As filed with the Securities and Exchange Commission on June 28, 1999
Registration Statement No. 333-77763
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
To
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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AMF BOWLING, INC.
(Exact name of registrant as specified in its charter)
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Delaware 13-3873268
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
8100 AMF Drive
Richmond, Virginia 23111
(804) 730-4000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------
Roland C. Smith
President and Chief Executive Officer
8100 AMF Drive
Richmond, Virginia 23111
(804) 730-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES OF ALL CORRESPONDENCE TO:
Joseph C. Carter, III, Esq. Mitchell S. Presser, Esq.
McGuire, Woods, Battle & Boothe LLP Wachtell, Lipton, Rosen & Katz
One James Center 51 West 52nd Street
901 East Cary Street New York, New York 10019
Richmond, Virginia 23219
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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PROSPECTUS
[LOGO OF AMF BOWLING, INC. APPEARS HERE]
27,998,929 SHARES
AMF BOWLING, INC.
----------------
COMMON STOCK
AMF is distributing to each of its stockholders .4698 transferable rights to
purchase AMF common stock for each share of AMF common stock held on July 7,
1999. Each right entitles the holder to purchase one share of AMF common stock,
plus a portion of any shares remaining if not all of the rights are exercised.
This rights offering is part of AMF's recapitalization plan. The plan
includes a concurrent tender offer by us for a minimum of $450,000,000 and up
to $514,286,000 of the outstanding principal amount at maturity of our zero
coupon convertible debentures.
AMF common stock trades on the New York Stock Exchange under the symbol
"PIN." The rights are listed on the New York Stock Exchange under the symbol
"PINRT." We cannot assure you that an active trading market will develop or be
maintained for the rights.
Certain members of our original investor group have indicated that they
currently expect to fully exercise their basic subscription privileges in the
rights offering, subject to market conditions, and it is currently anticipated
that some of these members of our original investor group will exercise their
conditional over-subscription privileges to an extent not yet determined,
subject to market conditions. However, these members of our original investor
group are not obligated to exercise their basic or conditional over-
subscription privileges.
----------------
Investing in AMF common stock involves a high degree of risk. See "Risk
Factors" beginning on page 10.
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SUBSCRIPTION PRICE $5.00 PER SHARE
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Per Share Total
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Public offering price................................. $5.00 $139,994,645
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Proceeds, before expenses, to AMF..................... $5.00 $139,994,645
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
This Prospectus is dated June 28, 1999
QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
What is a rights offering?
A rights offering is a distribution of rights on a pro rata basis to all of
our stockholders. We are distributing .4698 rights for each share of AMF common
stock held on July 7, 1999.
What is a right?
Each right entitles the stockholder to purchase one share of AMF common stock
at a subscription price of $5.00 per share, a discount to the $6.313 per share
closing price of the common stock on the New York Stock Exchange on June 25,
1999. Each right carries with it a basic subscription privilege, an over-
subscription privilege and a conditional over-subscription privilege.
What is the basic subscription privilege?
The basic subscription privilege of each right entitles you to purchase one
share of AMF common stock for $5.00, the subscription price.
What is the over-subscription privilege?
The over-subscription privilege of each right entitles you, if you fully
exercise your basic subscription privilege, to subscribe for additional shares
of AMF common stock at the same subscription price of $5.00 per share.
What are the limitations on the over-subscription privilege?
We will be able to satisfy your exercise of the over-subscription privilege
only if rights holders subscribe for less than all of the shares issuable on
exercise of the rights under the basic subscription privilege. If sufficient
shares are available, we will honor the over-subscription requests in full. If
over-subscription requests exceed the shares available, we will allocate the
available shares pro rata among those who over-subscribed in proportion to the
number of shares each such rights holder purchases pursuant to his basic
subscription privilege.
What is the conditional over-subscription privilege?
The conditional over-subscription privilege of each right entitles you, if
you fully exercise your basic subscription privilege, to subscribe for
additional shares of AMF common stock at the same subscription price of $5.00
per share if rights holders subscribe for less than $120 million of AMF common
stock under the basic and over-subscription privileges. You may exercise your
conditional over-subscription privilege even if you have not exercised your
over-subscription privilege.
What are the limitations on the conditional over-subscription privilege?
We will be able to satisfy your conditional over-subscription privilege only
if and to the extent that rights holders subscribe for less than $120 million
of AMF common stock pursuant to their basic and over-subscription privileges.
If rights holders have subscribed under the basic subscription privilege and
the over-subscription privilege for $120 million or more of AMF common stock,
we will not be able to satisfy your exercises of the conditional over-
subscription privilege. If rights holders have subscribed under the basic and
over-subscription privileges for less than $120 million of AMF common stock and
the sum of the basic, over-subscription and conditional over-subscription
requests exceed $120 million, we will honor the basic and, to the extent
available, over-subscription requests in full and will allocate the remaining
available shares in order to reach total subscriptions of $120 million pro rata
among all holders who exercised their conditional over-subscription privileges.
Why are we conducting a rights offering?
We are proceeding with the rights offering to raise capital as part of a
comprehensive recapitalization plan. The plan is designed to reduce our overall
debt burden, provide additional financial flexibility and allow us to increase
the pace of our acquisition program on a selective basis.
2
When will the rights offering expire?
The rights offering will expire at 5:00 p.m. on July 28, 1999, unless we
extend it.
Are there any conditions to completion of the rights offering?
No. There are no conditions to the completion of the rights offering.
However, we may terminate the rights offering for any reason before the rights
expire. If we terminate the rights offering, we will promptly return all
subscription payments. We will not pay interest on, or deduct any amounts from,
subscription payments if we terminate the rights offering.
What should I do if I want to participate in the rights offering but my shares
are held in the name of my broker or a custodian bank?
If you hold shares of AMF common stock through a broker, dealer or other
nominee, we will ask your broker, dealer or nominee to notify you of the rights
offering. If you wish to sell or exercise your rights, you will need to have
your broker, dealer or nominee act for you. To indicate your decision with
respect to your rights, you should complete and return to your broker, dealer
or nominee the form entitled "Beneficial Owner Election Form." You should
receive this form from your broker, dealer or nominee with the other rights
offering materials.
Will I be charged a commission or fee if I exercise my rights?
No. We will not charge a brokerage commission or a fee to rights holders for
exercising their rights. However, if you exercise your rights through a broker,
dealer or nominee, you will be responsible for any fees charged by your broker,
dealer or nominee. If you sell your rights through ChaseMellon Shareholder
Services, L.L.C., the subscription agent for the rights offering, as described
beginning on page 35, it will not charge you any fees. If you sell your rights
through other means, you will be responsible for any fees arising from the
sale.
May I transfer my rights if I do not want to purchase any shares?
Yes. The rights are transferable and are listed for trading on the New York
Stock Exchange until the close of business on the last trading day before the
rights offering expires.
How may I sell my rights?
You may contact the subscription agent if you would like it to sell your
rights for you, as described beginning on page 35. Otherwise, you may try to
sell your rights through normal investment channels. We cannot assure you that
the subscription agent or others will be able to sell any of your rights for
you.
Am I required to subscribe in the rights offering?
No. If you do not subscribe fully under your basic subscription privilege,
however, your percentage ownership interest in AMF common stock will be
reduced.
If I exercise rights in the rights offering, may I cancel or change my
decision?
No. All exercises of rights are irrevocable even if we extend the
subscription period. For a discussion of circumstances under which we may
extend the expiration time and date of the rights offering, see "The Rights
Offering--Expiration Date of the Rights Offering" on page 29.
3
If the rights offering is terminated, will my subscription payment be refunded
to me?
Yes. The subscription agent will hold all funds it receives in escrow until
the rights offering is completed or terminated. If the rights offering is
terminated, the subscription agent will return all subscription payments
promptly, without interest.
What should I do if I have other questions?
If you have questions or need assistance, please contact D.F. King & Co.,
Inc., the information agent for the rights offering, at:
77 Water Street
New York, New York 10005
Banks and brokers call collect: (212) 269-5550
All others call toll free: (800) 628-8532
For further assistance on how to subscribe for shares, you may also contact
ChaseMellon Shareholder Services, L.L.C., the subscription agent for the rights
offering, by mail or telephone at:
85 Challenger Road
Mail Drop: Reorganization Department
Ridgefield Park, NJ 07660
Tel: (201) 296-4860
For a more complete description of this offering, see "The Rights Offering"
beginning on page 27.
4
PROSPECTUS SUMMARY
Summary..................... This summary highlights information contained
elsewhere in this prospectus. This summary does
not contain all of the important information that
you should consider before exercising the rights
and investing in AMF common stock. You should
read the entire prospectus carefully.
Information about AMF....... AMF is the largest owner and operator of bowling
centers in the world. On June 21, 1999, we owned
and operated 541 bowling centers throughout the
world, with 418 centers in the United States and
123 centers in 10 other countries. We are also a
world leader in the manufacture and sale of
bowling and other recreational products.
AMF was acquired in 1996 by an investor group led
by an affiliate of Goldman, Sachs & Co. The
original investor group currently owns
approximately 73.6% of our outstanding common
stock.
Our principal executive offices are located at
8100 AMF Drive, Richmond, Virginia 23111. Our
telephone number is (804) 730-4000.
Risk Factors................ A purchase of AMF common stock involves a high
degree of risk. You should read and carefully
consider the information set forth under "Risk
Factors" beginning on page 10 and the information
contained elsewhere in this prospectus.
No Recommendation to Rights
Holders..................... None of AMF, the subscription agent or the
information agent is making any recommendations
as to whether or not you should subscribe for AMF
common stock. You should decide whether to
subscribe for AMF common stock based upon your
own assessment of your best interests.
THE RIGHTS OFFERING
Reasons for the Rights
Offering.................... We are proceeding with the rights offering to
raise capital as part of a comprehensive
recapitalization plan. The plan is designed to
reduce our overall debt burden, provide
additional financial flexibility and allow us to
increase the pace of our acquisition program on a
selective basis.
Rights...................... We will distribute to each stockholder of record
on July 7, 1999, at no charge, .4698 transferable
subscription rights for every share of AMF common
stock then owned. Each right entitles the
stockholder to purchase one share of AMF common
stock at a subscription price of $5.00 per share,
a discount to the $6.313 per share closing price
of the common stock on the New York Stock
Exchange on June 25, 1999, pursuant to the basic
subscription privilege. Each right also carries
with it an over-subscription privilege and a
conditional over-subscription privilege as
described on page 29. The rights will be
evidenced by a transferable rights certificate.
5
Participation by Certain
Members of the Original
Investor Group......... Certain members of the original investor group
who own, in the aggregate, approximately
43,221,048 outstanding shares of common stock (or
72.5% of our outstanding shares of common stock),
have indicated that they currently expect to
fully exercise their basic subscription
privileges, subject to market conditions, and it
is currently anticipated that some of these
members of our original investor group will
exercise their conditional over-subscription
privileges to an extent not yet determined,
subject to market conditions. However, none of
these members of our original investor group is
obligated to exercise its basic or conditional
over-subscription privileges.
Record Date................. You will receive .4698 rights for each share of
common stock you held on the record date, which
is July 7, 1999, at 5:00 p.m., New York City
time.
Expiration Date............. The rights will expire at 5:00 p.m., New York
City time, on July 28, 1999. We may extend the
expiration time and date for any reason.
Termination of the Rights
Offering.................... We may terminate the rights offering for any
reason before the rights expire. If we terminate
the rights offering, we will promptly return all
subscription payments. We will not pay interest
on, or deduct any amounts from, subscription
payments if we terminate the rights offering. If
you do not exercise your rights before the
expiration time, they will expire and will no
longer be exercisable.
Procedure for Exercising
Rights...................... You may exercise rights by properly completing
and signing your rights certificate. You must
deliver to the subscription agent your rights
certificate with payment of the subscription
price for each share of AMF common stock
subscribed for (all pursuant to the basic
subscription privilege, the over-subscription
privilege and the conditional over-subscription
privilege) before the expiration of the rights
offering, which is 5:00 p.m., New York City time,
on July 28, 1999 unless the rights offering is
extended. If you use the United States mail to
send your rights certificate, we recommend that
you use insured, registered mail. If you cannot
deliver your rights certificate to the
subscription agent on time, you may use the
procedures for guaranteed delivery described
under "The Rights Offering--Guaranteed Delivery
Procedures" on page 34. We will not pay interest
on subscription payments. We have provided more
detailed instructions on how to exercise your
rights under "The Rights Offering" beginning with
the section "--Exercise of Rights" on page 31 and
in the rights certificate and "Instructions for
Use of AMF Bowling, Inc. Rights Certificates"
that accompany this prospectus.
How Foreign Stockholders
Can Exercise Rights......... We will not mail rights certificates to you if
you are a stockholder with an address outside the
United States. Instead, the subscription agent
will hold rights certificates for your account.
To exercise those rights, you must notify the
subscription agent on or before 11:00 a.m., New
York City time, on July 23, 1999, and establish
to the satisfaction of the subscription agent
that you are permitted to
6
exercise your rights under applicable law. If you
do not notify the subscription agent and provide
acceptable instructions to it by such time (if no
contrary instructions are received), the
subscription agent will try to sell your rights,
if feasible, and will pay the estimated net
proceeds, if any, to you.
Issuance of Common Stock.... We will issue certificates representing shares of
AMF common stock purchased pursuant to the
exercise of rights as soon as practicable after
the rights offering expires.
Certain Federal Income Tax
Consequences................ Holders of AMF common stock who receive rights
will not recognize taxable income in connection
with the distribution or exercise of rights. You
may recognize a gain or loss if you sell your
rights or if you sell the shares of AMF common
stock that you acquire by exercising your rights.
Use of Proceeds............. If all rights are exercised, we will receive
approximately $138.5 million from the rights
offering, after paying estimated expenses. We
will use the net proceeds from the rights
offering primarily to purchase our zero coupon
convertible debentures in the tender offer, to
make an equity contribution to repay a portion of
the revolving credit facility under our principal
subsidiary's bank credit agreement, to pay the
bank lenders a fee in connection with an
amendment to the bank credit agreement and for
general corporate purposes.
Common Stock Outstanding....
As of June 25, 1999, we had outstanding
59,597,550 shares of AMF common stock. After the
rights offering, if all rights are exercised, we
will have outstanding approximately 87,596,479
shares of AMF common stock. These numbers do not
include 11,213,305 shares issuable upon exercise
of outstanding stock options or warrants or
conversion of our zero coupon convertible
debentures (without giving effect to debentures
tendered to us in the concurrent tender offer and
without giving effect to any adjustments to
options, warrants or zero coupon convertible
debentures as a result of this rights offering).
FORWARD-LOOKING STATEMENTS
Parts of the information contained or referred to in this prospectus,
including information with respect to the recapitalization plan and the
benefits of that plan, the related business restructuring and restructuring and
other charges, are forward-looking statements. For a discussion of important
factors that could cause actual results to differ materially from the forward-
looking statements, see "Risk Factors" beginning on page 10 and "Cautionary
Statement Regarding Forward-Looking Statements" beginning on page 17.
7
SUMMARY CONSOLIDATED FINANCIAL DATA
(Dollars in millions, except share data)
In the table below, we provide you with selected historical consolidated
financial data of AMF and AMF's predecessor company. We prepared this
information using the consolidated financial statements of AMF and the combined
financial statements of AMF's predecessor company as of the dates indicated and
for each of the fiscal years in the five-year period ended December 31, 1998
and the quarterly periods ended March 31, 1998 and 1999.
The selected financial data includes operating results expressed in terms of
EBITDA. EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization, and other income and expenses. We have included
EBITDA information because we understand that this information is a standard
measure commonly reported and widely used by some investors and analysts.
EBITDA is not intended to represent and you should not consider it more
meaningful than, or an alternative to, other measures of performance determined
in accordance with generally accepted accounting principles.
Three Months Four Months
Ended March Ended
For the year ended December 31, 31, April 30,
------------------------------------------------- -------------- -----------
Predecessor AMF Bowling, Predecessor
Company (a) AMF Bowling, Inc. Inc. Company (a)
-------------- --------------------------------- -------------- -----------
(unaudited)
As
Adjusted
1994 1995 1996 (b) 1996 (c) 1997 1998 1998 1999 1996 (d)
------ ------ -------- -------- ------ ------- ------ ------ -----------
Income Statement Data:
Operating revenue....... $517.8 $564.9 $548.9 $384.8 $713.7 $ 738.1 $187.3 $202.6 $164.9
------ ------ ------ ------ ------ ------- ------ ------ ------
Cost of goods sold...... 196.0 184.1 173.6 130.5 212.6 202.2 38.9 39.6 43.1
Bowling center operating
expenses............... 115.2 166.5 178.8 123.7 251.2 335.7 78.4 93.2 80.2
Selling, general and
administrative
expenses............... 57.1 50.8 51.0 35.1 64.5 70.0 16.9 14.8 35.5
Depreciation and
amortization........... 24.8 39.1 73.5 49.4 102.5 120.6 26.8 33.4 15.1
------ ------ ------ ------ ------ ------- ------ ------ ------
Operating income
(loss)................. 124.7 124.4 72.0 46.1 82.9 9.6 26.3 21.6 (9.0)
Interest expense........ 7.4 15.7 106.2 78.0 118.4 114.7 26.0 31.0 4.5
Other income (expense),
net.................... (1.5) 0.2 3.8 3.9 (8.1) (5.3) 0.1 2.3 (0.1)
------ ------ ------ ------ ------ ------- ------ ------ ------
Income (loss) before
income taxes........... 115.8 108.9 (30.4) (28.0) (43.6) (110.4) 0.2 (11.7) (13.6)
Provision (benefit) for
income taxes........... 16.5 12.1 (8.9) (8.5) (12.8) 7.3 0.5 1.5 (1.7)
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income (loss) before
equity in loss of joint
ventures and
extraordinary items.... 99.3 96.8 (21.5) (19.5) (30.8) (117.7) (0.3) (13.2) (11.9)
Equity in loss of joint
ventures, net of tax... -- -- -- -- (1.4) (8.2) (0.3) (5.5) --
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income (loss) before
extraordinary items.... 99.3 96.8 (21.5) (19.5) (32.2) (125.9) (0.6) (18.7) (11.9)
Extraordinary items, net
of tax................. -- -- -- -- (23.4) -- -- -- --
------ ------ ------ ------ ------ ------- ------ ------ ------
Net income (loss)....... $ 99.3 $ 96.8 $(21.5) $(19.5) $(55.6) $(125.9) $ (0.6) $(18.7) $(11.9)
====== ====== ====== ====== ====== ======= ====== ====== ======
Basic and diluted net
loss per share before
extraordinary items.... $(0.55) $(0.49) $(0.71) $ (2.11) $(0.01) $(0.31)
Basic and diluted per
share effect of
extraordinary items.... -- -- (0.52) -- -- --
------ ------ ------ ------- ------ ------
Basic and diluted net
loss per share......... $(0.55) $(0.49) $(1.23) $ (2.11) $(0.01) $(0.31)
====== ====== ====== ======= ====== ======
Selected Data:
EBITDA.................. $149.5 $163.5 $145.5 $ 95.5 $185.4 $ 130.2 $ 53.1 $ 55.0 $ 6.1
EBITDA margin........... 28.9% 28.9% 26.5% 24.8% 26.0% 17.6% 28.4% 27.1% 3.7%
8
As of
As of December 31, March 31,
---------------------------------------- -------------
Predecessor AMF
Company(a) AMF Bowling, Inc. Bowling, Inc.
------------- -------------------------- -------------
1994 1995 1996 1997 1998 1999
------ ------ -------- -------- -------- -------------
(unaudited)
Balance Sheet Data:
Working capital (e)...... $ 16.9 $ 29.2 $ 7.8 $ 43.9 $ 70.6 $ 100.5
Goodwill................. -- -- 771.1 772.3 772.7 767.4
Total assets............. 410.2 400.4 1,594.0 1,832.1 1,980.0 1,982.5
Total debt............... 186.1 167.4 1,091.3 1,060.6 1,344.0 1,364.4
Stockholders' equity..... 132.4 161.5 408.8 654.0 529.6 509.8
Total capital............ 318.5 328.9 1,500.1 1,714.6 1,873.6 1,874.2
- --------
(a) Predecessor Company amounts represent the results of AMF Bowling Group
(former owners).
(b) Represents results of operations from January 1, 1996 through December 31,
1996 on a basis assuming the Predecessor Company had been acquired on
January 1, 1996.
(c) For the period from the inception date of January 12, 1996 through December
31, 1996, which includes the results of operations of the acquired business
from May 1, 1996 through December 31, 1996.
(d) Represents results of operations from January 1, 1996 through April 30,
1996.
(e) Predecessor Company amounts reflect elimination of affiliate receivables
and payables.
9
RISK FACTORS
You should carefully consider the following factors, together with the other
information contained in this prospectus, before subscribing for AMF common
stock we are offering. An investment in AMF common stock involves a high degree
of risk and may not be appropriate for investors who cannot afford to lose
their entire investment.
Our bowling products business has experienced significant problems,
particularly in our markets in the Asia Pacific region.
In recent years, most of our new center package sales have been to
international markets, primarily Asia Pacific countries such as China, Taiwan
and South Korea. New center package sales to China, Japan and other markets in
the Asia Pacific region represented 52.8% of our new center package sales for
1998, compared to 72.7% for 1997 and 66.5% of our new center package sales for
the first quarter of 1999, compared to 53.2% for the first quarter of 1998.
Economic difficulties in the Asia Pacific region have had and will continue to
have an adverse impact on our new center package sales, shipments and order
backlog. Another reason for the decline in new center package sales is the
limited availability of financing for customers desiring to build new bowling
centers, especially in the Asia Pacific region. In addition, Shanghai Zhonglu
Industrial Corporation ("Zhonglu"), a Chinese manufacturer of bowling
equipment, has become a significant competitor in China. As discussed below
under "Recent Developments" on page 19 and under "Our Business,
Recapitalization Plan and On-Going Business Strategies--Our Bowling Products
Business" on page 21, AMF recently entered into three year joint distribution
agreements with Zhonglu as well as a trademark license agreement and option
agreement. Under these agreements, among other matters, AMF will exclusively
distribute certain Zhonglu products and parts outside of China and Zhonglu will
exclusively distribute AMF products and parts inside China. We cannot assure
you that our arrangements with Zhonglu will be successful or that other Chinese
or other foreign or domestic competitors will not begin selling bowling
equipment within or outside China.
At the end of 1998, our new center package backlog was 1,078 which was 37.5%
lower than at the end of 1997. As of March 31, 1999, our new center package
backlog was 755 units, which is 30% lower than it was at December 31, 1998. It
is customary for a certain portion of the backlog to be cancelled before the
expected shipping date. We have experienced a greater number of order
cancellations recently because of economic difficulties in the Asia Pacific
region. We cannot assure you that economic conditions in the Asia Pacific
region and other regions will improve or that our new center package sales will
not decrease any further.
Due to the decline in new center package sales, shipments and order backlog,
in the near term, we are concentrating on sales of products designed to enable
bowling center operators to modernize their facilities and on sales of consumer
products such as bowling pins, parts, balls and supplies. We cannot assure you
that we will be successful in this effort.
China has recently strengthened its import restrictions by requiring the
payment of full customs duties and value added taxes on the importation of new
and used capital goods. The Chinese government has also begun to prohibit
importation of used capital equipment without permits. Permits for the
importation of used bowling equipment are very difficult to obtain. Local
Chinese companies, including Zhonglu, however, are not subject to the same
restrictions. For example, Zhonglu produces and sells bowling equipment which
is not subject to the customs duties or permit requirements that affect AMF's
imported equipment. AMF believes that Zhonglu has experienced significant
acceptance by local customers. These Chinese import restrictions have had, and
for the foreseeable future, we believe will continue to have an adverse effect
on sales of AMF bowling equipment in China.
Our bowling centers business has experienced declines in constant center
revenue and EBITDA margin.
Our bowling centers have experienced a decline in constant center revenue and
EBITDA margin primarily related to our rapid growth through acquisitions. Such
growth led to significant problems in integrating new bowling centers and
managing our expanded base of centers.
In response to the decline in operating results, we curtailed the pace of
acquisitions, assembled an experienced management team for U.S. bowling center
operations, and are in the process of putting in place
10
management infrastructure to support integration of new centers. We are also
increasing the focus on training and recruiting center managers and
implementing marketing and other customer satisfaction initiatives to increase
revenue.
Despite these efforts to improve center performance, we cannot assure you
that we will be able to reverse the decline in constant center revenue and
EBITDA margins.
We may have difficulties in continuing our strategy to grow through
acquisitions.
Our principal strategy for growth has been to acquire bowling centers. In the
past, we have had difficulties integrating acquired centers into our operations
on an efficient basis. We recently curtailed the pace of our acquisition
program so that we could focus on improving the financial performance of our
existing centers. When we increase the pace of our acquisition program, we will
consider acquisitions on a more selective basis. We cannot assure that funding
will be available for acquisitions or that our existing debt will permit us to
make acquisitions, that bowling centers will be available for acquisition or
that we will be able to successfully integrate acquired centers into our
operations.
Our bowling centers business has experienced declines in the daily number of
games bowled per lane.
Our bowling centers business has experienced and is continuing to experience
a decline in the number of games bowled per lane per day (also known as
"lineage"). This decline has been primarily caused by a decrease in the number
of league bowlers. While more people are bowling at our bowling centers, they
are bowling less often. As part of our recent efforts to focus on improving the
financial performance of our existing centers as described in this prospectus,
we are seeking to improve lineage at our bowling centers; however, there can be
no assurances that our lineage will increase or that the lineage will not
further decline.
We have a new executive management team and we depend on experienced center
level management.
Over the last six months, our executive management team has undergone
significant change. Our former chief executive officer, Douglas J. Stanard, who
had significant bowling center experience, resigned effective January 1, 1999.
He was replaced on an interim basis by Stephen E. Hare, our chief financial
officer, who served as acting chief executive officer. We have hired a new
chief executive officer, Roland C. Smith, who has experience in managing multi-
unit chains but does not have bowling industry experience. Mr. Hare will remain
as our chief financial officer. In addition, in August 1998, we hired a new
president of our bowling center operations from outside the bowling industry
and reorganized management of our bowling center operations. We also recently
named a new president of our bowling products operations from within the
company and reorganized our bowling products management team. While we believe
that our current management team gives us significant executive strength, there
can be no assurance that it will be able to successfully execute our business
strategies.
Our future success depends on our ability to develop, motivate, retain and
attract experienced and innovative bowling center managers. The loss of the
services of our key personnel, or the inability to attract additional qualified
personnel, could have a material adverse affect on our business, results of
operations and financial condition.
We experience intense competition in both of our significant lines of business.
The United States bowling center industry is very competitive and fragmented.
It consists of two large bowling center operators, AMF and Brunswick
Corporation, three medium-sized chains and over 5,000 bowling centers owned by
single-center and small chain operators. The international bowling center
industry is also extremely competitive and fragmented. There are typically few
chain operators and a large number of single-center operators in any one
country, which results in intense international competition.
Bowling, as both a competitive sport and a recreational activity, also faces
competition from other entertainment and athletic activities. The success of
our bowling center operations depends on, among other things:
. customers' continued interest in league and open bowling;
11
. the availability and affordability of recreational and entertainment
alternatives;
. the amount of leisure time our customers enjoy; and
. other social and economic factors over which we have no control.
The bowling products industry is also extremely competitive. AMF and
Brunswick are also the two largest manufacturers of bowling center equipment.
However, we also compete with smaller companies in certain product lines. For
example, as described above, Zhonglu became a significant source of competition
for us in China. Primarily because of the excess worldwide inventory of used
bowling equipment, we have recently experienced intense price competition in
virtually all of our markets for equipment. We expect this to continue for the
foreseeable future.
Our business is somewhat seasonal and subject to market cycles.
The financial performance of our bowling center operations is seasonal. Cash
flows typically peak in the winter and reach their lows in the summer. While
the geographic diversity of our bowling centers operations has helped to reduce
this seasonality in the past, the increase in U.S. centers resulting from our
acquisitions has increased the seasonality of that business.
Our bowling products business is also seasonal. The U.S. market, which is the
largest market for modernization and consumer products, is driven by the
beginning of league play in the fall of each year. While operators purchase
consumer products throughout the year, they often place larger orders during
the summer in preparation for the start of league play in the fall. Summer is
also generally the peak period for installation of modernization equipment.
Operators typically sign purchase orders for modernization equipment during the
first four months of the year after they receive winter league revenue
indications. Equipment is then shipped and installed during the summer when
leagues are generally less active. However, sales of some major modernization
equipment, such as automatic scoring and synthetic lanes, are less predictable
and fluctuate from year to year because of the longer life cycle of those major
products. Sales of new center packages can fluctuate dramatically as a result
of economic fluctuations in international markets, as seen in the reduction of
sales of new center packages to markets in the Asia Pacific region as a result
of economic difficulties in that region.
We have a significant amount of debt that could adversely affect our ability to
raise additional equity capital, implement our growth strategies and meet our
strategic goals.
As of March 31, 1999, we had total debt of approximately $1.4 billion and
stockholders' equity of approximately $509.8 million. As of March 31, 1999, on
a pro forma basis, after giving effect to the tender offer and this rights
offering and assuming that we purchase our zero coupon convertible debentures
in an aggregate principal amount at maturity equal to $450.0 million and $514.3
million, respectively, and assuming that we raise $140 million in this rights
offering, we would have had total debt of approximately $1,213.6 million and
approximately $1,196.4 million, respectively, and stockholders' equity of
approximately $694.0 million and approximately $701.6 million, respectively. As
of March 31, 1999, on a pro forma basis, after giving effect to the tender
offer and this rights offering and assuming that we purchase our zero coupon
convertible debentures in an aggregate principal amount at maturity equal to
$450.0 million and $514.3 million, respectively, and assuming that we raise
$120 million in this rights offering, we would have had total debt of
approximately $1,213.6 million and $1,196.4 million, respectively, and
stockholders' equity of approximately $674.0 million and $681.6 million,
respectively.
Our EBITDA in the first quarter of 1998 was $53.1 million and in the first
quarter of 1999 was $55.0 million, an increase of $1.9 million. Our EBITDA in
1997 was $185.4 million and in 1998 was $130.2 million, a decrease of $55.2
million, or 29.8%. We had interest expense of $26.0 million in the first
quarter of 1998, $31.0 million in the first quarter of 1999, $118.4 million in
1997 and $114.7 million in 1998. Our cash interest expense was $19.9 million in
the first quarter of 1998, or 37.5% of EBITDA, $19.5 million in the first
quarter of 1999, or 35.5% of EBITDA, $83.0 million, or 44.8% of EBITDA, in 1997
and $76.5 million, or 58.8% of
12
EBITDA, in 1998. We cannot assure you that we will be able to generate enough
EBITDA to pay our fixed charges (interest expense, amortization of debt
issuance costs, and the portion of rent expense considered to represent
interest expense) or that we will have enough cash to make interest payments on
our debt when it becomes due. In addition, some of our borrowings are at
variable rates of interest and could require us to pay more interest on our
debt if interest rates rise. Pursuant to a recent amendment to our principal
operating subsidiary's bank credit agreement, interest rates for borrowings
under the bank credit agreement have been increased.
Our debt service obligations could make us more vulnerable to industry
downturns and competitive pressures. Our substantial debt could also have other
important consequences. For example, it could adversely affect our ability to,
among other things:
. obtain additional financing or refinancing on terms and conditions
acceptable to us;
. pursue our acquisition strategy;
. maintain our facilities;
. use our cash flows from operations for other purposes, such as working
capital or capital expenditures; and
. achieve our other business goals.
Some of our debt agreements require that we meet financial tests. Our
substantial debt could adversely affect our ability to meet those financial
tests. Our debt agreements also impose substantial operating and financial
restrictions on our operating subsidiaries. These restrictions limit the
ability of those subsidiaries to incur some types of additional debt and make
capital expenditures. Failure to comply with these restrictions or to meet
these financial tests could result in an event of default under the debt
agreements, which could have a material adverse effect on our operations.
We amended our principal subsidiary's bank credit agreement in September 1998
to increase our financial flexibility through 1999. The September 1998
amendment waived certain financial covenants through the end of 1999, but also
placed certain restrictions on our ability to make capital expenditures,
investments and acquisitions. Recently, we have further amended the bank credit
agreement as part of our recapitalization plan. This most recent amendment,
among other matters, relaxes certain financial covenants through the end of
2001, enables us to cure non-compliance with financial covenants and gives us
added financial flexibility and the ability to make more acquisitions. However,
we cannot assure that we will meet the new financial covenants contained in the
amendment. The amendment to the bank credit agreement will be effective on the
closing of the subscriptions obtained in the rights offering and the closing of
the tender offer, except that the relaxation of certain financial covenants for
the quarter ending June 30, 1999 is already effective.
We have had significant net losses and we anticipate future net losses.
We have not reported net income since we were acquired by the investor group
in 1996. We recorded a net loss of $125.9 million in 1998. We recorded a net
loss of $32.2 million before extraordinary items in 1997 and a net loss on an
as adjusted basis of $21.5 million in 1996 (after giving effect to the
acquisition of AMF by the investor group). For the quarter ended March 31,
1999, we recorded a net loss of $18.7 million compared to a net loss of $0.6
million for the quarter ended March 31, 1998. We expect to continue to incur
significant net losses for the foreseeable future because of our significant
interest, depreciation and amortization expense related to the acquisition.
Our international operations are subject to significant periodic economic
downturns, fluctuations in currency exchange rates and market disruptions.
Our international operations are subject to the risks inherent in operating
abroad, including:
. currency exchange rate fluctuations;
13
. economic and political fluctuations and destabilization;
. restrictive laws, tariffs and other actions by foreign governments, such
as those taken by China;
. difficulty in obtaining distribution and support for our products;
. the risk of nationalization;
. the laws and policies of the United States affecting trade,
international investment and loans; and
. foreign tax law changes.
These factors have contributed to our decrease in international revenue
between the first quarter of 1998 and the first quarter of 1999, and may have a
further material adverse effect on our results of operations.
We are a holding company and have no significant operations; our business is
conducted through our subsidiaries.
We are a holding company with no direct operations except providing some
management services to our subsidiaries. We have no significant assets other
than the stock of our subsidiaries. We conduct our business through our
subsidiaries. As a result, we depend on capital contributions or financing to
meet our obligations. Our subsidiaries are separate legal entities that have no
obligation to make any funds available to us for any purpose. The debt
agreements of our principal operating subsidiary effectively prohibit our
subsidiaries from paying dividends or making certain other cash payments to us.
We have not paid and, for the foreseeable future, will not pay cash dividends.
We have not paid cash dividends on our common stock and do not anticipate
paying dividends in the foreseeable future. As a holding company, our ability
to pay dividends depends on the ability of our subsidiaries to pay cash
dividends or to make cash distributions to us. Our debt agreements effectively
prohibit our subsidiaries from paying cash to us to pay dividends or make other
distributions.
Most of our assets are subject to liens in favor of our lenders.
The lenders under our principal subsidiary's bank credit agreement have liens
on all of the capital stock of our primary operating subsidiary and on
substantially all of its current and future assets. This includes a pledge of
all of the issued and outstanding shares of capital stock of some of our other
indirect subsidiaries. In addition, some of our subsidiaries have also granted
the lenders liens on all of their current and future assets. If there is a
default under our principal subsidiary's bank credit agreement, the lenders
will have a prior secured claim on the capital stock and the assets of our
primary operating subsidiary and other subsidiaries. Our financial condition
will be materially adversely affected if the lenders attempt to foreclose on
their collateral.
We are controlled by an investor group with a majority interest in AMF.
We are controlled by an investor group led by an affiliate of Goldman, Sachs
& Co. Three of our directors are affiliated with Goldman Sachs. As a result of
their ownership of a majority of our common stock, their representation on our
board of directors and the terms of a stockholders agreement binding AMF and
many of our significant stockholders, affiliates of Goldman Sachs are able to:
. control the election of a majority of our board of directors;
. appoint new management; and
. approve or block any action requiring shareholder approval, including
the adoption of amendments to our certificate of incorporation and
approval of mergers or sales of substantially all of our assets.
The stockholders agreement also provides that three of the other investment
funds which are members of our original investor group may each nominate a
director to our board of directors. In addition, the executive committee of our
board of directors consists of two directors nominated by affiliates of Goldman
Sachs and our president and chief executive officer. We cannot assure you that
the interests of our significant stockholders will not conflict with your
interests.
14
Our stock price has fallen dramatically.
The market price of our common stock has been volatile and has fallen
dramatically over the past year. In the future, our stock price may be
materially affected by, among other things:
. the rights offering, the number of shares offered and the price at which
shares may be purchased pursuant to the rights;
. the actual results of our recapitalization plan and whether we
accomplish the related operating improvements which we seek to achieve;
. actual or anticipated fluctuations in our operating results;
. our bowling center acquisition activity;
. the impact of international markets;
. changes in financial estimates by securities analysts; or
. general market conditions.
We cannot assure you that the market price of our common stock will not
decline below the levels prevailing at the time of the rights offering or below
the price offered pursuant to the rights.
The public trading price of AMF common stock may decline after you exercise
your rights and before the rights offering expires. You will not be able to
revoke your exercise of the rights if this occurs. Also, we cannot assure you
that after you exercise your rights, you will be able to sell the shares of
common stock you purchase at a price equal to or greater than the subscription
price you paid.
We would be required to repay most of our debt if anyone other than Goldman
Sachs acquires a majority of our shares and we may not be able to do so.
If anyone other than Goldman Sachs acquires a majority of our shares, the
holders of our zero coupon convertible debentures would be able to require us
to repurchase those debentures at a price equal to the original issue price of
the debentures plus accrued original issue discount of the debentures to the
date repurchased. Such an event may also give rise to a requirement that we
repay, in some cases at a premium to principal amount, our principal operating
subsidiary's outstanding senior subordinated notes, senior subordinated
discount notes and bank credit agreement. We cannot assure you that, in those
circumstances, we or our principal operating subsidiary would have or be able
to obtain the financing necessary to make the required payments.
The sale of a substantial amount of common stock may materially adversely
affect the market price.
Sales of a substantial amount of our common stock in the public market, by
our significant stockholders or otherwise, or the perception that these sales
may occur, could materially adversely affect the market price of our common
stock and impair our ability to raise funds in additional stock offerings.
You may not revoke your exercise of rights; the rights offering may be
terminated.
Once you exercise your rights, you may not revoke the exercise. If we elect
to withdraw or terminate the rights offering, neither we nor the subscription
agent will have any obligation with respect to the rights except to return any
subscription payments, without interest.
The subscription price may not reflect the value of AMF.
The subscription price does not necessarily bear any relationship to the book
value of our assets, historic or future cash flows, financial condition, recent
or historic prices for our common stock or other established
15
criteria for valuation. The full board of directors set the subscription price
at $5.00. You should not consider the subscription price as an indication of
the value of AMF. See "The Rights Offering--Approval of the Rights Offering and
Determination of Subscription Price" beginning on page 27 for further detail
regarding the way in which the subscription price was determined.
Stockholders who do not exercise their rights will experience dilution.
If you do not exercise your basic subscription privilege in full, you will
experience a decrease in your proportionate interest in the equity ownership of
AMF. The sale of rights, if a market for rights develops, may not compensate
you for all or any part of the reduction in the market value of AMF common
stock that may result from the rights offering. If you do not exercise or sell
your rights, you will relinquish any value inherent in the rights.
Our certificate of incorporation and bylaws contain anti-takeover provisions
that may affect your rights as a stockholder.
Our certificate of incorporation and bylaws contain provisions that may have
the effect of delaying, deterring or preventing a sale or change of control of
AMF. These provisions may also make the removal of directors and management
more difficult. For example, our bylaws restrict who may call a special meeting
of stockholders, making it difficult for stockholders to call meetings for
special purposes. Also, our certificate of incorporation authorizes us to issue
preferred stock and rights or options entitling the holders to purchase
securities of AMF or of any other corporation, without stockholder approval and
upon terms the board of directors determines. The rights of our common
stockholders will be subject to, and may be adversely affected by, the rights
of holders of preferred stock that may be issued in the future.
16
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may be forward-looking statements:
. statements set forth in this prospectus or statements incorporated by
reference from documents we have filed with the Securities and Exchange
Commission, including possible or assumed future results of our operations,
including but not limited to any statements contained in this prospectus or
those documents concerning:
. the manner, timing and expected results of our recapitalization plan and
related activities and charges;
. the expected success of our plans to improve our bowling centers
operations, including revenue enhancement and cost management programs;
. the ability of our new management to execute our strategies;
. the success of the recent management reorganization of our bowling
centers and bowling products businesses;
. the ability to increase the pace of our bowling center acquisition
program;
. the expected success of changes contemplated in our bowling products
business;
. our expectations concerning the Asia Pacific region and the Zhonglu
joint distribution and related arrangements;
. the success of our employee incentive efforts;
. the outcome of existing or potential litigation;
. the timing or amount of any changes in the interest expense of our debt;
. our ability to generate cash flow to service our debt and meet our debt
payment obligations;
. the amounts of capital expenditures needed to maintain or improve our
bowling centers;
. any statements preceded by, followed by or including the words
"believes," "expects," "predicts," "anticipates," "intends,"
"estimates," "should," "may" or similar expressions; and
. other statements contained or incorporated by reference in this
prospectus regarding matters that are not historical facts.
Because these statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such forward-
looking statements. Factors that could cause actual results to differ
materially include, but are not limited to:
. our ability, and the ability of our new management team, to carry out
our long-term business strategies, including increasing the pace of our
acquisition program;
. our ability to integrate acquired operations into our business;
. our ability to identify and develop new bowling markets to assist our
growth;
. the continuation of adverse financial results and substantial
competition in our bowling products business;
. our ability to retain and attract experienced bowling center management;
. our ability to generate cash flow to pay our substantial debt;
. the continuation or worsening of economic difficulties in overseas
markets, including the Asia Pacific region;
. the risk of adverse political acts or developments in our existing and
proposed international markets;
. fluctuations in foreign currency exchange rates affecting our
translation of operating results;
. adverse judgments in pending or future litigation;
. continued or increased competition;
. the popularity of bowling;
. a decline in general economic conditions;
. the status or effectiveness of our Year 2000 efforts;
. our ability to effectively implement the Zhonglu joint distribution and
related arrangements;
17
. changes in interest and exchange rates; and
. the other factors discussed above under "Risk Factors" beginning on page
10.
You should not place undue reliance on such statements, which speak only as
of the date that they were made. Our independent public accountants have not
examined any forward-looking statements and, accordingly, do not provide any
assurance with respect to those statements. These cautionary statements should
also be considered in connection with any written or oral forward-looking
statements that we may issue in the future. We do not undertake any obligation
to release publicly any revisions to our forward-looking statements after the
rights offering to reflect later events or circumstances or to reflect the
occurrence of unanticipated events.
18
RECENT DEVELOPMENTS
New Chief Executive Officer
We appointed Roland C. Smith as our president and chief executive officer,
effective April 28, 1999. Mr. Smith replaces Stephen E. Hare, our chief
financial officer, who was acting chief executive officer for the preceding six
months. Mr. Hare continues as chief financial officer. Mr. Smith has also been
appointed to our board of directors and the executive committee of the board of
directors.
Mr. Smith was most recently president and chief executive officer of the
Triarc Restaurant Group where, among other matters, he oversaw the
restructuring and expansion of Arby's Restaurants. Mr. Smith was formerly
associated with Procter & Gamble, Pepsi, Schering-Plough and KFC International.
For a description of Mr. Smith's employment agreement and stock option grant
agreement, you should refer to the information under the heading "Certain
Relationships and Related Party Transactions--Transactions with Management and
Others; Certain Business Relationships" beginning at page 40.
New Distribution Arrangement
On June 13, 1999, our subsidiary, AMF Bowling Products, Inc., signed joint
distribution agreements, a trademark license agreement and an option agreement
with Zhonglu. Under the distribution agreements, AMF will add to its product
mix and exclusively distribute certain Zhonglu products and parts outside of
China and Zhonglu will add to its product mix and exclusively distribute AMF
products and parts inside of China. With this distribution arrangement, AMF
will close all but one of its company owned offices in China and will be
exclusively represented in China by Zhonglu. Additionally, AMF will have an
option under certain circumstances to acquire Zhonglu's bowling products
business during the three-year term of the agreements.
Amendment to Credit Agreement
On June 14, 1999, the lenders under our principal operating subsidiary's bank
credit agreement entered into an amendment of the credit agreement. See "Our
Business, Recapitalization Plan and On-Going Business Strategies--Our
Recapitalization Plan--Amendments to Bank Credit Agreement" on page 22 for a
more detailed description of the amendment.
Recent Litigation
On April 22, 1999, a putative class action was filed in the United States
District Court for the Southern District of New York by Vulcan International
Corporation ("Vulcan") against AMF, The Goldman Sachs Group, L.P., Goldman,
Sachs & Co., Morgan Stanley & Co. Incorporated, Cowen & Company, Schroder & Co.
Inc., Richard A. Friedman and Douglas J. Stanard. Vulcan, as putative class
representative for itself and all persons who purchased our common stock in our
1997 initial public offering, seeks, among other things, damages and/or
rescission against all defendants pursuant to Sections 11, 12 and/or 15 of the
Securities Act of 1933 based on allegedly inaccurate and misleading disclosures
in connection with and following the initial public offering. Our management
believes that the litigation is without merit and intends to defend against it
vigorously.
19
OUR BUSINESS, RECAPITALIZATION PLAN AND
ON-GOING BUSINESS STRATEGIES
Our Primary Business Segments and Strategies
We principally operate in two business segments in the United States and
international markets: (1) the ownership and operation of bowling centers and
(2) the manufacture and sale of bowling equipment and bowling products.
We are the largest owner and operator of bowling centers in the U.S. and
worldwide. As of June 21, 1999, we owned and operated 418 bowling centers in
the U.S. and 123 international bowling centers. We are also one of the world's
largest manufacturers and sellers of bowling equipment.
Our business strategy is designed to:
. consolidate the bowling center industry through an acquisition program;
. build a nationally recognized AMF brand of bowling centers; and
. manufacture, market and distribute bowling products in global markets.
While we believe that our long-term business strategy is sound, we continue
to experience the difficulties in our bowling centers and bowling products
businesses that began in 1998 and are more fully discussed below. In response
to these difficulties, we carefully reviewed our businesses, with the
assistance of management, other employees and independent consultants, to
identify the critical operating issues and key action steps required to
reinvigorate our businesses. In addition, we recently appointed a new president
and chief executive officer and assembled an experienced management team to
execute our business plan.
Our Bowling Centers Business
In the first quarter of 1999, our bowling centers operation produced revenue
of $172.6 million and EBITDA of $60.5 million, up from $150.2 million and $56.8
million, respectively, in the first quarter of 1998. In 1998, our bowling
centers operation produced revenue of $541 million and EBITDA of $142 million,
up from $429 million and $130 million, respectively, in 1997. The 1998 EBITDA
margin of 26.3% has declined from 30.4% in 1997. The deterioration of EBITDA
margin was related primarily to our rapid growth through acquisitions, which
led to significant problems in integrating new bowling centers and managing our
expanded base of centers. On a constant currency basis, we experienced declines
in constant center revenue of 0.8% in the first quarter of 1999, 1.6% in the
first quarter of 1998, and 1.9% in 1998, and an increase of 0.4% in 1997
compared to the same prior year periods. Additionally, operating expenses as a
percentage of revenue increased in the first quarter of 1999 and in 1998
compared with the same prior year periods. The increase in 1998 was primarily
related to nationally branded chain development activities. The increase in
1999 was primarily attributable to higher expenses related to maintenance and
supplies, advertising and payroll.
We have taken several steps to address operating issues in our bowling
centers business. These include:
Assembled an Experienced Management Team. In addition to hiring Roland C.
Smith, we also recently hired John P. Watkins as president of U.S. bowling
centers, and five new regional vice presidents with substantial multi-unit
retail experience to manage U.S. bowling centers operations. We also appointed
senior executives with bowling industry experience to key operating and staff
vice president positions.
Focus on Existing Centers. Beginning in September 1998, we curtailed the pace
of our acquisition program and began evaluating acquisition opportunities on a
more selective basis. We have been focusing on improving the performance of our
existing centers to reinvigorate constant center revenue growth, as well as
league and open play lineage, and to attract new customers.
Focus on Training and Retaining Center Managers. We believe that performance
of our centers depends heavily on our center managers. We intend to implement a
new stock-based incentive plan to reward our center
20
managers. We are also designing programs to more effectively train our center
managers and staff based upon the most successful practices of field managers.
In addition, we have hired a new vice president of training for U.S. bowling
center operations with multi-unit retail experience and created a training and
human resources position in each of the six regions to implement these
programs.
Focus on Marketing and Customer Satisfaction. We are implementing several
programs which are designed to attract and retain league and open play bowlers.
These include:
. Marketing initiatives to leverage the influence of key league bowlers in
our existing customer base to help us grow and retain league
participation. These marketing initiatives include our "League
Development Leader" and "Friends Bowl with Friends" programs.
. Capital spending on certain of our centers to improve customer
satisfaction and generate incremental revenue with improved facilities
and innovative and updated programs and product offerings. For example,
we have been installing Xtreme(TM) (glow-in-the-dark) bowling in many of
our centers as part of an overall upgrading of certain of our
facilities.
. Upgrading our food and beverage menu selection and service to enhance
our customers' bowling experience and to increase revenue per visit.
Our Bowling Products Business
Our bowling products business experienced significant difficulties in the
first quarter of 1999 and in 1998. In the first quarter of 1999, it produced
revenue of $32.0 million, a decrease of 22.1% from the first quarter of 1998,
and EBITDA of $(0.6) million, compared to EBITDA of $0.1 million in the first
quarter of 1998. It produced revenue of $213 million in 1998, a decrease of
29.0% from 1997, and EBITDA of $11 million, a decrease of 84.5% from 1997. This
business, the growth of which was driven primarily by international sales of
new center packages, was severely and adversely affected by economic
difficulties in the Asia Pacific region. In addition, competitive global
pricing and a strong U.S. dollar reduced the profitability of our products
business.
We are taking steps to address operating issues in this side of our business.
These include:
New Management Infrastructure. We recently appointed a president of bowling
products. We have also consolidated our international sales force under one
senior vice president and consolidated responsibility for customer service in
the U.S. to the vice president of U.S. sales.
Cost Reduction Program. We are continuing to implement a comprehensive cost
reduction program to align our cost structure with reduced bowling products
revenue. The program includes closure of a manufacturing facility, production
and material cost reductions, reduction of worldwide overhead and downsizing of
our international sales force. In 1998, we were successful in reducing our
bowling products costs by approximately $6 million. We are continuing our cost
reduction efforts and are considering possible strategic alliances and other
product development and sales initiatives in an effort to further reduce costs.
In this regard, we recently entered into joint distribution and related
agreements with Zhonglu described under "Recent Developments" on page 19.
Focus on Modernization and Consumer Products. During this period of weakness
in international sales of new center packages, we have been and are continuing
to concentrate our selling efforts on our products designed to enable bowling
center operators to modernize their facilities and on consumer products such as
bowling pins, parts, balls and supplies. Unlike our new center packages, these
products are not as dependent on our emerging markets and produce more stable
sales and profits. However, we intend to remain in a position to participate in
any significant growth of demand for new center packages in emerging markets.
Our Recapitalization Plan
We are pursuing a recapitalization plan to enhance our ability to implement
our three-part business strategy. The plan is designed to reduce leverage and
increase financial flexibility so that we can resume our
21
strategy of growing through acquisitions, building a nationally recognized
brand and successfully manufacturing, marketing and distributing bowling
products. The recapitalization plan has three primary components:
The Rights Offering. We seek to raise approximately $140 million of equity
capital in this rights offering. The net proceeds of the offering will
primarily be used to reduce our leverage by repurchasing outstanding zero
coupon convertible debentures through the tender offer described below and
repaying certain bank debt. Certain members of the original investor group, who
hold approximately 72.5% of our common stock, have indicated that they
currently expect to fully exercise their basic subscription privileges in the
offering, subject to market conditions, and it is currently anticipated that
some of these members of our original investor group will exercise their
conditional over-subscription privileges to an extent not yet determined,
subject to market conditions. However, these members of our original investor
group are not obligated to exercise their basic or conditional over-
subscription privileges.
The Tender Offer. We have also commenced a tender offer to repurchase a
minimum of 40% and up to 45.7% of the outstanding principal amount at maturity
of our zero coupon convertible debentures at an indicated price of 14% of face
value. Affiliates of Goldman Sachs and Kelso & Company, which own approximately
44% of the outstanding debentures, have indicated that they currently expect to
tender their debentures in the tender offer subject to market conditions,
although they are not obligated to do so.
Amendments to Bank Credit Agreement. The lenders under our principal
operating subsidiary's bank credit agreement have recently entered into an
amendment of the credit agreement. The following are the key provisions of the
bank credit agreement amendment:
. Allowing us to use a portion of the net proceeds of the rights offering
to repurchase the zero coupon convertible debentures and allowing us to
retain a portion of the proceeds for general corporate purposes and
certain other purposes as described under "Use of Proceeds";
. Increasing access to the revolving credit facility under the bank credit
agreement for acquisitions, subject to certain conditions;
. Relaxing certain financial covenants through the end of 2001 and
enabling the Company to cure non-compliance with financial covenants;
. Excluding certain restructuring and other special charges from covenant
calculations; and
. Increasing the interest rates for borrowings under the bank credit
agreement.
A copy of the amendment to the bank credit agreement (including the
restatement of the bank credit agreement) has been filed as Exhibit 99.1 to the
Company's Current Report on Form 8-K dated June 28, 1999.
Restructuring and Other Special Charges
We are likely to record certain restructuring charges, which are likely to be
approximately $7.5 million. We also could record other special charges in 1999.
Under the amendment to the bank credit agreement, such restructuring charges
and an amount up to $27.5 million of other special charges, to the extent taken
in 1999, are excluded from the calculation of the financial covenants relating
to EBITDA.
22
USE OF PROCEEDS
If all of the rights are exercised, we will receive approximately $140.0
million, and if 85.7% of the rights are exercised, we will receive
approximately $120.0 million, upon completion of this rights offering, before
deducting the fees and expenses of the financial and legal advisors to our
board of directors and the special committee of our board and our other
offering expenses. These fees and expenses are estimated to be $1.5 million. We
will use the net proceeds from the rights offering as follows:
Total
Proceeds
-------------
(in millions)
$140 $120
------ ------
. Repurchase up to 45.7% of our zero coupon convertible
debentures due 2018 through the concurrent tender offer;
.......................................................... $ 72.0 $ 72.0
. Repay a portion of the revolving credit facility (due
March 31, 2002 at current interest rate of 7.6746%) of our
principal subsidiary's bank credit agreement which will be
treated by the bank lenders as fulfilling the requirement
under the bank credit agreement for making additional
acquisitions, the amounts of which are determined by the
provisions of the bank credit agreement;.................. 30.0 30.0
. Retain cash for general corporate purposes;............... 32.3 12.3
. Pay fees to the bank lenders in connection with the
amendment of our principal subsidiary's bank credit
agreement; and ........................................... 3.8 3.8
. Pay expenses associated with the purchase of our zero
coupon convertible debentures due 2018.................... 0.4 0.4
------ ------
Total uses of net proceeds............................... $138.5 $118.5
====== ======
The proceeds retained by us for general corporate purposes as well as any
portion of the proceeds designated to be used to purchase our zero coupon
convertible debentures but that are not used to purchase such debentures
because less than 45.7% of the outstanding principal amount at maturity of
debentures are tendered may be used by us to repurchase additional debentures,
to allow our principal operating subsidiary to redeem a portion of its senior
subordinated notes and its senior subordinated discount notes, to make equity
contributions to our principal operating subsidiary or for other corporate
purposes.
If more than 45.7% of the zero coupon convertible debentures are validly
tendered and not withdrawn in the tender offer and/or if subscriptions are
received pursuant to the rights offering for more than $120 million of AMF
common stock, we may, but are not obligated to, increase the outstanding
principal amount at maturity of debentures for which we are tendering, but not
in excess of 60% of the outstanding principal amount at maturity of the
debentures, and in that event extend the expiration dates of both the tender
offer and the rights offering. Exercises of subscriptions made prior to any
such extension will not be revocable because of the extension.
DIVIDEND POLICY
We have never paid cash dividends on AMF common stock and do not plan to do
so for the foreseeable future. Because we are a holding company, our ability to
pay dividends depends on the ability of our subsidiaries to pay cash dividends
or make other cash distributions to us. The agreements governing our debt
generally prohibit our subsidiaries from paying dividends or making other cash
distributions to us. See "Risk Factors." Our board of directors has sole
discretion over the declaration and payment of future dividends. Any future
dividends will depend upon our profitability, financial condition, cash
requirements, future prospects, general business conditions, the terms of any
of our debt agreements and other factors our board of directors believes are
relevant.
23
PRICE RANGE OF COMMON STOCK
You can find AMF common stock traded on the NYSE under the symbol "PIN." The
following table shows the high and low sales prices of AMF common stock over
recent periods.
High Low
---- ----
1997
Fourth Quarter (from November 7, 1997)................... $25 1/8 $21 1/2
1998
First Quarter............................................ 27 3/8 20 1/2
Second Quarter........................................... 31 22 5/8
Third Quarter............................................ 28 3/8 7 1/2
Fourth Quarter........................................... 9 3 7/8
1999
First Quarter............................................ 6 4
Second Quarter (through June 25, 1999)................... 8 3/16 3 1/2
On June 25, 1999, we had approximately 4,650 stockholders of record. AMF
common stock's price closed at $6 1/2 on May 4, 1999, the last full trading day
before we publicly announced the rights offering and at $6 5/16 on June 25,
1999.
24
CAPITALIZATION
The following table shows our cash, debt and capitalization as of March 31,
1999. The table also shows our cash, debt and capitalization as adjusted for
the completion of the rights offering (including application of the net
proceeds from that transaction as described above on page 23 under the heading
"Use of Proceeds") at the assumed subscription price of $5.00 per share and
assuming we receive proceeds of $140 million if all of the rights are exercised
and $120 million if only 85.7% of all of the rights are exercised and we
purchase 45.7%, or the maximum amount, of the outstanding principal amount of
our zero coupon convertible debentures in the tender offer.
The adjusted March 31, 1999 amounts reflect the following additional
assumptions:
Total Proceeds
---------------------
(dollars in millions)
$140 $120
---------- ----------
. The number of shares of common stock to be issued in
rights offering is:................................... 27,998,929 24,000,000
. The difference between the sum of original issue price
plus accrued original issue discount and the purchase
price of 14% of principal amount at maturity for our
zero coupon convertible debentures due 2018 is
recorded as gain on early extinguishment of debt:
Original issue price plus accrued original issue
discount........................................... $138.0 $138.0
Purchase price...................................... 72.0 72.0
---------- ----------
Gain................................................ $66.0 $66.0
. The write-off of deferred financing costs related to
the original issuance on May 12, 1998 of our zero
coupon convertible debentures due 2018 is 45.7% of the
unamortized cost:..................................... 4.8 4.8
. Restructuring charges:................................ 7.5 7.5
. Based on net proceeds received of $138.5 million and
$118.5 million, respectively, and the number of shares
issued in the rights offering, capital stock is
recorded as follows:
Common stock........................................ 0.3 0.2
Paid-in capital..................................... 138.2 118.3
.No income tax liability with respect to the net effect
of the gain and charges described above is incurred in
either adjusted case. As of December 31, 1998, we had,
for income tax purposes, an accumulated net operating
loss carryforward of approximately $194.5 million.
25
March 31, 1999
----------------------------
(dollars in millions)
As Adjusted
for Proceeds
------------------
Total Proceeds
------------------
Actual $140.0 $120.0
-------- -------- --------
Cash............................................. $ 56.8 $ 89.1 $ 69.1
======== ======== ========
Short-term borrowings:
Current maturities, long-term debt............. $ 34.2 $ 34.2 $ 34.2
-------- -------- --------
Long-term debt:
Bank debt...................................... 556.7 526.7 526.7
Subsidiary senior subordinated notes........... 250.0 250.0 250.0
Subsidiary senior subordinated discount notes.. 219.5 219.5 219.5
Zero coupon convertible debentures............. 302.0 164.0 164.0
Mortgage and equipment notes................... 2.0 2.0 2.0
-------- -------- --------
Total debt................................... 1,364.4 1,196.4 1,196.4
Stockholders' equity:
Preferred stock, par value $.01, and 50,000,000
shares authorized, no shares issued and
outstanding................................... -- -- --
Common stock, par value $.01, 200,000,000
shares authorized, 59,597,550 shares issued
and outstanding before the rights offering and
87,596,479 and 83,597,550 shares issued and
outstanding after the rights offering assuming
proceeds of $140 million and $120 million,
respectively ................................. 0.6 0.9 0.8
Paid-in capital................................ 749.1 887.3 867.4
Retained deficit............................... (219.6) (166.3) (166.3)
Equity adjustment from foreign currency
translation................................... (20.3) (20.3) (20.3)
-------- -------- --------
Total stockholders' equity................... 509.8 701.6 681.6
-------- -------- --------
Total capitalization......................... $1,874.2 $1,898.0 $1,878.0
======== ======== ========
26
THE RIGHTS OFFERING
On or about July 9, 1999, we will distribute to each holder of AMF common
stock, at no charge, .4698 transferable subscription rights for each share of
AMF common stock owned. Each right entitles the holder to purchase one share of
AMF common stock at a subscription price of $5.00 per share, a discount to the
$6.313 per share closing price of the common stock on the New York Stock
Exchange on June 25, 1999, pursuant to the basic subscription privilege. Each
right will also have an over-subscription privilege and conditional over-
subscription privilege described on page 29. The rights will be evidenced by a
transferable rights certificate. We will distribute the rights to you only if
you are a record holder of AMF common stock on the record date, which is 5:00
p.m., New York City time, on July 7, 1999. We will round up, to the nearest
whole number, the number of rights we distribute to each stockholder.
Before exercising or selling any rights, you should read carefully the
information set forth under "Risk Factors" beginning on page 10.
The following describes the rights offering in general and assumes (unless
specifically provided otherwise) that you are a record holder of AMF common
stock. If you hold your shares in a brokerage account or through a dealer or
other nominee, please see "--Beneficial Owners" on page 33 below.
Approval of the Rights Offering and Determination of Subscription Price
As a result of matters discussed under the heading "Our Business,
Recapitalization Plan and On-Going Business Strategies" beginning on page 20,
our board of directors, at a meeting on May 4, 1999, considered a proposal to
raise up to $140 million in equity capital. At that meeting, our board
appointed Messrs. Charles Diker, Paul Edgerley and Howard Lipson, directors who
are not employees of AMF or affiliated with Goldman Sachs or Kelso & Company
(whose affiliates together own more than a majority of AMF common stock and
approximately 44% of the outstanding principal amount of our zero coupon
convertible debentures), as a special committee to consider certain aspects of
the tender offer in the context of the recapitalization plan, including the
price at which we would tender for our zero coupon convertible debentures in
the proposed concurrent tender offer for those debentures.
We retained Morgan Stanley & Co. Incorporated ("Morgan Stanley") as financial
advisor to the board of directors and the special committee. Morgan Stanley is
also acting as the dealer manager for the concurrent tender offer for our zero
coupon convertible debentures. At a meeting held on May 4, 1999, after
receiving advice from Morgan Stanley and considering various factors, the
special committee recommended to the full board pursuing the proposed tender
offer, subject to the approval of the recapitalization plan by the full board
of directors and subject to the special committee approving the specific
pricing of the proposed tender offer. The board approved pursuing the
recapitalization plan at the May 4 meeting.
At board meetings held on June 10 and June 15, 1999, our management made
detailed presentations of the recapitalization plan, including the proposed
amendment to our principal operating subsidiary's bank credit agreement and the
proposed terms of the rights offering and the tender offer. At each meeting,
Morgan Stanley made a presentation to our board regarding certain matters
related to the rights offering and the tender offer. Thereafter, the special
committee met separately with Morgan Stanley to discuss certain matters
relating to the tender offer, including the possible pricing thereof.
At a meeting held on June 16, 1999, management made a detailed presentation
to the board of directors about all aspects of the proposed recapitalization
plan and recommended that the board approve it. Morgan Stanley also made a
presentation to the board and recommended the pricing and terms of the rights
offering and the tender offer. The special committee met separately with Morgan
Stanley to discuss the proposed tender offer, including the possible pricing
thereof. The special committee then rejoined the board meeting and, based on
Morgan Stanley's presentation and recommendations and consideration of other
relevant factors, recommended that the board approve the tender offer,
including pricing the tender offer on the basis presented by management and
Morgan Stanley. Based on management's and Morgan Stanley's presentations,
taking into account this recommendation of the special committee and after
consideration of other relevant factors, the full board of directors then
approved the recapitalization plan, including the rights offering, the tender
offer and the other contemplated transactions.
27
At a meeting on June 22, 1999, our management reviewed with the board of
directors the final terms of the recapitalization plan, including the pricing
of this rights offering and the tender offer. The board of directors confirmed
its approval of the recapitalization plan and those terms.
Some of the factors considered by the board of directors include:
. our capital requirements;
. the advice of Morgan Stanley;
. the alternatives available to us for the raising of capital;
. the market price of AMF common stock;
. the market price of our zero coupon convertible debentures;
. the added flexibility that could be achieved by improving our capital
structure and amending our principal operating subsidiary's bank credit
agreement;
. our business prospects;
. the operating challenges we face;
. our recent poor financial performance and results;
. our high degree of leverage;
. our desire to reinvigorate our acquisition program;
. our need for further flexibility in our debt agreements; and
. the general condition of the securities markets.
Principal Stockholders' Participation in the Rights Offering
Our significant stockholders, including affiliates of our original investor
group, will receive rights to purchase AMF common stock in this rights offering
on the same terms and conditions as all other stockholders. As of June 25,
1999, affiliates of Goldman Sachs, Kelso, The Blackstone Group and Bain Capital
(members of the original investor group) owned a total of 43,221,048 shares, or
approximately 72.5%, of the outstanding AMF common stock (without giving effect
to outstanding options or warrants to acquire stock or the conversion of our
zero coupon convertible debentures). These significant stockholders have
indicated that they currently expect to fully exercise their basic subscription
privileges in the rights offering, subject to market conditions, and it is
currently anticipated that some of these significant stockholders will exercise
their conditional over-subscription privileges to an extent not yet determined,
subject to market conditions. However, these significant stockholders are not
obligated to exercise their basic or conditional over-subscription privileges.
For a description of significant relationships between some of these
stockholders and us, please review the matters discussed under the heading
"Certain Relationships and Related Party Transactions" beginning on page 39.
No Fractional Rights
We will not issue fractional rights. Instead, we will round up any fractional
rights to the nearest whole right. For example, if you own 150 shares of AMF
common stock, you will receive 71 rights, instead of 70.5 rights you would have
received without rounding.
You may request that the subscription agent divide your rights certificate
into transferable parts, for instance, if you are the record holder for a
number of beneficial holders of AMF common stock. However, the subscription
agent will not divide your rights certificate so that (through rounding or
otherwise) you would receive a greater number of rights than those to which you
would be entitled if you had not divided your certificates.
28
Expiration Date of the Rights Offering
You may exercise the basic subscription privilege, the over-subscription
privilege and the conditional over-subscription privilege at any time before
the time of expiration of the rights offering, which is 5:00 p.m., New York
City time, on July 28, 1999, unless the rights offering is extended. If you do
not exercise your rights before the time they expire, then your rights will be
null and void. We will not be obligated to honor your exercise of rights if the
subscription agent receives the documents relating to your exercise after the
rights expire, regardless of when you transmitted the documents, except if you
have timely transmitted the documents pursuant to the guaranteed delivery
procedures described below.
We may extend the expiration time and date of the rights offering for any
reason, and you will not be able to revoke your exercise of subscriptions.
If we elect to extend the date the rights expire, we will issue a press
release announcing the extension before 9:00 a.m. on the first New York Stock
Exchange trading day after the most recently announced expiration date. If we
extend the date the rights will expire by more than 14 calendar days, we will
send prompt written notice of the extension to you and all rights holders of
record. See "--Extensions and Termination" on page 37.
Subscription Privileges
Your rights entitle you to the basic subscription privilege, the over-
subscription privilege and the conditional over-subscription privilege.
Basic Subscription Privilege. With the basic subscription privilege, you may
purchase one share of AMF common stock per right, upon delivery of the required
documents and payment of the subscription price of $5.00 per share, before the
time the rights expire. You are not required to exercise all of your rights
unless you wish to also purchase shares under your over-subscription privilege
and/or your conditional over-subscription privilege described below.
Over-Subscription Privilege. In addition to your basic subscription
privilege, you may subscribe for additional shares of AMF common stock upon
delivery of the required documents and payment of the subscription price of
$5.00 per share before the time the rights expire. You may exercise your over-
subscription privilege only if you exercised your basic subscription privilege
in full. You will receive common stock pursuant to your over-subscription
privilege only if other holders of rights do not exercise their basic
subscription privileges in full.
Conditional Over-Subscription Privilege. In addition to your basic
subscription privilege and over-subscription privilege, your rights also
entitle you to a conditional over-subscription privilege. The conditional over-
subscription privilege allows you to subscribe for up to a number of shares of
AMF common stock, the total subscription price for which, when added to the
subscription prices paid by all rights holders exercising their basic
subscription privileges and over-subscription privileges, equals $120 million,
subject to proration described below. If the total subscription prices paid by
all rights holders exercising their basic subscription privileges and over-
subscription privileges equals or exceeds $120 million, we will honor the basic
and, to the extent available, over-subscription requests in full and the
conditional over-subscription privilege will not be available; in this
circumstance, you will not have purchased any additional shares of AMF common
stock pursuant to the exercise of the conditional over-subscription privilege.
However, if rights holders subscribe under the basic and over-subscription
privileges for less than $120 million of AMF common stock, shares will be
allocated to rights holders who subscribe under the conditional over-
subscription privilege. For example, if rights holders have paid subscription
prices totaling $100 million pursuant to their basic subscription privileges
and over-subscription privileges and various rights holders have exercised
their conditional over-subscription privileges,
29
those rights holders who exercised their conditional over-subscription
privilege will be eligible to purchase an aggregate additional 4 million shares
(the $20 million difference between $120 million and $100 million divided by
the $5.00 per share subscription price). In this circumstance, shares will be
allocated on a pro rata basis to holders exercising the conditional over-
subscription privilege if conditional over-subscriptions are received for more
than 4 million shares; if rights holders were to exercise the conditional over-
subscriptions for a total of less than 4 million shares in this example, all
such conditional over-subscriptions would be honored in full.
You may exercise your conditional over-subscription privilege only if you
have exercised your basic subscription privilege in full. However, you may
exercise your conditional over-subscription privilege even if you have not
exercised your over-subscription privilege.
Pro Rata Allocation. If there are not enough shares to satisfy all
subscriptions pursuant to the exercise of the over-subscription privilege
and/or the conditional over-subscription privilege, we will allocate the
remaining shares pro rata (subject to the elimination of fractional shares)
among those over-subscribing. Pro rata means, in the case of the over-
subscription privilege, in proportion to the number of shares you and the other
holders have purchased pursuant to the exercise of the basic subscription
privilege and subject to a maximum of $140 million. Pro rata means, in the case
of the conditional over-subscription privilege, in proportion to the number of
shares you and the other holders have purchased pursuant to the exercise of the
basic subscription privilege and the over-subscription privilege and subject to
a maximum of $120 million in the aggregate for the basic subscription
privilege, the over-subscription privilege and the conditional over-
subscription privilege. If there is a need to prorate the exercise of rights
pursuant to the over-subscription privilege and the pro ration results in the
allocation to you of a greater number of shares than you subscribed for
pursuant to the over-subscription privilege, then we will allocate to you only
the number of shares for which you subscribed. We will allocate the remaining
shares among all other holders exercising their over-subscription privilege. If
there is a need to prorate the exercise of rights pursuant to the conditional
over-subscription privilege and the proration results in the allocation to you
of a greater number of shares than the maximum number of shares you indicated
pursuant to the conditional over-subscription privilege, then we will allocate
to you no more than the maximum number of shares you so indicated. We will
allocate the remaining shares among all other holders exercising their
conditional over-subscription privilege.
Full Exercise of Basic Subscription Privilege. You may exercise the over-
subscription privilege or the conditional over-subscription privilege only if
you exercise your basic subscription privilege in full. To determine if you
have fully exercised your basic subscription privilege, we will consider only
the basic subscription privileges held by you in the same capacity. For
example, suppose you were granted rights for shares of AMF common stock you own
individually and for shares of AMF common stock you own jointly with your
spouse. You only need to fully exercise your basic subscription privilege with
respect to your individually owned rights in order to exercise your over-
subscription privilege or the conditional over-subscription privilege with
respect to your individually owned rights. You do not have to subscribe for any
shares under the basic subscription privilege owned jointly with your spouse to
exercise your individual over-subscription privilege or conditional over-
subscription privilege. However, you may exercise your conditional over-
subscription privilege even if you have not exercised your over-subscription
privilege.
When you complete the portion of the rights certificate to exercise the over-
subscription privilege or the conditional over-subscription privilege, you will
be representing and certifying that you have fully exercised your basic
subscription privilege received in respect of shares of AMF common stock you
hold in that capacity. You must exercise your over-subscription privilege or
the conditional over-subscription privilege at the same time you exercise your
basic subscription privilege in full.
If you own your shares of AMF common stock through your broker, dealer or
other nominee holder who will exercise your over-subscription privilege or the
conditional over-subscription privilege on your behalf, the nominee holder will
be required to certify to us and the subscription agent:
. the number of shares held on July 7, 1999, the record date, on your
behalf;
. the number of rights you exercised under your basic subscription
privilege;
30
. that your entire basic subscription privilege held in the same capacity
has been exercised in full; and
. the number of shares of AMF common stock you subscribed for pursuant to
the over-subscription privilege or the maximum number of shares of AMF
common stock you subscribed for pursuant to the conditional over-
subscription privilege.
Your nominee holder must also disclose to us certain other information
received from you.
Return of Excess Payment. If you exercised your over-subscription privilege
or your conditional over-subscription privilege and are allocated less than
all of the shares of AMF common stock for which you wished to subscribe, the
excess funds you paid for shares of AMF common stock that are not allocated to
you will be returned by mail, without interest or deduction, as soon as
practicable after the expiration date of the rights.
Exercise of Rights
You may exercise your rights by delivering the following to the subscription
agent before the time the rights expire:
. Your properly completed and executed rights certificate evidencing those
rights with any required signature guarantees or other supplemental
documentation; and
. Your payment in full of the subscription price for each share of AMF
common stock subscribed for pursuant to the basic subscription
privilege, the over-subscription privilege and the conditional over-
subscription privilege.
Method of Payment
Your payment of the subscription price must be made by either:
. Check or bank draft drawn upon a U.S. bank or postal, telegraphic, or
express money order payable to the subscription agent; or
. Wire transfer of immediately available funds to the account maintained
by the subscription agent for such purpose at The Chase Manhattan Bank,
New York, NY, ABA No. 021 000 021, Attention: ChaseMellon Shareholder
Services, Reorg Rights Account No. 323-859569 (AMF Bowling).
Receipt of Payment
Your payment of the subscription price will be deemed to have been received
by the subscription agent only when:
. Any uncertified check clears;
. The subscription agent receives any certified check or bank draft drawn
upon a U.S. bank or any postal, telegraphic or express money order; or
. The subscription agent receives collected funds in its account at The
Chase Manhattan Bank referred to above.
Clearance of Uncertified Checks
You should note that funds paid by uncertified personal checks may take five
business days or more to clear. If you wish to pay the subscription price in
respect of your basic subscription privilege, over-subscription privilege and
conditional over-subscription privilege by an uncertified personal check, we
urge you to make payment sufficiently in advance of the time the rights expire
to ensure that your payment is received and clears by that time. We urge you
to consider using a certified or cashier's check, money order or wire transfer
of funds to avoid missing the opportunity to exercise your rights.
31
Delivery of Subscription Materials and Payment
You should deliver the rights certificate and payment of the subscription
price, as well as any nominee holder certifications, notices of guaranteed
delivery and The Depository Trust Company participant over-subscription forms,
If by Mail to:
ChaseMellon Shareholder Services, L.L.C.
Post Office Box 3301
South Hackensack, NJ 07606
Attn: Reorganization Department
If By Hand Delivery to:
ChaseMellon Shareholder Services, L.L.C.
120 Broadway, 13th Floor
New York, NY, 10271
Attn: Reorganization Department
If by Overnight Delivery to:
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Road - Mail Drop - Reorg
Ridgefield Park, NJ 07660
Attention: Reorganization Department
You may call the subscription agent at (201) 296-4860.
Calculation of Rights Exercised
If you do not indicate the number of rights being exercised, or do not
forward full payment of the aggregate subscription price for the number of
rights that you indicate are being exercised, then you will be deemed to have
exercised the basic subscription privilege with respect to the maximum number
of rights that may be exercised for the aggregate subscription price payment
you delivered to the subscription agent. If your aggregate subscription price
payment is greater than the amount you owe for your subscription, you will be
deemed to have exercised the over-subscription privilege to purchase the
maximum number of shares available to you pursuant to your over-subscription
privilege that may be purchased with your overpayment. If your aggregate
subscription price payment is greater than the amount you owe for your
subscription under your basic subscription privilege and your over-subscription
privilege, you will be deemed to have exercised the conditional over-
subscription privilege to purchase the maximum number of shares available to
you pursuant to your conditional over-subscription privilege that may be
purchased with your overpayment. However, if rights holders have paid
subscription prices totaling $120 million or more pursuant to their basic
subscription privileges and over-subscription privileges you will not be deemed
to have exercised your conditional over-subscription privilege and you will not
have purchased any additional shares pursuant to your conditional over-
subscription privilege. If we do not apply your full subscription price payment
to your purchase of shares of AMF common stock, we will return the excess
amount to you by mail, without interest or deduction, as soon as practicable
after the date the rights expire.
Exercising a Portion of Your Rights
If you subscribe for fewer than all of the shares of AMF common stock
represented by your rights certificate, you may, under certain circumstances,
either direct the subscription agent to attempt to sell your remaining rights
or receive from the subscription agent a new rights certificate representing
the unused rights. See "--Method of Transferring and Selling Rights" beginning
on page 35.
32
The Subscription Agent Will Hold Funds in Escrow Until the Shares of Common
Stock are Issued.
The subscription agent will hold your payment of the subscription price in a
segregated escrow account with other payments received from holders of rights
until we issue to you your shares of AMF common stock.
Signature Guarantee May Be Required
Your signature on each rights certificate must be guaranteed by an eligible
institution such as a member firm of a registered national securities exchange,
a member of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States, subject to standards and procedures adopted by the subscription
agent, unless
. your rights certificate provides that the shares of the AMF common stock
you subscribed for are to be delivered to you; or
. you are an eligible institution.
Notice to Beneficial Holders
If you are a broker, a dealer, a trustee or a depositary for securities who
holds shares of AMF common stock for the account of others as a nominee holder,
you should notify the respective beneficial owners of such shares of the
issuance of the rights as soon as possible to find out such beneficial owners'
intentions. You should obtain instructions from the beneficial owner with
respect to the rights, as set forth in the instructions we have provided to you
for your distribution to beneficial owners. If the beneficial owner so
instructs, you should complete the appropriate rights certificates and, in the
case of the over-subscription privilege and/or the conditional over-
subscription privilege, the related nominee holder certification, and submit
them to the subscription agent with the proper payment. A nominee holder that
holds shares for the account(s) of more than one beneficial owner may exercise
the number of rights to which all such beneficial owners in the aggregate
otherwise would have been entitled if they had been direct record holders of
AMF common stock on the record date, so long as the nominee submits the
appropriate rights certificates and certifications and proper payment to the
subscription agent.
Beneficial Owners
If you are a beneficial owner of shares of AMF common stock or rights that
you hold through a nominee holder, we will ask your broker, dealer or other
nominee to notify you of this rights offering. If you wish to sell or exercise
your rights, you will need to have your broker, dealer or other nominee act for
you. To indicate your decision with respect to your rights, you should complete
and return to your broker, dealer or other nominee the form entitled
"Beneficial Owners Election Form." You should receive this form from your
broker, dealer or other nominee with the other rights offering materials.
Instructions for Completing the Rights Certificate
You should read and follow the instructions accompanying the rights
certificate carefully. If you want to exercise your rights, you must send your
rights certificates to the subscription agent. You should not send the rights
certificates to AMF. Any rights certificates received by AMF will be returned
to the sender as promptly as possible.
You are responsible for the method of delivery of rights certificates, any
necessary accompanying documents and payment of the subscription price to the
subscription agent. If you send the rights certificates and payment of the
aggregate subscription price by mail, we recommend that you send them by
registered mail, properly insured, with return receipt requested. You should
allow a sufficient number of days to ensure delivery to the subscription agent
and clearance of payment prior to the time the rights expire.
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Determinations Regarding the Exercise of Rights
We will decide all questions concerning the timeliness, validity, form and
eligibility of your exercise of rights. Our decisions will be final and
binding. We, in our sole discretion, may waive any defect or irregularity, or
permit a defect or irregularity to be corrected within whatever time we
determine. We may reject the exercise of any of your rights because of any
defect or irregularity. Your subscription will not be deemed to have been
received or accepted until all irregularities have been waived by us or cured
by you within the time we decide, in our sole discretion.
We reserve the right to reject your exercise of rights if your exercise is
not in accordance with the terms of the rights offering or in proper form.
Neither we nor the subscription agent will have any duty to notify you of a
defect or irregularity in your exercise of the rights. We will not be liable
for failing to give you that notice. We will also not accept your exercise of
rights if our issuance of shares of AMF common stock pursuant to your exercise
could be deemed unlawful or materially burdensome. See "--Regulatory
Limitation" on page 38 and "--Compliance with State Regulations Pertaining to
the Rights Offering" on page 38.
Guaranteed Delivery Procedures
If you wish to exercise your rights, but you do not have sufficient time to
deliver the rights certificates evidencing your rights to the subscription
agent before the time the rights expire, you may exercise your rights by the
following guaranteed delivery procedures:
. Make your payment in full of the subscription price for each share of
AMF common stock being subscribed for pursuant to the basic subscription
privilege, the over-subscription privilege and the conditional over-
subscription privilege to be received (in the manner set forth in "--
Method of Payment" on page 31) to the subscription agent before the time
the rights expire;
. Deliver a notice of guaranteed delivery to the subscription agent at or
before the time the rights expire; and
. Deliver the properly completed rights certificate evidencing the rights
being exercised (and, if applicable for a nominee holder, the related
nominee holder certification), with any required signatures guaranteed,
to the subscription agent, within three New York Stock Exchange trading
days following the date the notice of guaranteed delivery was delivered
to the subscription agent.
Your notice of guaranteed delivery must be substantially in the form provided
with the "Instructions For Use of AMF Bowling, Inc. Rights Certificates"
distributed to you with your rights certificate. Your notice of guaranteed
delivery must come from an eligible institution which is a member of, or a
participant in, a signature guarantee program acceptable to the subscription
agent. In your notice of guaranteed delivery you must state:
. Your name;
. The number of rights represented by your rights certificates, the number
of shares of AMF common stock you are subscribing for pursuant to the
basic subscription privilege, the number of shares of AMF common stock,
if any, you are subscribing for pursuant to the over-subscription
privilege and the number of shares of AMF common stock, if any, you are
subscribing for pursuant to the conditional over-subscription privilege;
and
. Your guarantee that you will deliver to the subscription agent any
rights certificates evidencing the rights you are exercising within
three New York Stock Exchange trading days following the date the
subscription agent receives your notice of guaranteed delivery.
You may deliver the notice of guaranteed delivery to the subscription agent
in the same manner as the rights certificate at the addresses set forth under
"--Delivery of Subscription Materials and Payment" on page 32. You may also
transmit the notice of guaranteed delivery to the subscription agent by
telegram or facsimile transmission (telecopier no. (201) 296-4293). To confirm
facsimile deliveries, you may call (201) 296-4860.
34
The subscription agent will send you additional copies of the form of notice
of guaranteed delivery if you need them. Please call the subscription agent at
(201) 296-4860.
Subscription Agent
We have appointed ChaseMellon Shareholder Services, L.L.C. as subscription
agent for the rights offering. We will pay its fees and expenses related to the
rights offering. We also have agreed to indemnify the subscription agent from
some of the liabilities that it may incur in connection with the rights
offering.
Questions About Exercising Rights--Information Agent
You may direct any questions or requests for assistance concerning the method
of exercising your rights, additional copies of this prospectus, the
instructions, the nominee holder certification, the notice of guaranteed
delivery or other subscription documents referred to herein, to the information
agent, at the following telephone number and address:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005
Banks and brokers call collect: (212) 269-5550
All others call toll free: (800) 628-8532
No Revocation of Exercise of Rights
Once you have exercised your basic subscription privilege and, should you
choose, your over-subscription privilege and/or conditional over-subscription
privilege, you may not revoke your exercise. Even if we extend the time or date
the rights expire, you may not revoke your exercise.
No Fractional Shares Will Be Issued
We will not issue any fractional shares of AMF common stock. You may not
exercise a right in part.
Method of Transferring and Selling Rights
We have listed the rights for trading on the New York Stock Exchange under
the symbol "PINRT." We also expect that rights may be purchased or sold through
usual investment channels until the close of business on the last trading day
preceding the date the rights expire. However, there has been no prior public
market for the rights. We cannot assure you that a trading market for the
rights will develop or, if a market develops, that the market will remain
available throughout the subscription period. We also cannot assure you of the
price at which the rights will trade, if at all. If you do not exercise or sell
your rights you will lose any value inherent in the rights. See "--General
Considerations Regarding the Partial Exercise, Transfer or Sale of Rights" on
page 36.
Transfer of Rights. You may transfer rights in whole by endorsing the rights
certificate for transfer. Please follow the instructions for transfer included
in the information sent to you with your rights certificate. If you wish to
transfer only a portion of the rights, you should deliver your properly
endorsed rights certificate to the subscription agent. You cannot transfer
fractions of rights. With your rights certificate, you should include
instructions to register such portion of the rights evidenced thereby in the
name of the transferee (and to issue a new rights certificate to the transferee
evidencing such transferred rights). If there is sufficient time before the
expiration of the rights offering, the subscription agent will send you a new
rights certificate evidencing the balance of the rights issued to you but not
transferred to the transferee. You may also instruct the subscription agent to
send the rights certificate to one or more additional transferees. If you do
not wish to receive your remaining rights, you may instruct the subscription
agent to sell your rights for you as described below.
35
If you wish to transfer all or a portion of your rights (but not fractional
rights), you should allow a sufficient amount of time prior to the time the
rights expire for the subscription agent to:
. Receive and process your transfer instructions; and
. Issue and transmit a new rights certificate to your transferee or
transferees with respect to transferred rights, and to you with respect
to any rights you retained.
If you wish to transfer your rights to any person other than a bank or
broker, the signatures on your rights certificate must be guaranteed by an
eligible institution.
Sales of Rights Through the Subscription Agent. You may also sell your
rights, in whole or in part (but not fractional rights), through the
subscription agent. If you wish to have the subscription agent try to sell your
rights, you must deliver your properly executed rights certificate, with
appropriate instructions, to the subscription agent. If you want the
subscription agent to try to sell only a portion of your rights, you must send
the subscription agent instructions setting forth what you would like done with
the rights, along with your rights certificate.
If the subscription agent sells rights for you, it will send you a check for
the proceeds from the sale of any of your rights as soon as possible after the
date the rights expire. If your rights can be sold, the sale will be deemed to
have been made at the weighted average sale price of all rights sold by the
subscription agent. We will pay the fees charged by the subscription agent for
making your sale. We cannot assure you, however, that a market will develop for
the rights or that the subscription agent will be able to sell your rights.
You must have your order to sell your rights to the subscription agent before
11:00 a.m., New York City time, on July 21, 1999, the fifth business day before
the date the rights are expected to expire. If less than all sales orders
received by the subscription agent are filled, it will prorate the sales
proceeds among you and the other holders based upon the number of rights each
holder has instructed the subscription agent to sell during that period,
irrespective of when during the period the instructions are received by it. The
subscription agent is required to sell your rights only if it is able to find
buyers. If the subscription agent cannot sell your rights by 5:00 p.m., New
York City time, on July 23, 1999, the third business day before the date the
rights are expected to expire, the subscription agent will hold your rights
certificate for pick up by you at the subscription agent's hand delivery
address provided on page 4.
General Considerations Regarding the Partial Exercise, Transfer or Sale of
Rights. You should also allow up to ten business days for your transferee to
exercise or sell the rights evidenced by such new rights certificates. The
amount of time needed by your transferee to exercise or sell its rights depends
upon the method by which the transferor delivers the rights certificates, the
method of payment made by the transferee, and the number of transactions which
the holder instructs the subscription agent to effect. Neither we nor the
subscription agent will be liable to a transferee or transferor of rights if
rights certificates or any other required documents are not received in time
for exercise or sale prior to the time the rights expire.
You will receive a new rights certificate upon a partial exercise, transfer
or sale of rights only if the subscription agent receives your properly
endorsed rights certificate no later than 5:00 p.m., New York City time, five
business days before the date the rights expire. The subscription agent will
not issue a new rights certificate if your rights certificate is received after
that time and date. If your instructions and rights certificate are received by
the subscription agent after that time and date, you will not receive a new
rights certificate and therefore will not be able to sell or exercise your
remaining rights.
Unless you make other arrangements with the subscription agent, a new rights
certificate issued to you after 5:00 p.m., New York City time, five business
days before the date the rights expire, will be held for pick-up by you at the
subscription agent's hand delivery address provided on page 4. You will bear
the responsibility for picking up all newly issued rights certificates.
36
Except for fees charged by the subscription agent (which we will pay), you
are responsible for all commissions, fees and other expenses (including
brokerage commissions and transfer taxes) incurred in connection with the
purchase, sale or exercise of your rights. Any amounts you owe will be deducted
from your account.
If you do not exercise your rights before the time of expiration of the
rights offering, which is 5:00 p.m., New York City time, on July 28, 1999,
unless the rights offering is extended, your rights will expire and will no
longer be exercisable.
Procedures for DTC Participants
We expect that the rights will be eligible for transfer through, and that
your exercise of your basic subscription privilege (but not your over-
subscription privilege or conditional over-subscription privilege) may be made
through, the facilities of The Depository Trust Company (commonly known as
DTC). If you exercise your basic subscription privilege through DTC we refer to
your rights as "DTC Exercised Rights." If you hold DTC Exercised Rights, you
may exercise your over-subscription privilege and conditional over-subscription
privilege by properly executing and delivering to the subscription agent, at or
prior to the time the rights expire, a DTC participant over-subscription
exercise form, a DTC participant conditional over-subscription exercise form
and a nominee holder certification and making payment of the appropriate
subscription price for the number of shares of AMF common stock for which your
over-subscription privilege and/or conditional over-subscription privilege is
to be exercised. Please call the subscription agent at (201) 296-4860 to obtain
copies of the DTC participant over-subscription exercise form, the DTC
participant conditional over-subscription exercise form and the nominee holder
certification.
Extensions and Termination
We may extend the rights offering and the period for exercising your rights.
You will not be able to revoke your exercise of subscriptions if we extend the
rights offering. We may terminate the rights offering at any time before the
time the rights expire.
No Recommendations to Rights Holders
We are not making any recommendation as to whether or not you should exercise
your rights. You should make your decision based on your own assessment of your
best interests. None of the members of our board of
directors or the special committee, our officers or any other person are making
any recommendations as to whether or not you should exercise your rights.
Foreign Stockholders
We will not mail rights certificates to holders of AMF common stock on the
record date or to subsequent transferees whose addresses are outside the United
States. Instead, we will have the subscription agent hold those rights
certificates for those holders' accounts. To exercise their rights, foreign
holders must notify the subscription agent before 11:00 a.m., New York City
time, on July 23, 1999, three business days prior to the date the rights are
scheduled to expire, and must establish to the satisfaction of the subscription
agent that such exercise is permitted under applicable law. If a foreign holder
does not notify and provide acceptable instructions to the subscription agent
by such time (if no contrary instructions have been received), the rights will
be sold, subject to the subscription agent's ability to find a purchaser. Any
such sales will be deemed to be effected at the weighted average sale price of
all rights sold by the subscription agent. See "--Method of Transferring and
Selling Rights" beginning on page 35. If the subscription agent sells the
rights, the subscription agent will remit a check for the proceeds from the
sale of any rights to foreign holders by mail. The proceeds, if any, resulting
from sales of rights pursuant to the basic subscription privilege of holders
whose addresses are not known by the subscription agent or to whom delivery
cannot be made will be held in an interest bearing account. Any amount
remaining unclaimed on the second anniversary of the date the rights expire
will be turned over to AMF.
37
Regulatory Limitation
We will not be required to issue to you shares of AMF common stock pursuant
to the rights offering if, in our opinion, you would be required to obtain
prior clearance or approval from any state or federal regulatory authorities to
own or control such shares and if, at the time the rights expire, you have not
obtained such clearance or approval.
Issuance of Common Stock
The subscription agent will issue to you certificates representing shares of
AMF common stock you purchase pursuant to the rights offering as soon as
practicable after the time the rights expire.
Your payment of the aggregate subscription price will be retained by the
subscription agent and will not be delivered to us, until your subscription is
accepted and you are issued your stock certificates. We will not pay you any
interest on funds paid to the subscription agent, regardless of whether such
funds are applied to the subscription price or returned to you. You will have
no rights as a stockholder of AMF with respect to shares of AMF common stock
subscribed for until certificates representing such shares are issued to you.
Upon our issuance of such certificates, you will be deemed the owner of the
shares you purchased by exercise of your rights. Unless otherwise instructed in
the rights certificates, your certificates for shares issued pursuant to your
exercise of rights will be registered in your name.
If the rights offering is not completed for any reason, the subscription
agent will promptly return, without interest, all funds received by it.
We will retain any interest earned on the funds held by the subscription
agent prior to the closing or termination of the rights offering.
Shares of Common Stock Outstanding and Reserved after the Rights Offering
Assuming we issue all of the shares of AMF common stock issuable upon
exercise of the rights issued in the rights offering, approximately 87,596,479
shares of AMF common stock will be issued and outstanding after the rights
offering is completed. Based on the 59,597,550 shares of AMF common stock
outstanding as of June 25, 1999, the issuance of shares in the rights offering
would result in an approximately 47% increase in the number of outstanding
shares of AMF common stock.
These numbers do not include 11,213,305 shares issuable upon exercise of
outstanding stock options or warrants or conversion of our zero coupon
convertible debentures (without giving effect to debentures tendered to us in
the concurrent tender offer and without giving effect to any adjustments to
options, warrants or zero coupon convertible debentures as a result of this
rights offering).
Compliance with State Regulations Pertaining to the Rights Offering
We are not making the rights offering in any state or other jurisdiction in
which it is unlawful to do so. We will not sell or accept an offer to purchase
AMF common stock from you if you are a resident of any state or other
jurisdiction in which the sale or offer of the rights would be unlawful. We may
delay the commencement of the rights offering in certain states or other
jurisdictions in order to comply with the laws of such states or other
jurisdictions. We do not expect that there will be any changes in the terms of
the rights offering. However, we may decide, in our sole discretion, not to
modify the terms of the rights offering as may be requested by certain states
or other jurisdictions. If that happens and you are a resident of the state or
jurisdiction that requests the modification, you will not be eligible to
participate in the rights offering.
38
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Stockholders Agreement
We have a stockholders agreement which governs the relationship among AMF and
some of our significant and management stockholders. The parties to the
stockholders agreement are AMF, affiliates of Goldman Sachs, Kelso, Bain
Capital, The Blackstone Group, Citicorp North America, Inc., Charles M. Diker,
Stephen E. Hare and a number of current and former members of management. We
have summarized the terms of the stockholders agreement below, but you should
refer to our Registration Statement on Form S-1 (Registration No. 333-34099),
declared effective on November 3, 1997 for the full text of the stockholders
agreement.
The stockholders agreement gives the Goldman Sachs affiliates the right to
increase or decrease the size of our board of directors. The Goldman Sachs
affiliates also have the right to nominate five directors and to nominate a
majority of the members of the board, so long as they hold a majority of the
outstanding shares of our common stock. Each of three other investment funds
that are part of the original investor group has the right to nominate one
member of our board subject to some limitations and to the approval of the
Goldman Sachs affiliates. Each member of the investor group (including the
Goldman Sachs affiliates) that nominated one or more directors generally has
the right to recommend removal, with or without cause, of that director or
directors nominated, at which time the director must resign or be subject to
removal by the stockholders. If a director nominated by an investor group
member dies, is removed or resigns, that director may be replaced by the member
that nominated him, subject to the approval of the Goldman Sachs affiliates.
The stockholders agreement requires the board of directors to have an
executive committee, which is made up of two directors named by the Goldman
Sachs affiliates and our president and chief executive officer, Roland C.
Smith. The executive committee may exercise all the powers and authority of the
board of directors except (1) where the stockholders agreement requires a
meeting of the board of directors and (2) for actions which require a special
vote. A "special vote" is required for:
. the issuance of capital stock below fair market value;
. the grant or issuance of options or warrants exercisable or exchangeable
in excess of a specified amount of shares;
. entering into transactions with affiliates of Goldman Sachs; and
. amendments to the stockholders agreement, our certificate of
incorporation or our bylaws, which would adversely affect the rights and
obligations of certain members of our investor group.
Matters requiring a special vote must be approved by a majority of the
directors who are nominated by the Goldman Sachs affiliates and who are not our
employees, and at least one director nominated by Blackstone or Kelso. Any
amendment affecting one stockholder differently from any other stockholder
requires that stockholder's approval.
Each stockholder who signed the stockholders agreement has agreed:
. to appear in person or by proxy at any stockholders meeting for purposes
of obtaining a quorum;
. to vote its shares of common stock in favor of the election or removal
of directors in accordance with the board composition provisions of the
stockholders agreement summarized above;
. to otherwise vote its shares of common stock at stockholders meetings in
a manner consistent with the stockholders agreement;
. not to grant any proxy or enter into any voting trust relating to the
common stock it holds or enter into any stockholder agreement
inconsistent with the stockholders agreement; and
. not to act as a group or in concert with others in acquiring, disposing
or voting its shares of common stock in any manner inconsistent with the
stockholders agreement.
39
If a stockholder who signed the stockholders agreement decides to sell its
shares of common stock (other than in certain cases, including in a transaction
governed by Rule 144 of the Securities Act), that stockholder must give the
other stockholders party to the Stockholders Agreement notice of its intent to
sell and those other stockholders have the opportunity to sell a pro rata share
of their common stock in that sale. In addition, if stockholders who signed the
stockholders agreement and who own 51% or more of our outstanding common stock
propose to sell all of their common stock in a stock sale, merger, business
combination, recapitalization, consolidation, reorganization, restructuring or
similar transaction, those stockholders will have the right to require other
stockholders who signed the stockholders agreement to sell their AMF common
stock in that sale on the same terms and conditions as the stockholders
proposing to sell.
The stockholders agreement will terminate if:
. the Goldman Sachs affiliates and certain members of the original
investor group no longer hold at least 50% of the shares of AMF common
stock outstanding prior to the Company's initial public offering;
. the Goldman Sachs affiliates and certain members of the investor group
hold in the aggregate less than 40% of the number of shares of common
stock outstanding, on a fully diluted basis; or
. any merger, recapitalization, consolidation, reorganization or other
restructuring of AMF results in the stockholders that signed the
stockholders agreement owning less than a majority of the outstanding
voting power of the entity surviving that transaction.
Registration Rights Agreement
We are subject to a registration rights agreement with substantially all of
the same parties who signed the Stockholders Agreement. Pursuant to the
registration rights agreement, we granted the Goldman Sachs affiliates the
right to make up to five demands that we register shares of common stock under
the Securities Act and we granted three investment funds that are members of
the original investor group each the right to make one demand that we similarly
register their shares.
If a demand is made for registration, each of the other stockholders that are
parties to the Registration Rights Agreement will have the opportunity to
participate on a pro rata basis in the registration demanded. In addition,
except in some circumstances and subject to some limitations, if we propose to
register any shares of common stock under the Securities Act, the stockholders
will be entitled to require us to include all or a portion of their shares of
common stock in that registration.
We have summarized the terms of the registration rights agreement above, but
you should refer to our Registration Statement on Form S-1 (Registration No.
333-34099), declared effective on November 3, 1997 for the full text of the
registration rights agreement.
Transactions with Management and Others; Certain Business Relationships
Richard A. Friedman, Terence M. O'Toole and Peter M. Sacerdote, each of whom
is affiliated with Goldman Sachs, are directors of AMF and some of our
subsidiaries. Mr. Friedman is also our Chairman. Goldman Sachs and its
affiliates beneficially own a majority of the outstanding shares of our common
stock.
Goldman Sachs acted as lead initial purchaser in the May 1998 sale of our
zero coupon convertible debentures and received commissions and discounts of
$5.4 million.
In 1998, we paid an affiliate of Goldman Sachs $300,000 for services
performed under our principal subsidiary's bank credit agreement. Parties to
the bank credit agreement, which was amended and restated on September 30,
1998, include our principal operating subsidiary, affiliates of certain of our
stockholders, including affiliates of Goldman Sachs and certain other banks,
financial institutions and institutional lenders. Affiliates of Goldman Sachs
and Citicorp North America, Inc. have acted as arrangers of the bank debt
agreement. Citibank, N.A. is currently acting as administrative agent and
Citicorp USA, Inc. is
40
acting as collateral agent for a revolving credit and term loan facility
extended to our principal operating subsidiary under the bank credit agreement
in an amount up to $762.9 million. We have paid an affiliate of Goldman Sachs a
portion of the $3.8 million fee payable to the banks in connection with the
1999 amendment of the bank credit agreement.
Our principal operating subsidiary has retained Goldman Sachs as its
financial adviser to provide it investment banking and financial advisory
services, including services in connection with acquisitions, dispositions or
financings. Pursuant to this engagement, the subsidiary has agreed to reimburse
Goldman Sachs for its out-of-pocket expenses and to indemnify Goldman Sachs in
connection with its services rendered.
We have also entered into three interest rate cap agreements with an
affiliate of Goldman Sachs to hedge our exposure to fluctuations in the
interest rates applicable to our borrowings under our principal subsidiary's
bank credit agreement through March, 2000. We paid fees of $50,000 in
connection with a transaction on March 31, 1998, $40,000 in connection with a
transaction executed on October 30, 1998 and $65,000 in connection with a
transaction executed on March 23, 1999.
Goldman Sachs holds warrants to purchase 870,000 shares of our common stock
(before adjustment pursuant to the anti-dilution provision described below).
The warrants were issued to Goldman Sachs at the time of the acquisition of AMF
by the original investor group in 1996. The warrants are exercisable for a
nominal amount. They contain an anti-dilution provision that adjusts the amount
of shares issuable if certain events occur, including a merger, a
recapitalization or a common stock offering, including this rights offering at
below market prices.
On April 28, 1999, we entered into an employment agreement with Roland C.
Smith as our President and Chief Executive Officer and a member of our board of
directors. Mr. Smith will also serve on the executive committee of the board.
The three-year agreement will automatically be extended for additional one-year
terms unless either party gives written notice at least 180 days prior to any
extension. Mr. Smith's annual base salary will be at least $575,000, plus an
annual bonus of up to 75% of his base salary, based on the achievement of
discretionary objectives and operational and financial targets set by the
compensation committee of our board ($431,250 will be guaranteed as a bonus for
1999). We paid Mr. Smith a signing bonus of $500,000 and will reimburse him for
relocation expenses.
If we terminate Mr. Smith's employment (other than for cause) or if he
resigns (for good reason), we must continue Mr. Smith's base salary and welfare
benefits for the rest of the employment period plus one year, and pay him his
accrued compensation and annual bonus. If his duties, authority,
responsibilities, title or compensation are adversely altered within nine
months of a change of control, Mr. Smith may resign and receive these severance
benefits. If Mr. Smith becomes disabled or dies, we must pay him (or his
estate) his accrued compensation and a pro-rata bonus and continue his welfare
benefits for one year.
We granted Mr. Smith an option to purchase 1,000,000 shares of our common
stock at an exercise price of $5.2813 per share. The option vests and becomes
exercisable in 20% increments on the date of grant and the next four
anniversaries. The option vests and becomes fully exercisable in the event of a
change of control. If we terminate Mr. Smith's employment (other than for
cause) or he resigns (for good reason) any portion of the option that was
scheduled to vest during the following two-year period will vest and become
exercisable.
We loaned $1.0 million each to Douglas J. Stanard and Stephen E. Hare on a
non-recourse basis to enable them to purchase shares of our common stock. The
common stock they purchased serves as collateral to secure the promissory notes
reflecting the indebtedness. When Mr. Stanard resigned from his positions with
AMF, he transferred all of his common stock back to us in exchange for our
canceling the promissory note.
Ownership of Zero Coupon Convertible Debentures
On November 12, 1998, affiliates of Goldman Sachs and Kelso entered into a
Debenture & Note Purchase Agreement, in which Goldman Sachs and Kelso agreed to
make open market purchases of our zero coupon
41
convertible debentures from time to time in agreed upon proportions. Under the
Debenture & Note Purchase Agreement, affiliates of Goldman Sachs have purchased
$415,957,000 in aggregate principal amount at maturity of zero coupon
convertible debentures and affiliates of Kelso have purchased $79,993,000 in
aggregate principal amount at maturity of zero coupon convertible debentures.
Goldman and Kelso have indicated that they currently expect to tender their
debentures in the tender offer subject to market conditions, although they are
not obligated to so tender.
42
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
McGuire, Woods, Battle & Boothe LLP, our special federal tax counsel, has
advised us that the following discussion as to legal matters is its opinion as
to the material United States federal income tax consequences of the rights
offering. Their opinion is based on current provisions of the U.S. Internal
Revenue Code of 1986, as amended, applicable final, temporary and proposed
Treasury Regulations, judicial authority, and current administrative rulings
and pronouncements of the IRS, and upon the facts concerning AMF as of today.
We cannot assure you that the IRS will agree with their opinion, and we are not
requesting a ruling from the IRS. Legislative, judicial or administrative
changes or interpretations may be issued in the future that could alter or
modify their opinion. These changes or interpretations could be retroactive and
therefore affect the tax consequences to you.
Moreover, the opinion of McGuire, Woods, Battle & Boothe LLP does not purport
to fully address all aspects of federal income taxation that may be relevant to
you, especially if you are subject to special treatment under the federal
income tax laws. For example, if you are a bank, a dealer in securities, a
trader in securities that elects to mark to market, a life insurance company, a
tax-exempt organization or a foreign taxpayer (such as a foreign corporation,
foreign partnership or nonresident alien individual), this discussion may not
cover all relevant tax issues. Also this opinion does not address applicable
tax consequences if you hold AMF common stock as part of a hedging, straddle,
constructive sale, conversion or other risk reduction transaction. This opinion
does not address any aspect of state, local or foreign tax laws.
In addition, this opinion assumes that you hold AMF common stock, and will
hold the rights and any shares of AMF common stock you acquire upon the
exercise of rights, as capital assets (generally, property held for investment)
for federal income tax purposes. We urge you to consult your own tax advisors
to determine the specific tax consequences of the rights offering to you,
including state, local and foreign tax consequences.
Issuance of the Rights
If you hold AMF common stock on the record date, you will not be required to
recognize taxable income upon the receipt of the rights.
Subject to certain exceptions, a distribution by a corporation to its
stockholders of rights to acquire stock in the distributing corporation is not
taxable. An exception to this general rule applies in the case of a
distribution which constitutes a "disproportionate distribution" with respect
to any class or classes of stock of the corporation. A distribution of stock
rights constitutes a "disproportionate distribution" if it is a part of a
distribution or a series of distributions (including deemed distributions) that
has the effect of the receipt of property (including cash) by some stockholders
and an increase in the proportionate interests of other stockholders in the
assets or earnings and profits of the distributing corporation.
The distribution of the rights to all stockholders will not constitute a
taxable distribution based on representations by AMF that:
. there is a single class of stock outstanding, and
. there has not been nor is there expected to be any property
distributions to any stockholder in connection with the distribution of
rights.
If despite these representations, the IRS were to conclude that there were
other property distributions to stockholders in connection with the
distribution of rights, the IRS could try to treat the distribution of rights
as a taxable distribution. If the IRS were successful in taking such a
position, an AMF stockholder receiving rights would include in gross income
(taxable as ordinary income) the fair market value of the rights received to
the extent of the current and accumulated earnings and profits of AMF. To the
extent the fair market value of the rights exceeded the current and accumulated
earnings and profits of AMF, the excess would be treated first as a nontaxable
recovery of adjusted tax basis in the AMF common stock with respect to which
the rights were
43
distributed and then as gain from the sale or exchange of the AMF common stock.
An AMF stockholder's tax basis in rights received in a taxable distribution
would equal the fair market value of the rights as of the date of distribution
of the rights. An AMF stockholder's holding period in those rights would begin
on the day following the date of distribution of the rights.
We intend to treat the distribution of rights as a nontaxable distribution.
Except as provided above, the following discussion assumes that the
distribution of the rights will be treated as a nontaxable distribution.
Basis and Holding Period of the Rights
If you hold AMF common stock on the record date and the fair market value of
the rights on the day we issue the rights is less than 15% of the fair market
value of AMF common stock on that date, your basis in the rights received
generally will be zero. However, you will be permitted to make an election,
under section 307 of the Internal Revenue Code, to allocate your basis in your
shares of AMF common stock between your stock and the rights in proportion to
their relative fair market values on the date we issue the rights.
If the fair market value of the rights on the date we issue the rights is 15%
or more of the fair market value of AMF common stock on that date (which could
occur if an unanticipated market demand for rights develops), you will be
required to allocate your basis in your shares of AMF common stock between your
stock and the rights in proportion to their relative fair market values on the
date we issue the rights.
If you hold AMF common stock on the record date, the holding period of rights
that we distribute to you will include your holding period (as of the date of
issuance) for the AMF common stock with respect to which we distributed the
rights to you.
If you purchase rights, your basis in the rights will be equal to your
purchase price for the rights. Your holding period for those rights will begin
on the date following the date you purchase the rights.
Transfer of the Rights
If you sell or exchange your rights, you generally will recognize gain or
loss equal to the difference between the amount realized and your basis, if
any, in the rights. Such gain or loss generally will be capital gain or loss
(assuming the rights are held as capital assets at the time of the sale or
exchange). Gain or loss from the sale of an asset held for more than one year
will generally be taxable as long term capital gain or loss. If you are an
individual, any long term capital gain is generally taxed at a maximum federal
income tax rate of 20%.
Expiration of the Rights
If your basis in your rights is zero, and you allow your rights to expire
unexercised, you will not recognize any gain or loss.
If you received your rights in a distribution from AMF and you allow your
rights to expire unexercised, you will not be permitted to recognize a taxable
loss. Any basis that would have been allocated to the expired rights will
instead be reallocated to the AMF common stock with respect to which those
rights were distributed.
If you purchase rights from another person and allow those rights to expire
unexercised, you will recognize a taxable loss. Any loss you recognize on the
expiration of your rights will be a capital loss if the AMF common stock that
you would have obtained on exercise of the rights would have been a capital
asset.
Exercise of the Rights; Basis and Holding Period of Acquired Shares
You will not recognize any gain or loss upon the exercise of your rights.
Your basis in each share of AMF common stock you acquire through exercise of
your rights will equal the sum of the subscription price you paid
44
to exercise your rights and your basis, if any, in the rights. Your holding
period for the AMF common stock you acquire through exercise of your rights
will begin on the date you exercise your rights.
Sale or Exchange of Common Stock
If you sell or exchange shares of AMF common stock, you will generally
recognize gain or loss on the transaction. The gain or loss you recognize is
equal to the difference between the amount you realize on the transaction and
your basis in the shares you sold. Such gain or loss generally will be capital
gain or loss so long as you held the shares as a capital asset at the time of
the sale or exchange. Gain or loss from an asset held for more than one year
will generally be taxable as long term capital gain or loss. If you are an
individual, any long-term capital gain is generally taxed at a maximum federal
income tax rate of 20%.
Information Reporting and Backup Withholding
Under the backup withholding rules of the Internal Revenue Code, you may be
subject to 31% backup withholding with respect to any reportable payments made
to you pursuant to the rights offering. You will not be subject to backup
withholding if you:
. Are a corporation or fall within certain other exempt categories and,
when required, demonstrate that fact; or
. Provide a correct taxpayer identification number and certify under
penalties of perjury that your taxpayer identification number is correct
and that you are not subject to backup withholding because you
previously failed to report all dividends and interest income.
Any amount withheld under these rules will be credited against your federal
income tax liability, provided that the required information is given to the
IRS. We may require you to establish your exemption from backup withholding or
make other arrangements with respect to the payment of backup withholding.
Non-U.S. Holders
For purposes of the following discussion, you will be considered a "Non-U.S.
Holder" if, for U.S. federal income tax purposes, you are considered to be (i)
a nonresident alien individual, (ii) a foreign corporation, (iii) an estate or
trust that is not subject to U.S. federal income tax on a net income basis, or
(iv) a foreign partnership.
If you are a Non-U.S. Holder of AMF common stock, under the general rules
described above you will not be required to recognize taxable income on the
receipt or exercise of rights. See "Issuance of the Rights" above.
Dividends. In general, if you are a Non-U.S. Holder dividends paid to you on
AMF common stock will be subject to withholding of U.S. federal income tax at a
30% rate unless such rate is reduced by an applicable income tax treaty. If
your dividends are connected with your conduct of a trade or business in the
United States, such dividends generally will be subject to U.S. federal income
tax at regular rates, and will not be subject to the 30% withholding tax if you
file the appropriate IRS form with the payor. If you are a foreign corporation,
dividends may, under certain circumstances, be subject to an additional "branch
profits tax" at a 30% rate or such lower rate as may be applicable under an
income tax treaty.
Under current rules, if dividends are paid to you at an address in a foreign
country you generally are presumed (absent actual knowledge to the contrary) to
be a resident of such country for purposes of the withholding rules discussed
above and for purposes of determining whether you qualify for a favorable tax
treaty rate. Under new regulations, not generally in effect until after
December 31, 2000 (the "Final Regulations"), however, if you wish to claim the
benefit of an applicable treaty rate you will be required to satisfy applicable
certification and other requirements.
45
If you are eligible for a reduced rate of U.S. withholding tax pursuant to an
income tax treaty you may obtain a refund of any amounts currently withheld by
filing an appropriate claim for a refund with the IRS.
Sale or Exchange of Rights or AMF Common Stock. Except as described below and
subject to the discussion concerning backup withholding, any gain realized on
the sale or exchange of rights or on the sale, exchange or redemption of AMF
common stock acquired upon exercise of a right generally will not be subject to
U.S. federal income tax, unless (i) such gain is effectively connected with a
trade on business that you conduct in the U.S. (and, if you are a treaty
resident, is attributable to a fixed base or permanent establishment that you
maintain in the U.S.), (ii) subject to certain exceptions, you are an
individual who holds the AMF common stock as a capital asset and you are
present in the United States for 183 days or more in the taxable year of the
disposition, (iii) you are subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates (including certain former
citizens or residents of the United States), or (iv) AMF is a "U.S. real
property holding corporation" for federal income tax purposes. AMF does not
believe that it is currently a "U.S. real property holding corporation," or
that it will become one in the future.
Federal Estate Tax. If you are an individual who is neither a citizen nor a
resident of the United States (for federal estate tax purposes) any AMF common
stock that you own at your death will be included in your estate for U.S.
federal income tax purposes unless an applicable estate tax treaty otherwise
applies.
Information Reporting and Backup Withholding. AMF must report annually to the
IRS and to each Non-U.S. Holder any dividend that is subject to withholding or
is exempt from U.S. withholding tax pursuant to a tax treaty. Copies of these
information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which you
reside.
The payment of the proceeds on the disposition of AMF common stock to or
through the U.S. office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless you certify as to
your Non-U.S. Holder status under penalty of perjury or otherwise establish an
exemption, provided that the broker does not have actual knowledge that you are
a U.S. person or that the conditions of any other exemption are not, in fact,
satisfied.
In the case of the payment of proceeds from the disposition of AMF common
stock to or through a non- U.S. office of a broker that is either a U.S. person
or a U.S. related person, information reporting (but not backup withholding)
will apply to the payment unless the broker has documentary evidence in the
files that you are a Non-U.S. Holder and the broker has no actual knowledge to
the contrary. Backup withholding will not apply to payments made through
foreign offices of a broker that is not a U.S. person or a U.S. related person
(absent actual knowledge that you are a U.S. person).
The Final Regulations, which are not currently in effect, make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The Final Regulations generally attempt to unify
certification requirements and modify reliance standards. You should consult
your own tax advisor regarding the Final Regulations.
Any amounts withheld under the backup withholding rules from a payment to you
will be allowed as a refund or a credit against your U.S. federal income tax
liability, provided that the required information is provided to the IRS.
46
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the terms of our capital stock and highlights
some of the provisions of our certificate of incorporation and bylaws. Since
the terms of our certificate of incorporation and bylaws may differ from the
general information we are providing, you should only rely on the actual
provisions of the certificate of incorporation or the bylaws. If you would like
to read the certificate of incorporation or bylaws, they are on file with the
Securities and Exchange Commission.
Authorized Shares
Our authorized capital stock consists of 200,000,000 shares of common stock,
par value $0.01 per share, and 50,000,000 shares of preferred stock, par value
$0.01 per share. As of June 25, 1999, 59,597,550 shares of AMF common stock
were outstanding. We have reserved a total of 11,213,305 shares of AMF common
stock for issuance upon exercise of outstanding stock options and warrants and
upon conversion of our zero coupon convertible debentures (without giving
effect to debentures tendered to us in the concurrent tender offer and without
giving effect to any adjustments to options, warrants or zero coupon
convertible debentures as a result of this rights offering). No shares of
preferred stock are outstanding.
Common Stock
As a holder of AMF common stock, you are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. You do
not have cumulative voting rights. Therefore, holders of a majority of shares
of AMF common stock entitled to vote in any election of our directors may elect
all directors standing for election. Affiliates of Goldman Sachs own a majority
of the outstanding AMF common stock. As a result of that ownership and the
provisions of the stockholders agreement, discussed under the heading "Certain
Relationships and Related Party Transactions" beginning on page 39, Goldman
Sachs affiliates generally have the ability to:
. control the election of a majority of our board of directors;
. appoint new management; and
. approve or block any action requiring stockholders approval, including
amendments to our certificate of incorporation and mergers or sales of
substantially all of our assets.
The stockholders agreement also provides for three of the investment funds
which are our stockholders each to nominate a director. Each of these nominees
is subject to approval of affiliates of Goldman Sachs.
Holders of AMF common stock are entitled to receive dividends declared by our
board of directors. The ability of our board of directors to declare dividends,
however, is subject to the rights of any holders of our preferred stock which
may be outstanding and the availability of sufficient funds to pay the
dividends. See "Dividend Policy" on page 23 for a description of substantial
restrictions on our ability to pay dividends. If we liquidate AMF, you will be
entitled to share ratably with the other stockholders in the distribution of
all assets that we have left after we pay all of our liabilities and all of our
obligations to the holders of any preferred stock which may be outstanding. You
have no preemptive rights to subscribe for additional shares of AMF and no
right to convert your AMF common stock into any other securities. In addition,
you do not have the benefit of a sinking fund for your shares of AMF common
stock. Your AMF common stock is not redeemable by us.
Preferred Stock
Your rights as a holder of AMF common stock may be affected by any preferred
stock that we may issue. As of the date of this prospectus, we have not issued
any preferred stock and we do not have any plans to issue any preferred stock
in the future. However, our board of directors is authorized to issue up to
50,000,000 shares of preferred stock. The issuance of preferred stock could
adversely affect your voting power as a holder of AMF common stock and could
have the effect of delaying, deferring or impeding a change in control of AMF.
47
If we authorize the issuance of preferred stock, our board of directors has
the authority to determine whether any or all shares of authorized preferred
stock should be issued as a class without series or in one or more series and
to fix the rights, preferences, privileges and restrictions of the preferred
stock. The rights and restrictions on the preferred stock may include dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences.
Provisions of the Certificate of Incorporation and Bylaws That May Have Anti-
Takeover Effects
Our certificate of incorporation and bylaws contain provisions that may have
the effect of delaying, deterring or preventing a sale or change of control of
AMF. These provisions may also make the removal of directors and management
more difficult. For example, our bylaws restrict who may call a special meeting
of stockholders, making it difficult for stockholders to call meetings for
special purposes. Also, our certificate of incorporation authorizes us to issue
preferred stock and rights or options entitling the holders to purchase
securities of AMF or of any other corporation, without stockholder approval and
upon terms the board of directors determines. However, because the parties to
the stockholders agreement currently can (and after the rights offering will
continue to be able to) elect all members of our board of directors and control
the outcome of most matters submitted to a vote of stockholders, such
provisions currently have limited significance to you.
Limitation of Liability of Directors
The certificate of incorporation and bylaws limit the directors' liability to
stockholders and AMF. Specifically, a director is not liable to AMF or you, as
one of its stockholders, for monetary damages for breach of fiduciary duty as a
director, except for liability for a director's
. breach of his or her duty of loyalty to AMF or our stockholders;
. acts or omissions that are either not in good faith or which involve his
or her intentional misconduct or a knowing violation of law;
. unlawful dividend payments or stock redemptions or repurchases pursuant
to Section 174 of the Delaware General Corporation Law; and
. participation in a transaction from which he or she received an improper
personal benefit.
These provisions do not limit liability under federal or state securities
laws. We believe these provisions will help us attract and retain qualified
individuals to serve as directors.
Section 203 of Delaware General Corporation Law
We have elected in the certificate of incorporation not to be subject to
Section 203 of the Delaware General Corporation Law, which restricts certain
business combinations between a Delaware corporation and an "interested
stockholder" (generally, a holder of 15% or more of a corporation's voting
stock).
Transfer Agent and Registrar
The transfer agent and registrar for AMF common stock and the rights is
ChaseMellon Shareholder Services, L.L.C.
48
PLAN OF DISTRIBUTION
We are making this rights offering directly to you, the holders of AMF common
stock, on a pro rata basis for each share of AMF common stock held on July 7,
1999.
We will pay D.F. King & Co., Inc., the information agent, a fee of
approximately $8,000 and ChaseMellon Shareholder Services, L.L.C., the
subscription agent, a fee of approximately $30,000 for their services in
connection with this rights offering. We have also agreed to reimburse the
information agent and the subscription agent their reasonable expenses and to
indemnify them against certain liabilities.
We estimate that our total expenses in connection with the rights offering,
including fees and expenses of the financial advisor/dealer manager,
information agent and subscription agent, will be $1.5 million.
We have not employed any brokers, dealers or underwriters in connection with
the solicitation of exercise of rights. Except as described in this section, we
are not paying any other commissions, fees or discounts in connection with the
rights offering. Some of our employees may solicit responses from you as a
holder of rights, but we will not pay our employees any commissions or
compensation for such services other than their normal employment compensation.
Morgan Stanley is acting as financial advisor to the board of directors in
connection with the recapitalization plan, including the rights offering and
the tender offer for our zero coupon convertible debentures. It is also
advising the special committee of the board on matters relating to the
concurrent tender offer, including the pricing thereof. Morgan Stanley's advice
has included assistance in determining the subscription price, the tender offer
price and the impact of the rights offering on us and our stockholders from a
financial point of view. It has also discussed with management and the board of
directors the possible effects of the rights offering and the recapitalization
plan, including the concurrent tender offer for our zero coupon convertible
debentures. Morgan Stanley also performed analyses to assist the board of
directors in determining the appropriate and desirable pricing and other terms
for the rights offering and the special committee in determining the
appropriate and desirable pricing of the tender offer. Please refer to "Our
Business, Recapitalization Plan and On-Going Business Strategies" on page 20
and "The Rights Offering--Approval of the Rights Offering and Determination of
the Subscription Price" on page 27 for more information about the background of
the rights offering. Morgan Stanley is not making a recommendation as to
whether or not you should exercise your rights. You should make your decision
based on your own assessment as to whether to exercise your rights. Morgan
Stanley is also acting as dealer manager in the concurrent tender offer for our
zero coupon convertible debentures. We have agreed to pay Morgan Stanley a fee
of $500,000 for serving as financial adviser and dealer manager as described
above. We have also agreed to reimburse its reasonable expenses and to
indemnify it against certain liabilities, including under the securities laws.
Morgan Stanley and some of its affiliates have performed in the past and may
perform in the future other financial advisory and investment banking services
for us. We have paid, and may in the future pay, such parties compensation for
their services. Morgan Stanley was one of the initial purchasers of our zero
coupon convertible debentures when they were issued in May 1998 and is
currently a market maker for the debentures. In addition, Morgan Stanley was an
underwriter of our initial public common stock offering in November 1997,
serving as the qualified independent underwriter for purposes of the rules of
the National Association of Securities Dealers, Inc. in the offering.
49
LAWYERS
McGuire, Woods, Battle & Boothe LLP, Richmond, Virginia, and Wachtell,
Lipton, Rosen & Katz, New York, New York, represented AMF in connection with
the validity of the AMF common stock and the rights offered by this prospectus.
Potter, Anderson & Corroon LLP, Wilmington, Delaware represented the special
committee of the board of directors in considering the concurrent tender offer
for our zero coupon convertible debentures, including the pricing thereof.
EXPERTS
The financial statements and schedules as of December 31, 1998, for each of
the two years in the period ended December 31, 1998, and for the period from
inception (January 12, 1996) through December 31, 1996, incorporated by
reference in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, in reliance upon the authority
of said firm as experts in accounting and auditing in giving said reports.
The combined financial statements, as of April 30, 1996 and for the four
months then ended, of AMF Bowling Group, the predecessor company to AMF
Bowling, Inc., incorporated in this prospectus by reference to the AMF Bowling,
Inc. Annual Report on Form 10-K for the year ended December 31, 1998, have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
We have agreed to indemnify PricewaterhouseCoopers LLP for the payment of all
legal costs and expenses incurred in their successful defense of any legal
action or proceeding that arises as a result of their audit reports on the
combined financial statements of AMF Bowling Group being included or
incorporated by reference in this prospectus.
50
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission ("SEC") a
registration statement on Form S-3 under the Securities Act of 1933 covering
the rights and the shares of AMF common stock to be issued when the rights are
exercised. As allowed by SEC rules, this prospectus does not contain all of the
information set forth in the registration statement. Our descriptions in this
prospectus concerning the contents of any contract, agreement or document are
not necessarily complete. For those contracts, agreements or documents that we
filed as exhibits to the registration statement, you should read the exhibit
for a more complete understanding of the document or subject matter involved.
Because we are subject to the informational requirements of the Securities
Exchange Act of 1934, we file reports, proxy statements and other information
with the SEC. You may read and copy the registration statement, including the
attached exhibits and schedules, and any reports, proxy statements or other
information that we file at the SEC's public reference room in Washington, D.C.
at 450 Fifth Street, NW 20549. You can request copies of these documents by
writing to the SEC and paying a duplicating charge. Please call the SEC at 1-
800-SEC-0330 for further information on the operation of its public reference
rooms in other cities. The SEC makes our filings available to the public on its
Internet site (http://www.sec.gov). In addition, you may inspect such reports
and other information at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to other documents that we filed separately with the SEC. You
should consider the incorporated information as if we reproduced it in this
prospectus, except for any information directly superseded by information
contained in this prospectus.
We incorporate by reference into this prospectus the following documents (SEC
File No. 001-13539), which contain important information about us and our
business and financial results:
. our Annual Report on Form 10-K for the year ended December 31, 1998;
. our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
. our Current Reports on Form 8-K dated May 5, 1999 and June 28, 1999;
. our Information Statement on Schedule 14C dated May 5, 1999; and
. the description of the AMF common stock contained in our Registration
Statement on Form 8-A filed with the SEC on October 27, 1997.
We may file additional documents with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 on or after the date
of this prospectus and before the expiration of the rights offering. The SEC
allows us to incorporate by reference into this prospectus such documents. You
should consider any statement contained in this prospectus (or in a document
incorporated into this prospectus) to be modified or superseded to the extent
that a statement in a subsequently filed document modifies or supersedes such
statement.
You may get copies of any of the incorporated documents (excluding exhibits,
unless the exhibits are specifically incorporated) at no charge to you by
writing or calling Renee D. Antolik, AMF Bowling, Inc., Vice President,
Investor Relations and Financial Reporting (Telephone: (804) 730-4402).
51
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AMF Bowling, Inc. has not authorized any person to give you information that
differs from the information in this prospectus. You should rely solely on the
information contained in this prospectus. This prospectus is not an offer to
sell these securities, and we are not soliciting offers to buy these
securities in any state where the offer or sale of these securities is not
permitted. The information in this prospectus is accurate only as of the date
of this prospectus, even if the prospectus is delivered to you after the
prospectus date, or you buy AMF common stock after the prospectus date.
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TABLE OF CONTENTS
Page
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Questions and Answers About the Rights Offering........................... 2
Prospectus Summary........................................................ 5
Summary Consolidated Financial Data....................................... 8
Risk Factors.............................................................. 10
Cautionary Statement Regarding Forward-Looking Statements ................ 17
Recent Developments....................................................... 19
Our Business, Recapitalization Plan and On-Going Business Strategies...... 20
Use of Proceeds........................................................... 23
Dividend Policy........................................................... 23
Price Range of Common Stock............................................... 24
Capitalization............................................................ 25
The Rights Offering....................................................... 27
Certain Relationships and Related Party Transactions...................... 39
Certain Federal Income Tax Consequences................................... 43
Description of Capital Stock.............................................. 47
Plan of Distribution...................................................... 49
Lawyers................................................................... 50
Experts................................................................... 50
Where You Can Find More Information....................................... 51
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27,998,929 SHARES
[LOGO APPEARS HERE]
AMF BOWLING, INC.
COMMON STOCK
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PROSPECTUS
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June 28, 1999
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities offered hereby and the concurrent
tender offer for zero coupon convertible debentures.
SEC Registration Fee............................................. $ 38,920
NYSE Listing Fee................................................. 113,300
NASD Filing Fee.................................................. 14,500
Subscription Agent Fee........................................... 50,000
Information Agent Fee............................................ 15,000
Printing and Engraving Expenses.................................. 100,000
Legal Fees and Expenses.......................................... 750,000
Accounting Fees and Expenses..................................... 50,000
Financial Advisor Fees and Expenses.............................. 600,000
Miscellaneous.................................................... 168,280
----------
Total.......................................................... $1,900,000
==========
Item 15. Indemnification of Directors and Officers
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
provides that a corporation may eliminate or limit the personal liability of a
director (or certain persons who, pursuant to the provisions of the certificate
of incorporation, exercise or perform duties conferred or imposed upon
directors by the DGCL) to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provisions may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (which provides for liability of directors for unlawful payments of
dividends or unlawful stock purchases or redemptions) or (iv) for any
transaction from which the director derived an improper personal benefit.
Article VIII, Section 1 of the registrant's Restated Certificate of
Incorporation limits the liability of directors thereof to the full extent
permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties to which they may be made parties by reason of their being or
having been directors, officers, employees or agents of the corporation, if
such persons acted in good faith and in a manner they reasonably believed to be
in or not opposed to the best interest of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. In addition, a corporation may indemnify any such person
for expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of any such action or
suit by or in the right of the corporation if the person acted in good faith
and in a manner that the person reasonably believed to be in or not opposed to
the best interests of the corporation; however, the corporation may not
indemnify the person for such expenses in a suit or action by or on behalf of
the corporation unless the Delaware Court of Chancery or the court hearing the
action or proceeding determines that the person is fairly and reasonably
entitled to indemnity for such expenses. A corporation is required to provide
the foregoing indemnity to a director if the director is successful (on the
merits or otherwise) in his or her defense of the claim or proceeding. Article
VIII, Section 2(a) of the Restated Certificate of Incorporation of the
registrant provides that the registrant shall indemnify its officers and
directors to the full extent permitted by Delaware law.
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Article VIII, Section 2(a) of the registrant's Restated Certificate of
Incorporation also provides that the registrant shall indemnify any such person
seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the board of directors, except
as otherwise provided in the Restated Certificate of Incorporation. Any rights
to indemnification conferred in Section 2 are contract rights, and include the
right to be paid by the registrant the expenses incurred in defending any such
proceeding in advance of its final disposition, except that, if the DGCL
requires, the payment of such expenses incurred by a director or officer in
such capacity in advance of final disposition shall be made only upon delivery
to the registrant of an undertaking by or on behalf of such director or
officer, to repay all amounts so advanced, if it is ultimately determined that
such director or officer is not entitled to be indemnified under Section 2 or
otherwise. By action of the board of directors, the registrant may extend such
indemnification to employees and agents of the registrant.
An insurance policy obtained by the registrant provides for indemnification
of officers and directors of the registrant and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.
Item 16. Exhibits
See Index to Exhibits.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent post-
effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Richmond, Virginia, on June 28, 1999.
AMF Bowling, Inc.
By: /s/ Roland C. Smith
----------------------------------
Name: Roland C. Smith
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities on the
dates indicated.
Signature Title
--------- -----
/s/ Richard A. Friedman* Chairman of the Board
______________________________________
Richard A. Friedman
/s/ Roland C. Smith Director/President and Chief Executive Officer
______________________________________ (Principal Executive Officer)
Roland C. Smith
/s/ Terence M. O'Toole* Director
______________________________________
Terence M. O'Toole
/s/ Peter M. Sacerdote* Director
______________________________________
Peter M. Sacerdote
/s/ Charles M. Diker* Director
______________________________________
Charles M. Diker
/s/ Paul B. Edgerley* Director
______________________________________
Paul B. Edgerley
/s/ Howard A. Lipson* Director
______________________________________
Howard A. Lipson
/s/ Thomas R. Wall, IV* Director
______________________________________
Thomas R. Wall, IV
/s/ Stephen E. Hare Director/Executive Vice President/Chief Financial
______________________________________ Officer/Treasurer (Principal Financial Officer)
Stephen E. Hare
/s/ Michael P. Bardaro* Senior Vice President/Corporate
______________________________________ Controller/Assistant Secretary/Chief Accounting
Michael P. Bardaro Officer (Principal Accounting Officer)
*By: /s/ Stephen E. Hare
------------------------------
Stephen E. Hare
Attorney-in-Fact
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List of Exhibits
Exhibit
Number Description
------- -----------
4.1 Form of Rights Certificate.
4.2 Specimen of Common Stock Certificate. (1)
4.3 Restated Certificate of Incorporation of AMF Bowling, Inc. (2)
4.4 By-Laws of AMF Bowling, Inc. (3)
5.1 Opinion of McGuire, Woods, Battle & Boothe LLP.
5.2 Opinion of Wachtell, Lipton, Rosen & Katz.
8.1 Tax Opinion of McGuire, Woods, Battle & Boothe LLP.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of McGuire, Woods, Battle & Boothe LLP (contained in Exhibits
5.1 and 8.1).
23.4 Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.2).
24.1* Power of Attorney (included on signature page).
24.2 Power of Attorney
99.1 Form of Instructions to Stockholders.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of DTC Participant Over-Subscription Exercise Form.
99.4 Form of DTC Participant Conditional Over-Subscription Exercise Form.
99.5 Form of Letter to Stockholders who are Record Holders.
99.6 Form of Letter to Stockholders who are Beneficial Holders.
99.7 Form of Letter to Clients of Stockholders.
99.8 Form of Nominee Holder Certificate Form.
99.9 Substitute Form W-9 for Use with Rights Offering.
99.10 Form of Beneficial Owner Election Form.
99.11 Form of Subscription Agent Agreement by and between AMF Bowling, Inc.
and ChaseMellon Shareholder Services, L.L.C.
99.12 Form of Information Agreement by and between AMF Bowling, Inc. and
D.F. King & Co., Inc.
99.13 Form of Notice to Stockholders.
- --------
* Previously filed.
Notes to Exhibits:
(1) Incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K
of AMF Bowling, Inc. for the fiscal year ended December 31, 1997 (File No.
001-13539).
(2) Incorporated by reference to Exhibit 3.1 to the Registration Statement on
Form S-1 of AMF Bowling, Inc. (File No. 333-34099).
(3) Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 of AMF Bowling, Inc. (File No. 333-34099).