or Parent and its subsidiaries;
(b) the Company shall have performed in all material respects its
covenants and agreements under this Agreement, and the representations and
warranties of the Company set forth in this Agreement that are qualified as
to materiality shall be true when made and at and as of the Effective Time
as if made at and as of such time, and the representations and warranties
set forth in this Agreement that are not so qualified shall be true in all
material respects when made and at and as of the Effective Time as if made
at and as of such time; and Parent and Merger Subsidiary shall have
received a certificate of the Chief Executive Officer or a Vice President
of the Company to that effect;
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(c) no change shall have occurred or been threatened (and no development
shall have occurred or been threatened involving a prospective change)
that, in the reasonable judgment of Parent, is or is likely to have a
Material Adverse Effect;
(d) other than the filing of the certificate of merger in accordance with
DGCL and a copy of the merger agreement with an officers' certificate of
each Constituent Corporation in accordance with the CGCL, after making
reasonable efforts, Parent and its subsidiaries (including Merger
Subsidiary) shall not have obtained, all regulatory approvals, licenses and
other Consents including all such Consents and licenses, relating to the
sale and service of alcoholic beverages and any gaming or gambling
activities required to be obtained prior to the consummation of the Merger
and the transactions contemplated by this Agreement; and
(e) Parent shall be reasonably satisfied that at or prior to the
Effective Time (x) all Prepayment Debt will be prepaid in full and (y) the
Company will be consummating the acquisitions of all remaining interests in
Triangle, America and Carpet in accordance with the joint venture
acquisition agreements referred to in the third and fourth WHEREAS clauses
of this Agreement.
SECTION 8.3. Conditions to the Obligations of the Company. The obligations
of the Company to consummate the Merger are subject to the further
satisfaction of the following conditions:
Parent and Merger Subsidiary shall have performed in all material
respects their covenants and agreements under this Agreement, and the
representations and warranties of Parent and Merger Subsidiary set forth in
this Agreement that are qualified as to materiality shall be true when made
at and as of the Effective Time as if made and at and as of such time, and
the representations and warranties set forth in this Agreement that are not
so qualified shall be true in all material respects when made and at and as
of the Effective Time as if made at and as of such time; and the Company
shall have received certificates of the Chief Executive Officer or a Vice
President of Parent and Merger Subsidiary to that effect.
ARTICLE IX
TERMINATION
SECTION 9.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the shareholders of the Company):
(i) by mutual written consent of the Company and Parent;
(ii) by either Parent or the Company, if at the Company Shareholder
Meeting or any adjournment thereof at which the Company Shareholder
Approval is voted upon, the Company Shareholder Approval shall not have
been obtained;
(iii) by either the Company or Parent, if the Merger has not been
consummated by July 31, 1997, (provided that the party seeking to terminate
the Agreement shall not have breached its obligations under this Agreement
in any material respect);
(iv) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining Parent
or the Company from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and applicable;
(v) by Parent, at any time prior to the Effective Time, by action of the
Board of Directors of Parent, if (x) the Company shall have failed to
comply in any material respect with any of the covenants or agreements
contained in this Agreement to be complied with or performed by the Company
at or prior to such date of termination or (y) the Board of Directors of
the Company shall have withdrawn or modified in
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a manner adverse to Parent or Merger Subsidiary its approval or
recommendation of this Agreement or the Merger, or shall have resolved to
do any of the foregoing; or
(vi) by the Company, at any time prior to the Effective Time, by action
of the Board of Directors of the Company, (A) if Parent or Merger
Subsidiary shall have failed to comply in any material respect with any of
the covenants or agreements contained in this Agreement to be complied with
or performed by Parent or Merger Subsidiary at or prior to such date of
termination, or (B) the Company receives an Acquisition Proposal on terms
the Company's Board of Directors (after consultation with its financial
advisors) determines to be more favorable to the Company's shareholders
than the terms of the Merger, and the Company's Board of Directors
determines in accordance with the written advice of Stradling, Yocca,
Carlson & Rauth, counsel to the Company, (x) that to continue to recommend
that holders of Shares vote in favor of the Merger, notwithstanding the
receipt of such offer with respect to an Acquisition Proposal, would
violate the fiduciary duties of the Company's Board of Directors to the
Company's shareholders and (y) to accept such Acquisition Proposal;
provided, however, that the Company shall not be permitted to terminate
this Agreement pursuant to this Section 9.1(vi)(B) unless it has provided
Parent and Merger Subsidiary with two business days prior written notice of
its intent to so terminate this Agreement together with a detailed summary
of the terms and conditions (including proposed financing, if any) of such
Acquisition Proposal; provided, further, that Parent shall receive the fees
set forth in Section 10.4(b) immediately prior to any termination pursuant
to this Section 9.1(vi)(B) by wire transfer in same day funds.
SECTION 9.2. Effect of Termination. If this Agreement is terminated pursuant
to Section 9.1, this Agreement shall become void and of no effect with no
liability on the part of any party hereto or their respective officers and
directors, except that the agreements contained in Sections 6.1, 10.4 and 10.6
shall survive the termination hereof. Specifically, and without limiting the
generality of the foregoing, Parent and Merger Subsidiary agree that, except
as expressly provided in Section 10.4(b), termination of this Agreement shall
be their sole and exclusive remedy for any nonwillful breach by the Company of
its representations, warranties and covenants under this Agreement and the
Company agrees that termination of this Agreement shall be its sole and
exclusive remedy for any nonwillful breach by Parent or Merger Subsidiary of
their representations, warranties and covenants under this Agreement.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including telecopy or similar writing)
and shall be given,
if to Parent or Merger Subsidiary, to:
AMF Bowling Centers, Inc.
8100 AMF Drive
Mechanicsville, VA 23111
Telecopy: (804) 730-6612
Attn: Daniel M. McCormack
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Telecopy: (212) 403-2000
Attn: Mitchell S. Presser
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if to the Company, to:
American Recreation Centers, Inc.
11171 Sun Center Drive
Rancho Cordova, CA 95670
Telecopy: (916) 852-8004
Attn: Robert A. Crist
with a copy to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive
Newport Beach, CA 92660-6441
Telecopy: (714) 725-4100
Attn: Bruce Feuchter
or such other address or telecopy number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective when delivered at the
address specified in this Section.
SECTION 10.2. Survival of Representations and Warranties. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement except for the
representations, warranties and agreements set forth in Sections 6.1, 10.4 and
10.6.
SECTION 10.3. Amendments; No Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company, Parent and Merger Subsidiary or in the case of a waiver, by the
party against whom the waiver is to be effective; provided that after the
adoption of this Agreement by the shareholders of the Company, no such
amendment or waiver shall, without the further approval of such shareholders,
alter or change (i) the amount or kind of consideration to be received in
exchange for any shares of capital stock of the Company, or (ii) any of the
principal terms of the Merger.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 10.4. Fees and Expenses. (a) Except as otherwise provided in this
Section, all costs and expenses incurred in connection with this Agreement
shall be paid by the party incurring such cost or expense.
(b) If (w)(i) after the date hereof any person or group (as contemplated
by Section 13(d)(3) of the Exchange Act) other than Parent or Merger
Subsidiary or any of their respective subsidiaries or affiliates
(collectively, an "Acquiring Person") shall have become the beneficial
owner of 10% or more of the outstanding Shares (or any person or group
already beneficially owning 10% or more of the outstanding Shares increases
such ownership by more than 5% of the Shares such person or group
theretofore owned), or any Acquiring Person shall have commenced, or shall
have publicly announced an intention to commence, a tender offer or
exchange offer for or an intention to acquire (by merger, consolidation,
recapitalization or otherwise) 10% or more of the outstanding Shares or all
or substantially all of the assets of the Company, and (ii) any Acquiring
Person shall have become the beneficial owner of a majority of the
outstanding Shares, or (x) Parent shall have terminated this Agreement
pursuant to Section 9.1(v)(y), or (y) the Company shall have terminated
this Agreement pursuant to Section 9.1(vi)(B), then the Company shall
promptly, but in no event later than two days after the date of any request
therefor, reimburse Parent up to $650,000 for the documented fees and
expenses of Parent and Merger Subsidiary related to this Agreement, the
transactions contemplated hereby and any related financing and an
additional fee of $2,000,000 which amounts shall be payable in same day
funds; provided, however, that if the Company
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shall have terminated this Agreement pursuant to Section 9.1(vi)(B), such
amounts shall be paid in accordance with the provisions of such Section.
The Company acknowledges that the agreements contained in this Section
10.4(b) are an integral part of the transactions contemplated in this
Agreement, and that, without these agreements, Parent and Merger Subsidiary
would not enter into this Agreement; accordingly, if the Company fails to
pay promptly the amounts due pursuant to this Section 10.4(b), and, in
order to obtain such payments, Parent or Merger Subsidiary commences a suit
against the Company for the fees set forth in this paragraph (b), the
prevailing party shall pay to the other party or parties their costs and
expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amount thereof at the prime rate of the
Citibank, N.A. on the date such payment was required to be made.
SECTION 10.5. Successors and Assigns; Parties in Interest. The provisions of
this Agreement shall be binding, upon and inure to the benefit of the parties
hereto and their respective successors and assigns, provided that no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of the other parties hereto except that
Merger Subsidiary may transfer or assign, in whole or from time to time in
part, to one or more of Parent or any of its wholly-owned subsidiaries, any or
all of its rights or obligations, but any such transfer or assignment will not
relieve Merger Subsidiary of its obligations under this Agreement. Except as
expressly set forth herein nothing in this Agreement, express or implied, is
intended to or shall confer upon any person not a party hereto any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including to confer third party beneficiary rights.
SECTION 10.6. Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware, except that the
consummation and effectiveness of the Merger shall be governed by, and
construed in accordance with, the DGCL and the CGCL, as applicable.
SECTION 10.7. Counterparts; Effectiveness; Interpretation. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement shall become effective when each
party hereto shall have received counterparts hereof signed by all of the
other parties hereto. When a reference is made in this Agreement to a Section,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
The parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
AMERICAN RECREATION CENTERS, INC.
By /s/ Robert A. Crist
Title: Chief Executive Officer and
President
AMF BOWLING CENTERS, INC.
By /s/ Douglas J. Stanard
Title: President
NOAH ACQUISITION CORP.
By /s/ Douglas J. Stanard
Title: President
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APPENDIX B
AGREEMENT OF MERGER
OF
AMERICAN RECREATION CENTERS, INC.,
A CALIFORNIA CORPORATION
AND
NOAH ACQUISITION CORP.,
A DELAWARE CORPORATION
THIS AGREEMENT OF MERGER, dated as of April , 1997 (this "Agreement"), is
between AMERICAN RECREATION CENTERS, INC., a California corporation ("ARC"),
and NOAH ACQUISITION CORP., a Delaware corporation ("Noah"), which
corporations are sometimes referred to herein as the "Constituent
Corporations."
R E C I T A L S
ARC is a corporation duly organized and existing under the laws of the State
of California and has an authorized capital of 26,484,375 shares, 21,484,375
of which are designated "Common Stock", no par value, and 5,000,000 of which
are designated "Preferred Stock", no par value. As of March 3, 1997, 4,613,037
shares of Common Stock were issued and standing and no shares of Preferred
Stock were outstanding.
Noah is a corporation duly organized and existing under the laws of the
State of Delaware and has an authorized capital of 1,000 shares, all of which
are designated "Common Stock", $.01 par value. As of March 3, 1997, 100 shares
of Common Stock were outstanding.
The respective Boards of Directors of ARC and Noah have approved this
Agreement and have directed that this Agreement be submitted to a vote of
their respective shareholders and executed by the undersigned officers.
The respective shareholders of Noah and ARC have duly approved, in
accordance with the applicable laws of the State of Delaware and the State of
California, respectively, the principal terms and provisions of (i) the
Agreement and Plan of Merger, dated as of January 17, 1997 (the
"Reorganization Agreement"), by and among ARC, AMF Bowling Centers, Inc., a
Virginia corporation ("AMF"), and Noah, providing for certain representations,
warranties, covenants and conditions in connection with the Merger (as defined
below), and (ii) this Agreement. Nothing in this Agreement alters any
provision of the Reorganization Agreement.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, ARC and Noah hereby agree, subject to the terms and conditions
hereinafter set forth, as follows:
I.
MERGER
1.1 Merger. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law ("DGCL") and the California General
Corporation Law ("CGCL"), Noah shall be merged with and into ARC (the
"Merger"), the separate corporate existence of Noah shall cease and ARC shall
be, and is herein sometimes referred to as, the "Surviving Corporation", and
the name of the Surviving Corporation shall be "American Recreation Centers,
Inc."
1.2 Filing and Effectiveness. The Merger shall become effective, subject to
the DGCL and the CGCL, when the following actions have been completed:
(a) All of the conditions precedent to the consummation of the Merger
specified in the Reorganization Agreement have been satisfied or duly
waived by the party entitled to satisfaction thereof; and
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(b) After all the conditions specified in the Reorganization Agreement
have been satisfied or waived, an executed counterpart of this Agreement,
together with an officer's certificate of each Constituent Corporation, has
been filed with the Secretary of State of the State of California.
The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Time of the Merger." Concurrent with the
Effective Time, a certificate of merger will be filed with the Secretary of
State of the State of Delaware.
1.3 Effect of the Merger. Upon the Effective Time of the Merger, the
separate corporate existence and corporate organization of Noah shall cease
and ARC, as the Surviving Corporation, shall continue its corporate existence
under the laws of the State of California. The Surviving Corporation may be
served with process in the State of Delaware in any proceeding for enforcement
of any obligation of Noah, as well as for enforcement of any obligation of the
Surviving Corporation arising from the Merger, including any suit or other
proceeding to enforce the right of any shareholders as determined in appraisal
proceedings pursuant to the provisions of Section 262 of the DGCL or Chapter
13 of the CGCL, as applicable, and irrevocably appoints the Secretary of State
of the State of Delaware as its agent to accept service of process in any such
suit or proceedings. The address to which a copy of such process shall be
mailed by such Secretary of State is 8100 AMF Drive, Mechanicsville, Virginia,
23111, Attn: Corporate Secretary.
II.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Articles of Incorporation. The Articles of Incorporation of ARC as in
effect immediately before the Effective Time of the Merger shall continue in
full force and effect as the Articles of Incorporation of the Surviving
Corporation until duly amended or repealed in accordance with the provisions
thereof and applicable law, except that Article Fourth of the Articles of
Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows:
"Article Fourth: The number of Directors of this Corporation shall be as
provided in the bylaws of this Corporation."
III.
MANNER OF CONVERSION OF STOCK
3.1 Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of Common Stock of
ARC ("Shares") or any shares of the Common Stock of Noah.
(a) each Share owned by ARC or owned by Noah or any subsidiary of any of
ARC, AMF or Noah (which shall not include Shares owned by the ARC Employee
Stock Ownership Plan or Employee Stock Purchase Plan) immediately prior to
the Effective Time shall be canceled, and no payment shall be made with
respect thereto;
(b) each share of Common Stock of Noah outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation and shall
constitute the only outstanding shares of capital stock of the Surviving
Corporation; and
(c) each Share of ARC outstanding immediately prior to the Effective Time
shall, except as otherwise provided in Section 3.1(a) or as provided in
Section 3.3 with respect to Dissenting Shares, be converted into the right
to receive $8.50 in cash without interest (the "Merger Consideration").
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3.2 Surrender and Payment.
(a) Prior to the Effective time, AMF shall appoint a bank or trust
company (the "Exchange Agent") for the purpose of exchanging certificates
representing Shares for the Merger Consideration. AMF will, or will cause
Noah to, make available to the Exchange Agent, as needed, the Merger
Consideration to be paid in respect of the Shares (the "Exchange Fund").
For purposes of determining the Merger Consideration to be made available,
AMF shall assume that no holder of Shares will perfect his right to demand
cash payment of the fair market value of his Shares pursuant to Chapter 13
of the CGCL. Promptly after the Effective Time, AMF will send, or will
cause the Exchange Agent to send, to each holder of Shares at the Effective
Time to send, to each holder of Shares at the Effective Time a letter of
transmittal for use in such exchange (which shall specify that the delivery
shall be effected, and risk of loss and title shall pass, only upon proper
delivery of the certificates representing Shares to the Exchange Agent).
The Exchange Agent shall, pursuant to irrevocable instructions, make the
payments provided in this Section 3.2. The Exchange Fund shall not be used
for any other purpose, except as provided in this Agreement.
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a
properly completed letter of transmittal covering such Shares and other
customary documentation, will be entitled to receive the Merger
Consideration payable in respect of such Shares. As of the Effective Time,
all such Shares shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate previously representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration, without interest, upon surrender of the certificates
representing such Shares, as contemplated hereby.
(c) If any portion of the Merger Consideration is to be paid to a person
other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay to the
Exchange Agent any transfer or other taxes required as a result of such
payment to a person other than the registered holder of such Shares or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable. For purposes of this Agreement, "person" means an
individual, a corporation, a partnership, an association, a trust or any
other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
(d) After the Effective time, there shall be no further registration or
transfers of Shares. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall
be canceled and exchanged for the consideration provided for, and in
accordance with the procedures set forth, in this Article III.
(e) Any portion of the Exchange Fund made available to the Exchange Agent
pursuant to this Agreement that remains unclaimed by the holders of Shares
six months after the Effective Time shall be returned to AMF, upon AMF's
demand, and any such holder who has not exchanged his Shares for the Merger
Consideration in accordance with this Section 3.2 prior to that time shall
thereafter look only to AMF for payment of the Merger Consideration in
respect of his Shares. Notwithstanding the foregoing, AMF shall not be
liable to any holder of Shares for any amount paid to a public official
pursuant to and in accordance with the requirements of applicable abandoned
property, escheat or similar laws.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 3.2(a) to pay for Shares for which the
right to a determination of fair market value, as contemplated by Section
3.3, have been perfected shall be returned to AMF upon AMF's demand.
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3.3 Dissenting Shares. Notwithstanding Section 3.1, Shares outstanding
immediately prior to the Effective Time and held by a holder who is entitled
to and has demanded cash payment of the fair market value for such Shares in
accordance with Section 1301 of the CGCL and submitted certificates
representing such Shares for endorsement in accordance with Section 1302 of
the CGCL (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration as provided in Section 3.1(c) of this
Agreement, unless and until such holder fails to perfect or withdraws or
otherwise loses his right to a determination of the fair market value of the
shares and payment under the CGCL. If, after the Effective Time, any such
holder fails to perfect or withdraws or loses his right to a determination of
the fair market value of the Shares under the CGCL, such Dissenting Shares
shall thereupon be treated as if they had been converted as of the Effective
Time into the right to receive the Merger Consideration to which such holder
is entitled, without interest thereon. As soon as practicable after the
approval of the Merger by the ARC shareholders (including, without limitation,
by written consent thereto), to the extent required by the CGCL, and in any
event not later than ten (10) days following such approval, AMF shall mail to
each shareholder of ARC who is entitled to such notice pursuant to Chapter 13
of the CGCL, a notice of such approval of the Merger, such notification to
include the information and materials required by Section 1301(a) of the CGCL
(including without limitation, the price determined by AMF to represent the
fair market value of any Dissenting Shares).
IV.
EFFECT OF MERGER
4.1 Effect of Merger. The Merger shall have the effects as provided by the
CGCL and the DGCL.
4.2 Further Assurances. From time to time, as and when required by Noah or
by its successors or assigns, there shall be executed and delivered on behalf
of ARC such deeds and other instruments, and there shall be taken or caused to
be taken by it such further and other actions as shall be appropriate or
necessary in order to vest or perfect in or conform of record or otherwise by
Noah the title to and possession of all the property, interests, assets,
rights, privileges, immunities, powers, franchises and authority of ARC and
otherwise to carry out the purposes of this Agreement, and the officers and
directors of Noah are fully authorized in the name and on behalf of ARC or
otherwise to take all such actions and to execute and deliver all such deeds
and other instruments.
V.
GENERAL
5.1 Amendments; No Waivers.
(a) Any provision of this Agreement may be amended or waived prior to the
Effective Time if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by ARC, AMF and Noah or in the case of
a waiver, by the party against whom the waiver is to be effective; provided
that after the adoption of this Agreement by the shareholders of the
Constituent Corporations, no such amendment or waiver shall, without the
further approval of the shareholders of the Constituent Corporations, alter
or change (i) the amount or kind of consideration to be received in
exchange for any shares of capital stock of ARC, or (ii) any of the
principal terms of the Merger.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive or any
rights or remedies provided by law.
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5.2 Abandonment. At any time before the Effective Time of the Merger, this
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either Noah or ARC, or both,
notwithstanding the approval of this Agreement by the shareholders of Noah or
by the shareholders of ARC, or by both. This Agreement shall automatically
terminate and the Merger shall be abandoned prior to the Effective Time of the
Merger, if the Reorganization Agreement is terminated in accordance with its
terms prior to the Effective Time of the Merger.
In the event of abandonment of this Agreement, as above provided, this
Agreement shall become wholly void and of no effect, and without any liability
on the part of either Constituent Corporation or its Board of Directors or its
shareholders.
5.3 Integration. This Agreement is being entered into pursuant to, and in
order to implement the terms of, the Reorganization Agreement.
5.4 Agreement. Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 8100 AMF Drive,
Mechanicsville, VA 23111, and, upon request and without cost, copies thereof
will be furnished to any shareholder of either Constituent Corporation.
5.5 Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with and governed by the laws of the State of
California except for in the State of Delaware (where the laws of the State of
Delaware shall apply), except that the consummation and effectiveness of the
Merger shall be governed by and construed in accordance with the DGCL and the
CGCL, as applicable.
5.6 Counterparts. In order to facilitate the filing of this Agreement, the
same may be executed in any number of counterparts, each of which shall be
deemed to be an original and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, this Agreement having first been approved by resolutions
of the Boards of Directors of ARC and Noah is hereby executed on behalf of
each of such two corporations by their respective officers thereunto duly
authorized.
AMERICAN RECREATION CENTERS, INC.,
a California corporation
By:
--------------------------
Robert A. Crist,
President, Chief Executive
Officer and Secretary
By:
--------------------------
Bruce Feuchter,
Secretary
NOAH ACQUISITION CORP.,
a Delaware corporation
By:
--------------------------
Douglas J. Stanard,
President and Secretary
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APPENDIX C
January 24, 1997
Board of Directors
American Recreation Centers, Inc.
11171 Sun Center Drive, Suite 120
Rancho Cordova, CA 95670-6113
Gentlemen:
You have asked L.H. Friend, Weinress, Frankson & Presson, Inc. ("Friend")
for our opinion as investment bankers as to the fairness, from a financial
point of view, to American Recreation Centers, Inc., a California corporation
(the "Company") and its shareholders, of the consideration to be paid received
by the Company's shareholders pursuant to the Agreement and Plan of Merger
dated January 17, 1997 (the "Agreement") between AMF Bowling Centers, Inc.
("AMF"), a Virginia corporation, and Noah Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of AMF and the Company (the
"Transaction").
The Agreement provides for each currently outstanding share of the Common
Stock of the Company to be converted into the right to receive $8.50 in cash
(the "Merger Consideration") upon consummation of the Transaction.
As part of its investment banking business, Friend is continually engaged in
the evaluation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate,
corporate and other purposes. We have been engaged to act as financial
advisors to the Company's Board of Directors in connection with the
Transaction and to advise the Board of Directors as to the fairness of the
Merger Consideration, but we have not materially participated in the
negotiations leading to the Agreement.
You have requested our opinion as to whether the proposed Merger
Consideration is fair to the Company and its shareholders from a financial
point of view.
In connection with formulating our opinion, we have, among other things:
(a) Reviewed the Agreement;
(b) Reviewed the Company's Annual Report to Shareholders on Form 10-K for the
fiscal years ended May 29, 1996; May 31, 1995 and May 25, 1994; the
Company's Quarterly Reports on Form 10-Q for the periods ended November
17, 1996 and August 28, 1996; and the Company's proxy statement dated
August 26, 1996;
(c) Examined certain operating and financial information and financial
projections dated October 21, 1996, provided to us by the management of
the Company;
(d) Reviewed the historical market prices and trading volume of the Company's
Common Stock;
(e) Analyzed publicly available financial and market data regarding certain
companies in the bowling and recreation industry and compared them to the
Company's financial and market data;
(f) Conducted limited interviews with certain members of the Company's
management; and
(g) Performed such other studies, analyses, inquires and investigations as we
deemed appropriate.
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We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition and business prospects of
the Company since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us and do not assume any responsibility with respect
to it. We have not made any physical inspection or independent appraisal of
any of the properties or assets of the Company, or conducted any independent
inquiry or investigation with respect to the Company or the Transaction. This
opinion is necessarily based on business, economic, market and other
conditions as they exist and can be evaluated by us at the date of this
letter.
This opinion is furnished solely for the benefit of the Company, its Board
of Directors, and its shareholders in connection with the Transaction, and may
not be relied upon by any other person or for any other purpose without our
express, prior, written consent. This opinion is delivered to each recipient
subject to the conditions, scope of engagement, limitations and understandings
set forth in this opinion and our engagement letter dated December 27 , 1996,
and subject to the understanding that the obligations of Friend in the
Transaction are solely corporate obligations, and no officer, director,
employee, agent, shareholder or controlling person of Friend shall be
subjected to any personal liability whatsoever to any person, nor will any
such claim be asserted by or on behalf of any recipient of this opinion. The
Company has also agreed to indemnify Friend for certain liabilities that may
arise out of rendering this opinion.
Our opinion is limited to the fairness, from a financial point of view, of
the Merger Consideration and does not address the Company's underlying
business decision to effect the Transaction.
As of the date hereof, based upon and subject to the foregoing, and based
upon such other matters as we deemed relevant, it is our opinion that the
Merger Consideration is fair to the Company and its shareholders from a
financial point of view.
Very truly yours,
L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
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APPENDIX D
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
DISSENTERS' RIGHTS
SECTION 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair
market value the shares owned by the shareholder which are dissenting shares
as defined in subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split, or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
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(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such
price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
SECTION 1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
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(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
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(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event
of a reorganization or short-form merger is entitled to payment in accordance
with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
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PROXY
AMERICAN RECREATION CENTERS, INC.
11171 SUN CENTER DRIVE, SUITE 120
RANCHO CORDOVA, CALIFORNIA 95741
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert A. Crist and Karen Wagner as
Proxies, each with the power to appoint his or her substitute, and hereby
authorizes each of them to represent and to vote, as designated on the reverse
side, all the shares of Common Stock of American Recreation Centers, Inc. held
of record by the undersigned on March 3, 1997, at a Special Meeting of
Shareholders to be held on April 24, 1997 and at any adjournment or postponement
thereof.
(Continued and to be signed on other side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark
your vote
as indicated [X]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
IN FAVOR OR THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER, THE
AGREEMENT OF MERGER, AND THE MERGER.
(1) Approval of the Agreement and Plan of Merger, dated as of January 17, 1997,
among American Recreation Centers, Inc., a California corporation, (the
"Company"), AMF Bowling Centers, Inc. a Virginia corporation ("AMF"), and Noah
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of AMF
("Noah"), and a related Agreement of Merger between the Company and Noah, and
the Merger of Noah with and into the Company, as more fully described in the
accompanying proxy statement.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. In their discretion, the Proxies are authorized to vote upon procedural
matters, including without limitation potential adjournments of the Special
Meeting, and such other business as may properly come before the meeting or any
adjournment or postponement thereof, for which discretionary authority may be
exercised.
Please date this Proxy and sign it exactly as your name or names appear below.
When shares are held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee or guardian, please give full title
as such. If shares are held by a corporation, please sign in full corporate name
by the President or other authorized director. If shares are held by a
partnership, please sign in partnership name by authorized person.
All other proxies heretofore given by the undersigned to vote shares of stock of
American Recreation Centers, Inc., which the undersigned would be entitled to
vote if personally present at the Special Meeting or any adjournment or
postponement thereof, are hereby expressly revoked.
Signature(s) _________________________________________ Dated:______________1997
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED ENVELOPE.
IF YOUR ADDRESS IS INCORRECTLY SHOWN, PLEASE PRINT CHANGES.
