<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1998.
REGISTRATION NO. 333-42085
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
TRANSWESTERN PUBLISHING COMPANY LLC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2741 33-0778740
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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TWP CAPITAL CORP. II
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2741 33-0778739
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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8344 CLAIREMONT MESA BOULEVARD
SAN DIEGO, CALIFORNIA 92111
TELEPHONE: (619) 467-2800
(Address, including zip code and telephone number, including area code of
registrants' principal executive offices)
---------------------------
<TABLE>
<S> <C>
JOAN M. FIORITO Copy to:
8344 CLAIREMONT MESA BOULEVARD WILLIAM S. KIRSCH, P.C.
SAN DIEGO, CALIFORNIA 92111 KIRKLAND & ELLIS
TELEPHONE: (619) 467-2800 200 EAST RANDOLPH DRIVE
(Name, address, including zip code, and CHICAGO, ILLINOIS 60601
telephone number, TELEPHONE: (312) 861-2000
including area code, of agent for service)
</TABLE>
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 20, 1998
PRELIMINARY PROSPECTUS
FEBRUARY , 1998
TRANSWESTERN PUBLISHING COMPANY LLC
TWP CAPITAL CORP. II
OFFER TO EXCHANGE THEIR SERIES B 9 5/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF THEIR OUTSTANDING
9 5/8% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1998, UNLESS EXTENDED.
TransWestern Publishing Company LLC, a Delaware limited liability company
("Transwestern"), and TWP Capital Corp. II, a Delaware corporation ("Capital II"
and, together with Transwestern, the "Company" or the "Issuers") hereby offer
(the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of their Series B
9 5/8% Senior Subordinated Notes due 2007 (the "Exchange Notes"), registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of their outstanding 9 5/8% Senior Subordinated Notes due 2007
(the "Old Notes"), of which $100,000,000 aggregate principal amount is
outstanding. The form and terms of the Exchange Notes are the same as the form
and term of the Old Notes except that (i) the Exchange Notes will bear a Series
B designation, (ii) the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof and (iii) holders of the Exchange Notes will not be entitled to certain
rights of holders of Old Notes under the Exchange Offer Registration Rights
Agreement (as defined herein). The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be issued under and be entitled to
the benefits of the Indenture dated as of November 12, 1997 (the "Indenture") by
and among the Company and Wilmington Trust Company, as trustee. The Old Notes
were initially issued on November 12, 1997. The Old Notes and the Exchange Notes
are sometimes referred to herein collectively as the "Notes." See "The Exchange
Offer" and "Description of the Notes."
Interest on the Notes will be payable in cash semiannually on each May 15
and November 15, commencing May 15, 1998. The Notes will be redeemable at the
option of the Issuers, in whole or in part, at any time on or after November 15,
2002, at the redemption prices set forth herein, together with accrued and
unpaid interest thereon to the redemption date. In addition, the Issuers, at
their option, may redeem in the aggregate up to 35% of the original principal
amount of the Notes at any time on or prior to November 15, 2000 at a redemption
price equal to 109.625% of the aggregate principal amount thereof, together with
accrued and unpaid interest thereon to the redemption date, with the Net
Proceeds (as defined herein) of one or more Public Equity Offerings (as defined
herein), provided, however, that at least $65.0 million aggregate principal
amount of the Notes remains outstanding after any such redemption and that such
redemption occurs within 90 days following the closing of any such Public Equity
Offering. See "Description of the Notes -- Optional Redemption." Upon the
occurrence of a Change of Control (as defined herein), each holder of the Notes
will be entitled to require the Issuers to purchase such holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof, together
with accrued and unpaid interest thereon to the purchase date. See "Description
of the Notes -- Change of Control Offer."
The Notes will be general unsecured obligations of the Issuers subordinate
in right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Issuers, pari passu in right of payment to all senior
subordinated indebtedness of the Issuers and senior in right of payment to all
subordinated indebtedness of the Issuers. As of October 31, 1997, after giving
effect to the consummation of the Initial Offerings (as defined herein) and the
Asset Drop-Down (as defined herein), the Issuers would have had approximately
$85.0 million aggregate principal amount of Senior Indebtedness outstanding. In
addition, the Issuers would have had $40.0 million of additional borrowing
availability under the Senior Credit Facility (as defined herein). The Company's
pro forma earnings were insufficient to cover fixed charges by approximately
$7.6 million for the six-month period ended October 31, 1997. See
"Capitalization" and "Description of the Notes."
(Cover continued on following page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
(Cover page continued)
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on , 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary conditions.
The Old Notes were sold by the Company on November 12, 1997 to CIBC Oppenheimer
and First Union Capital Markets Corp. (the "Initial Purchasers") in a
transaction not registered under the Securities Act in reliance upon an
exemption under the Securities Act (the "Initial Offering"). The Initial
Purchasers subsequently placed the Old Notes with qualified institutional buyers
in reliance upon Rule 144A under the Securities Act. Accordingly, the Old Notes
may not be reoffered, resold or otherwise transferred in the United States
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered hereunder in order to satisfy the obligations
of the Company under the Exchange Offer Registration Rights Agreement entered
into by the Company and the Initial Purchasers in connection with the Initial
Offering. See "The Exchange Offer."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer may be offered for resale, resold and otherwise transferred
by any holder thereof (other than any such holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. See "The Exchange Offer -- Resale of the Exchange Notes."
Holders of Old Notes wishing to accept the Exchange Offer must represent to the
Company, as required by the Exchange Offer Registration Rights Agreement, that
such conditions have been met. Each broker-dealer (a "Participating
Broker-Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. The Issuers have agreed
that, for a period of 180 days after the Expiration Date, they will make this
Prospectus, as it may be required to be amended or supplemented during such
period, available to any Participating Broker-Dealer for use in connection with
any such resale. See "Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
Concurrent with the Initial Offering, TransWestern Holdings L.P.
("Holdings"), the parent company of the Issuers, and TWP Capital Corp.
("Capital," and together with Holdings, the "Discount Note Issuers"), sold (the
"Initial Discount Note Offering," and together with the Initial Offering, the
"Initial Offerings") $32.5 million in initial aggregate principal amount ($57.9
million principal amount at maturity) of their 11 7/8% Senior Discount Notes due
2008 (the "Old Discount Notes").
<PAGE> 4
(Cover page continued)
Concurrent with this Exchange Offer, the Discount Note Issuers are offering
to exchange (the "Discount Note Exchange Offer," and together with this Exchange
Offer, the "Exchange Offers") $1,000 principal amount at maturity of their
Series B 11 7/8% Senior Discount Notes due 2008 (the "Exchange Discount Notes")
registered under the Securities Act pursuant to a Registration Statement, for
each $1,000 principal amount at maturity of their outstanding Old Discount
Notes, of which $57.9 million aggregate principal amount at maturity is
outstanding as of the date hereof. The Old Discount Notes and the Exchange
Discount Notes are sometimes referred to herein collectively as the "Discount
Notes." See "The Transactions" and "Description of Certain Indebtedness --
Discount Notes."
Pursuant to the Recapitalization, Holdings redeemed a portion of the
limited partnership interests held by the Existing Limited Partners (as defined
herein), including the Management Investors (as defined herein), who as a group
received an aggregate of approximately $38 million in the Recapitalization and
exchanged their remaining limited partnership interests, valued at approximately
$11 million in the Recapitalization, for newly issued Preferred and Class A
Units (as defined herein). Also in connection with the Recapitalization,
Holdings repaid $833,419 in loans made to Holdings by TransWestern
Communications Company, Inc. ("TCC"), its General Partner. The loans were made
by TCC to Holdings for amounts distributed to TCC in connection with the
periodic and special distributions made by Holdings to its partners. Holdings
used approximately $31.3 million of the proceeds of the Initial Discount Note
Offering to redeem approximately one half of the Preferred Units held by its
limited partners. See "Certain Transactions -- Benefits of the Recapitalization
to Certain Existing Security Owners and Management Investors," "-- Payments on
TCC Note" and "-- Redemption of Preferred Units."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form and
the Company expects that the Exchange Notes issued pursuant to the Exchange
Offer will be issued in the form of a Global Note (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Note representing the Exchange Notes will be shown on,
and transfers thereof will be effected through, records maintained by DTC and
its participants. After the initial issuance of the Global Note, Exchange Notes
in certificated form will be issued in exchange for the Global Note only under
limited circumstances as set forth in the Indenture. See "Description of the
Notes -- Book-Entry; Delivery and Form."
<PAGE> 5
AVAILABLE INFORMATION
The Issuers have filed with the Commission a registration statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Offer contemplated hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to the Issuers and the Exchange Offer, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and inspected at the Commission's regional offices at 7
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such site is http://www.sec.gov.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Issuers will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The obligation of the Issuers to file
periodic reports and other information with the Commission will be suspended if
the Notes are held of record by fewer than 300 holders as of the beginning of
any fiscal year of the Issuers other than the fiscal year in which the Exchange
Offer Registration Statement is declared effective. TransWestern has agreed
that, whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will furnish
to the holders of the Notes and file with the Commission (unless the Commission
will not accept such a filing) (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if TransWestern was required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by TransWestern's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if TransWestern was required to file such reports. Capital II will furnish
to the holders of the Notes and file such reports with the Commission only if it
is required to file such reports with the Commission by the rules and
regulations of the Commission. In addition, for so long as any of the Notes
remain outstanding, the Issuers have agreed to furnish to the holders of the
Notes or any prospective transferee of any such holder, upon their request the
information required to be delivered by Rule 144A(d)(4) under the Securities
Act.
i
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise specified herein, all market and
industry data relating to independent yellow pages directory publishers are
based on information provided by Cowles/Simba Information, an independent market
research firm, as adjusted to reflect the Company's actual performance and
events known to the Company, including recent acquisitions and dispositions of
directories by certain of the publishers listed therein, and all other market
and industry data have been obtained from the Yellow Pages Publishers
Association, an independent trade association. Unless the context otherwise
requires (i) the term "TransWestern business" refers to the historical
operations of the Company and the TransWestern business acquired in 1993 (the
"1993 Acquisition") from US West Marketing Resources Group, Inc., a subsidiary
of US WEST INC. ("US West"), (ii) the term "Holdings" refers to TransWestern
Holdings L.P. (f/k/a TransWestern Publishing Company, L.P.), (iii) the term
"TCC" refers to TransWestern Communications Company, Inc., which is the general
partner of Holdings and the manager of TransWestern Publishing Company LLC, (iv)
the term "Capital" refers to TWP Capital Corp., a wholly-owned subsidiary of
Holdings, (v) the term "TransWestern" refers to TransWestern Publishing Company
LLC, a wholly-owned subsidiary of Holdings, (vi) the term "Capital II" refers to
TWP Capital Corp. II, a wholly-owned subsidiary of TransWestern, (vii) the term
"Company" or "Issuers" collectively refers to TransWestern and Capital II, and
where the context requires, to the historical operations of TransWestern
Publishing Company, L.P. prior to the Asset Drop-Down, (viii) the term
"Partnership" refers to TransWestern Publishing Company, L.P. prior to the Asset
Drop-Down, and (ix) a single customer that advertises in more than one directory
is counted as a separate "account" for each directory in which it advertises.
The information contained in this Prospectus does not give effect to the
Company's acquisition of eight directories from Mast Advertising and Publishing,
Inc., which was completed on February 2, 1998. See "-- Recent Developments." All
references to fiscal years in this Prospectus refer to years ended April 30.
THE COMPANY
The Company is one of the largest independent yellow pages directory
publishers in the United States. The Company's 142 directories serve communities
in the 12 states of California, Connecticut, Indiana, Kansas, Kentucky,
Louisiana, Massachusetts, New York, Ohio, Oklahoma, Tennessee and Texas. The
Company's presence in its markets is well-established; more than 70% of its
directories have been in publication for more than 10 years. The Company's
revenues are derived from the sale of advertising to a diversified base of over
93,000 accounts consisting primarily of small to medium-sized local businesses.
Yellow pages are an important advertising medium for local businesses due to
their low advertising cost, widespread distribution, lasting presence, and high
consumer usage.
Since the 1993 Acquisition, the Company's management team has successfully
executed its strategy of growing revenues from existing directories, improving
operating efficiency, accelerating cash flows and starting and acquiring new
directories. Over this period, the Company increased average revenue per account
from $789 to $981 and increased its number of directories from 90 to 142,
driving the Company's net revenues from $54.9 million to $91.4 million and its
net income from $1.4 million to $10.7 million. The Company achieved this growth
without significantly increasing working capital or capital expenditures, while
leveraging its existing cost structure and creating a platform for future
growth. As a result, the Company's EBITDA (as defined on page 12 of this
Prospectus) increased from $3.2 million to $24.9 million and its EBITDA margin
increased from 5.9% to 27.2%.
INDUSTRY OVERVIEW
The United States yellow pages directory industry generated revenues of
approximately $10.8 billion in 1996, with circulation of approximately 316
million directories. Yellow pages directories are published by both telephone
utilities and, in many markets, independent directory publishers, such as the
Company, which are not affiliated with the telephone service provider. More than
250 independent directory publishers circulated over 77 million directories and
generated an estimated $677 million in revenues during 1996. Between 1991 and
1996, while industry-wide yellow pages advertising revenues grew at a compound
annual rate of 3.5%, advertising revenues of independent directories grew at a
compound annual rate of approximately 6.9%.
1
<PAGE> 7
Concurrent with the overall expansion of the yellow pages advertising market,
independent directory publishers have steadily increased their market share from
5.5% in 1991 to 6.5% in 1996. This has occurred because the diverse needs of
both consumers and advertisers are often not satisfied by a single utility
directory. Successful independent publishers effectively compete with telephone
utilities by differentiating their product based on geographical market
segmentation, pricing strategy and enhanced product features.
OPERATING STRENGTHS
The Company believes that it benefits from the following operating
strengths:
High Revenue Stability and Account Renewal Rates. The Company's high
revenue renewal and account retention rates (averaging 86% and 76%,
respectively, during the last five fiscal years) have provided considerable
revenue and profit stability and form a strong base of business from which to
grow. For many local businesses, yellow pages directory advertising is their
principal form of advertising and provides an effective means of reaching their
potential customers.
Geographic, Directory, Industry and Account Diversity. The Company's 142
directories serve communities in 12 states across the country. No single
directory accounted for more than 5% of net revenues, and the top five
directories accounted for less than 19% of net revenues in fiscal 1997. The
Company's 93,000 accounts represent a wide variety of businesses and its top
1,000 accounts represented less than 12% of the Company's fiscal 1997 net
revenues. This high level of diversification reduces the Company's exposure to
adverse regional economic conditions and enhances revenue and cash flow
stability.
Favorable Cash Flow Characteristics. The Company's favorable cash flow
characteristics result from its stable revenues, high level of advance payments,
predictable cost structure, low working capital investment and minimal capital
expenditure needs. During fiscal 1997, the Company collected approximately 45%
of its net revenues prior to publication of its directories, up from
approximately 26% in fiscal 1993. In addition to collecting higher levels of
advance payments, the Company shortened customer payment terms and reduced
credit exposure to its smallest customers. Further, the Company's capital
expenditures have averaged less than $750,000 per year over the last five fiscal
years.
Proven, Experienced Management. The Company has a proven senior management
team with extensive experience in the yellow pages business. Collectively,
management owns approximately 9% of Holdings and also participates in a
substantial equity-based incentive program tied to the successful long-term
performance of the Company.
BUSINESS STRATEGY
The Company's strategy is to capitalize on its operating structure,
consisting of a decentralized sales force and centralized production and
administrative operations, in order to grow its position as a leading
independent yellow pages publisher. Specific elements of the Company's business
strategy are as follows:
Grow Revenues from Existing Directories. Management believes there are
opportunities to increase revenues from both existing advertisers and new
accounts. Specific initiatives include (i) cross-selling advertisers into
multiple directories, (ii) encouraging customers to purchase larger
advertisements or advertisements under multiple headings within the same
directory, (iii) introducing new premium advertising features, including color,
at premium prices, and (iv) offering Internet directory listings.
Improve Operating Efficiency. The Company works to continuously improve
its production processes and systems in order to increase its operating
efficiency. Management has created a team-oriented environment focused on
managing costs, streamlining processes and cross-training personnel to adjust to
fluctuations in production levels. These efforts have resulted in increased
capacity and lower production costs.
Accelerate Cash Flows. The Company continues to focus on increasing the
amount of cash it collects from advertisers prior to the publication of each
directory. Increasing advance payments and shortening customer payment terms (i)
reduces the Company's investment in working capital, (ii) decreases collection
and bad debt costs and (iii) permits the Company to finance the introduction of
new directories from internally generated funds. During 1997, the Company
collected approximately 45% of its net revenues prior to
2
<PAGE> 8
publication of its directories, up from approximately 26% in fiscal 1993. In
fiscal 1997, the Company's average accounts receivable turnover was
approximately 167 days. Accounts receivable as a percentage of the Company's
revenues decreases as the Company increases the percentage of its net revenues
that it collects prior to directory publication.
New Directory Growth. The Company's strategy includes growth through new
directory start-ups and selective acquisitions. The Company minimizes start-up
risks by launching new directories in areas contiguous to the Company's existing
markets where it has established sales infrastructure and local recognition and
where existing customers can provide an initial revenue base.
THE TRANSACTIONS
The Initial Offering was made in conjunction with the Partnership's $312.7
million Recapitalization which was consummated in October 1997.
In the Recapitalization, new investors, led by Thomas H. Lee Equity Fund
III, L.P. ("THL") and its affiliates (together, the "THL Parties"), along with
other investors, the Existing Limited Partners (as defined herein), and the
Company's 25 most senior managers (the "Management Investors"), invested new and
continuing capital of $130.0 million in the Partnership and TCC (the "Equity
Investment"). The proceeds of the Equity Investment, together with approximately
$182.7 million of aggregate proceeds from the debt financings described below,
were used (i) for $224.5 million of Recapitalization consideration, including
the redemption of a portion of the limited partnership interests from the
Existing Limited Partners, (ii) to repay $75.6 million under the Partnership's
existing credit facilities (the "Old Credit Facility") and (iii) to pay $10.6
million of fees and expenses and (iv) for $2.0 million for general corporate
purposes, including working capital.
The Recapitalization was financed with (i) the Equity Investment of $130.0
million, (ii) borrowings of approximately $107.7 million under a $125.0 million
senior credit facility (the "Senior Credit Facility") and (iii) borrowings of
$75.0 million under a senior subordinated financing facility (the "Senior
Subordinated Facility"). The above-described purchase and redemption of
partnership units and the borrowings under the Senior Credit Facility and the
Senior Subordinated Facility and the use of proceeds therefrom are collectively
referred to herein as the "Recapitalization."
The following table sets forth the sources and uses of funds in the
Recapitalization (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Senior Credit Facility(a)(b)...................................... $107.7
Senior Subordinated Facility(b)................................... 75.0
Equity Investment(c).............................................. 130.0
------
Total sources............................................. $312.7
======
USES:
Recapitalization consideration(d)................................. $224.5
Repayment of Old Credit Facility(e)............................... 75.6
Fees and expenses................................................. 10.6
Working capital................................................... 2.0
------
Total uses................................................ $312.7
======
</TABLE>
- ---------------
(a) Includes borrowings of $85.0 million in Term Loans and $22.7 million under
the Revolving Credit Facility (as defined herein). Although the Company had
actually drawn $17.2 million under the Revolving Credit Facility as of
October 1, 1997, this table reflects an amount, $22.7 million, that would
have been borrowed under the Revolving Credit Facility if all estimated fees
and expenses, other debt assumed and the total amount to be paid under the
Equity Compensation Plan (as defined herein) had been paid on that date.
(b) The net proceeds of the Initial Offering were applied to (i) repay the
Senior Subordinated Facility, (ii) reduce the outstanding balance under the
Revolving Credit Facility, (iii) pay fees and expenses related to the
Initial Offering and (iv) for general corporate purposes, including working
capital.
(c) Includes $87.3 million from the New Investors (as defined herein), comprised
of (i) $77.0 million invested by the THL Parties, (ii) $5.0 million invested
by the CIBC Merchant Fund (as defined herein), (iii) $4.5 million invested
by CIVC III (as defined herein) and (iv) $0.8 million from new management
investors. Also includes $42.7 million from continuing investors, comprised
of
3
<PAGE> 9
(i) $25.5 million from CIVC (as defined herein), (ii) $11.2 million from the
Management Investors, (iii) $5.0 million from First Union Capital Partners
Inc. ("FUCP") and (iv) $1.0 million from the Partnership's former Chairman.
(d) Includes $174.4 million for redemption of outstanding partnership units,
$1.4 million for the purchase of TCC common stock, $5.5 million reserved for
payments pursuant to the Equity Compensation Plan, $0.5 million representing
debt assumed and $42.7 million of capital which was reinvested by the
Management Investors and certain other Existing Limited Partners.
(e) The Old Credit Facility was provided by First Union (as defined herein), as
lender and administrative agent, and CIBC Inc., an affiliate of CIBC
Oppenheimer, as lender and documentation agent.
As a result of the Recapitalization, the THL Parties became the holders of
a majority of the equity of the Partnership. The following chart shows the
structure of the Partnership after the Recapitalization (the percentages shown
below reflect the approximate percentage ownership of both Class A and Preferred
Units):
[CHART]
In November 1997, the Partnership formed and contributed substantially all
of its assets to TransWestern, TransWestern assumed or guaranteed all of the
liabilities of the Partnership, and the Partnership changed its name to
TransWestern Holdings L.P. (the "Asset Drop-Down"). As a result of the Asset
Drop-Down, Holdings' only assets are all of the TransWestern membership
interests and all of Capital's capital stock. All of the operations that were
previously conducted by the Partnership are now being conducted by TransWestern.
The following chart shows the structure of the Company after the Asset
Drop-Down:
[CHART]
4
<PAGE> 10
The Company applied the net proceeds of the Initial Offering to repay the
Senior Subordinated Facility and to reduce its outstanding indebtedness under
the Revolving Credit Facility (as defined herein) established by the Senior
Credit Facility. Concurrent with the Initial Offering, Holdings and Capital
offered $32.5 million in initial aggregate principal amount ($57.9 million
principal amount at maturity) of 11 7/8% Senior Discount Notes due 2008. The
Discount Notes are unsecured obligations of the Discount Note Issuers and are
effectively subordinated to all liabilities of Holdings' subsidiaries, including
the Notes and trade payables. The net proceeds of the Initial Discount Note
Offering were used to redeem approximately $31.3 million of the Equity
Investment. See "The Transactions" and "Limited Partnership Agreement." The
Recapitalization, together with the Asset Drop-Down and the Initial Offerings
and the use of proceeds therefrom, are collectively referred to herein as the
"Transactions."
After giving effect to the Transactions, the THL Parties collectively own
approximately 59% of the equity of Holdings and the CIVC Parties (as defined
herein), the Management Investors and TCC own approximately 23%, 9% and 1.7% of
the equity of Holdings, respectively. The remainder of the equity of Holdings is
held by other investors. TCC is owned approximately pro rata by all the equity
investors in Holdings. See "The Transactions."
THE PRINCIPAL INVESTORS
The Company's principal equity investor, THL, is party to a management
agreement with Thomas H. Lee Company ("THL Co."), one of the oldest and most
successful private equity investment firms in the United States. Founded in
1974, THL Co. focuses on identifying and acquiring substantial ownership stakes
in middle market growth companies. THL Co. currently manages over $3 billion of
capital and has participated in more than 100 acquisitions and investments.
Continental Illinois Venture Corporation ("CIVC") was the principal
investor in the 1993 Acquisition and continues to be a principal investor in the
Partnership. CIVC is an indirect subsidiary of BankAmerica Corporation, an
international financial services organization.
The Management Investors have all been members of the Company's senior
management since at least 1993 and have extensive experience in the yellow pages
publishing business. See "Management" and "Security Ownership of Certain
Beneficial Owners and Management."
The Company's principal executive offices are located at 8344 Clairemont
Mesa Boulevard, San Diego, California 92111, and its telephone number is (619)
467-2800.
RECENT DEVELOPMENTS
On February 2, 1998, the Company acquired eight directories from Mast
Advertising and Publishing, Inc. ("Mast") for approximately $9.0 million. The
purchase price consisted of (i) approximately $7.7 million of cash, (ii) a
$265,000 promissory note due in one year from the Company to Mast (subject to
adjustment based on the actual bad debt experience of the acquired directories)
and (iii) certain assumed liabilities of approximately $1.0 million. The cash
portion of the purchase price was funded with borrowings under the Revolving
Credit Facility and is subject to further adjustment based on the actual net
costs of the acquired directories. Six of the acquired directories are located
in Northern Ohio and Southern Michigan and serve the Toledo and Columbus areas,
and two of the acquired directories are contiguous with the Nashville market.
The Company retained 2 area sales managers and 22 account executives associated
with the acquired directories. The eight directories generated approximately
$4.7 million of net revenue in 1997.
5
<PAGE> 11
THE INITIAL OFFERING
Old Notes.................. The Old Notes were sold by the Issuers on November
12, 1997 to the Initial Purchasers pursuant to a
Securities Purchase Agreement dated November 6,
1997 (the "Purchase Agreement"). The Initial
Purchasers subsequently resold the Old Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act.
Registration Rights
Agreement.................. Pursuant to the Purchase Agreement, the Company and
the Initial Purchasers entered into a Registration
Rights Agreement dated as of November 12, 1997 (the
"Exchange Offer Registration Rights Agreement"),
which grants the holders of the Old Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered......... $100,000,000 aggregate principal amount of Series B
9 5/8% Senior Subordinated Notes due 2007 of the
Issuers.
The Exchange Offer......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $100,000,000
aggregate principal amount of Old Notes are
outstanding. The Issuers will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Issuers believe that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. Each holder accepting the Exchange Offer is
required to represent to the Issuers in the Letter
of Transmittal (or will be deemed to have made such
representations in the case of a book-entry
transfer) that, among other things the Exchange
Notes will be acquired by the holder in the
ordinary course of business and the holder does not
intend to participate and has no arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives Exchange
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such
Participating Broker-Dealer as a result of
market-making
6
<PAGE> 12
activities or other trading activities. The Issuers
have agreed that, for a period of 180 days after
the Expiration Date, they will make this
Prospectus, as it may be required to be amended or
supplemented during such period, available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes cannot rely on the position of the staff of
the Commission enunciated in no-action letters and,
in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction of the
Exchange Notes. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities Act
for which the holder is not indemnified by the
Issuers.
Expiration Date............ 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Accrued Interest on the
Exchange Notes and the
Old Notes................ Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the
issuance date of the Exchange Notes. Such interest
will be paid with the first interest payment on the
Exchange Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of
the Exchange Notes.
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuers. See
"The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof or transmit an Agent's Message (as defined
herein) in connection with a book-entry transfer,
in accordance with the instructions contained
herein and therein, and mail or otherwise deliver
such Letter of Transmittal, such facsimile or such
Agent's Message, together with the Old Notes and
any other required documentation to the Exchange
Agent (as defined herein) at the address set forth
herein by no later than the Expiration Date. By
executing the Letter of Transmittal or transmitting
an Agent's Message, each holder will represent to
the Issuers that, among other things, the Exchange
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person (i)
has any arrangement or understanding with any
person to participate in the distribution of such
Exchange Notes, (ii) is engaging in or intends to
engage in the distribution of such Exchange Notes,
or (iii) is an "affiliate," as defined under Rule
405 of the Securities Act, of the Issuers. See "The
Exchange Offer -- Purpose and Effect of the
Exchange Offer" and "-- Procedures for Tendering."
Untendered Old Notes....... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market
for such Old Notes could be adversely affected.
7
<PAGE> 13
Consequences of Failure
to Exchange.............. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Issuers, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a foreign person pursuant to the requirements of
Rule 904 under the Securities Act, or (iv) pursuant
to an effective registration statement under the
Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Federal Income Tax
Considerations........... In the opinion of Kirkland & Ellis, counsel to the
Issuers, the exchange of Old Notes pursuant to the
Exchange Offer will not be a taxable event for
federal income tax purposes. See "Certain U.S.
Federal Income Tax Considerations."
Shelf Registration
Statement.................. If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has satisfied certain conditions relating to
the provision of information to the Issuers for use
therein, the Issuers have agreed to register the
Old Notes on a shelf registration statement (the
"Shelf Registration Statement") and use their
reasonable best efforts to cause it to be declared
effective by the Commission as promptly as
practical on or after the consummation of the
Exchange Offer. The Issuers have agreed to maintain
the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the Old
Notes held by any such holders.
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... The Issuers will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant
8
<PAGE> 14
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Use of Proceeds............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Exchange Agent............. Wilmington Trust Company
THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes (which
they replace) except that (i) the Exchange Notes
bear a Series B designation, (ii) the Exchange
Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting
the transfer thereof, and (iii) the holders of
Exchange Notes will generally not be entitled to
certain rights under the Exchange Offer
Registration Rights Agreement, which rights will
generally be satisfied when the Exchange Offer is
consummated. See "The Exchange Offer -- Purpose and
Effect of the Exchange Offer." The Exchange Notes
will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture.
See "Description of the Notes." The Old Notes and
the Exchange Notes are referred to herein
collectively as the "Notes."
Maturity Date.............. November 15, 2007.
Interest Payment Dates..... Interest will accrue on the Exchange Notes from the
date of issuance (the "Issue Date") and will be
payable in cash semiannually in arrears on each May
15 and November 15, commencing May 15, 1998.
Ranking.................... The Exchange Notes will be, as the Old Notes (which
they replace) are, general unsecured obligations of
the Issuers subordinate in right of payment to all
existing and future Senior Indebtedness of the
Issuers, pari passu in right of payment to all
senior subordinated indebtedness of the Issuers and
senior in right of payment to all subordinated
indebtedness of the Issuers. As of October 31,
1997, after giving effect to the consummation of
the Initial Offerings and the Asset Drop-Down, the
Issuers would have had approximately $85.0 million
aggregate principal amount of Senior Indebtedness
outstanding. In addition, the Issuers would have
had $40.0 million of additional borrowing
availability under the Senior Credit Facility.
Guarantees by Future
Subsidiaries............. The Exchange Notes will be, as the Old Notes (which
they replace) are, unconditionally guaranteed, on
an unsecured senior subordinated basis, as to the
payment of principal, premium, if any, and
interest, jointly and severally (the "Guarantees"),
by all future direct and indirect Restricted
Subsidiaries (as defined herein) of the Issuers
having either assets or stockholders' equity in
excess of $100,000 (the "Guarantors"). Any such
Guarantees will be subordinated in right of payment
to all Senior Indebtedness of the respective
Guarantors. No Guarantees will be effective on the
Issue Date. See "Description of the
Notes -- Certain Covenants -- Limitation on
Creation of Subsidiaries."
Optional Redemption........ The Exchange Notes will be, as the Old Notes (which
they replace) are, redeemable at the option of the
Issuers, in whole or in part, at any time on or
after November 15, 2002, at the redemption prices
set forth herein, together with accrued and unpaid
interest thereon to the redemption date. In
addition, the Issuers, at their option, may redeem
in the aggregate up to 35% of the original
principal amount of the Notes at any
9
<PAGE> 15
time prior to November 15, 2000 at a redemption
price equal to 109.625% of the aggregate principal
amount thereof, together with accrued and unpaid
interest thereon to the redemption date, with the
Net Proceeds of one or more Public Equity
Offerings, provided, however, that at least $65.0
million aggregate principal amount of the Notes
remains outstanding after any such redemption and
that such redemption occurs within 90 days
following the closing of any such Public Equity
Offering. See "Description of the Notes -- Optional
Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, each
holder of the Notes will be entitled to require the
Issuers to purchase such holder's Notes at a
purchase price equal to 101% of the aggregate
principal amount thereof, together with accrued and
unpaid interest thereon to the purchase date.
Certain events involving a Change in Control may
result in an event of default under the Senior
Credit Facility or other indebtedness of the
Issuers that may be incurred in the future.
Moreover, the exercise by the holders of the Notes
of their right to require the Issuers to purchase
the Notes may cause an event of default under the
Senior Credit Facility or such other indebtedness
of the Issuers that may be incurred in the future,
even if the Change of Control does not. In
addition, there can be no assurance that the
Company will have the financial resources necessary
to purchase the Notes upon a Change of Control. See
"Risk Factors -- Limitations on Change of Control;
Ability to Purchase Notes Upon A Change of Control"
and "Description of the Notes -- Change of Control
Offer."
Asset Sale Proceeds........ The Issuers will be obligated in certain instances
to make an offer to repurchase the Notes at a
purchase price equal to 100% of the aggregate
principal amount thereof, together with accrued and
unpaid interest thereon to the purchase date, with
the net cash proceeds of certain asset sales. See
"Description of the Notes -- Certain
Covenants -- Limitation on Certain Asset Sales."
Certain Covenants.......... The Indenture contains covenants for the benefit of
the holders of the Notes that, among other things,
restrict the ability of the Issuers and any of
their Restricted Subsidiaries to (i) incur
additional Indebtedness (as defined herein), (ii)
pay dividends and make distributions, (iii) issue
stock of subsidiaries, (iv) make certain
investments, (v) repurchase stock, (vi) create
liens, (vii) enter into transactions with
affiliates, (viii) enter into sale lease-back
transactions, (ix) merge or consolidate the Company
or any Guarantors, and (x) transfer or sell assets.
These covenants are subject to a number of
important exceptions, including the allowance of
Permitted Tax Distributions (as defined herein).
See "Description of the Notes -- Certain
Covenants."
RISK FACTORS
Holders of Old Notes should carefully consider the specific matters set
forth under "Risk Factors" as well as the other information and data set forth
in this Prospectus before tendering the Old Notes in exchange for Exchange
Notes.
10
<PAGE> 16
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
The following table presents summary historical financial data for the five
fiscal years ended April 30, 1997. The statement of operations data for each of
the three years in the period ended April 30, 1997 have been derived from the
audited financial statements of the Company and the TransWestern business and
the notes thereto appearing elsewhere in this Prospectus. The statement of
operations data for the years ended April 30, 1993 and 1994 are derived from the
audited financial statements of the Company and the TransWestern business not
appearing in this Prospectus. The summary historical financial data for the six
months ended October 31, 1996 and October 31, 1997 have been derived from
unaudited financial statements of the Company, which in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the unaudited
interim periods. Results for the six months ended October 31, 1997 are not
necessarily indicative of results that may be expected for the entire year.
The following unaudited summary pro forma statement of operations data give
effect to, among other things, the Transactions, as if they had occurred at the
beginning of each period presented. The following unaudited summary pro forma
balance sheet data give effect to, among other things, the Initial Offerings and
the Asset Drop-Down, as if they had occurred October 31, 1997. Certain
management assumptions and adjustments relating to the Initial Offerings and the
Asset Drop-Down are described in the Notes to Unaudited Pro Forma Financial Data
and should be read in conjunction therewith. The unaudited summary pro forma
financial data do not purport to be indicative of the actual financial position
or results of operations of the Company that would have actually been attained
had the Transactions in fact occurred on the date specified, nor are they
necessarily indicative of the results of operations that may be achieved in the
future. See "Unaudited Pro Forma Financial Data," "Selected Historical Financial
and Other Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of the Company and notes
thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, SIX MONTHS ENDED OCTOBER 31,
------------------------------------------------------------------ --------------------------------
PREDECESSOR PRO FORMA PRO FORMA
1993(a) 1994 1995 1996 1997 1997 1996 1997 1997
----------- ------- ------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......... $54,949 $62,219 $69,845 $77,731 $91,414 $91,414 $38,050 $38,254(b) $38,254 (b)
Gross profit.......... 37,110 43,431 52,889 59,529 71,914 71,914 29,054 29,082 29,082
Income (loss) from
operations.......... 1,844 4,093 11,414 14,538 18,453 13,010 5,296 (1,468) (1,418)
Other income
(expense), net...... 243 344 470 375 48 48 18 (107) (107)
Interest expense...... (342) (2,951) (4,345) (6,630) (7,816) (18,039)(c) (4,029) (4,333) (11,572) (c)
Income (loss) before
extraordinary
item................ $ 1,745 $ 1,486 $ 7,539 $ 8,283 $10,685 $(4,981) $ 1,285 $(5,908) $(13,097)
OTHER DATA:
Depreciation and
amortization........ $ 1,129 $ 4,603 $ 4,593 $ 4,691 $ 6,399 $ 6,399 $ 3,122 $ 3,274 $3,274
Capital
expenditures........ 743 769 496 484 1,034 1,034 259 580 580
CASH FLOWS PROVIDED BY
(USED FOR):
Operating
activities........ 9,022 9,853 14,608 13,091 15,302 (10,173) 5,672 6,245 (6,749)
Investing
activities........ (743) (3,121) (2,838) (8,344) (3,592) (15,824) (2,817) (8,762) (12,812)
Financing
activities........ (8,174) (6,075) (11,550) (4,361) (11,776) 5,140 (2,875) 3,486 12,486
EBITDA(d)............. 3,216 9,040 17,002 20,400 24,900 25,000 8,586 7,242(b) 7,292 (b)
EBITDA margin(e)...... 5.9% 14.5% 24.3% 26.2% 27.2% 27.3% 22.6% 18.9% 19.1 %
Gross margin.......... 67.5% 69.8% 75.7% 76.6% 78.7% 78.7% 76.4% 76.0% 76.0 %
Bookings(f)........... $54,188 $64,269 $70,013 $75,709 $86,859 $86,859 $44,485 $49,926 $49,926
Advance payments as a
% of net
revenues(g)......... 26.2% 31.8% 36.9% 41.0% 45.1% 45.1% 43.6% 46.6% 46.6 %
Number of
accounts(h)......... 69,632 71,832 77,371 84,117 93,157 93,157 37,904 38,025 38,025
Average net revenues
per account(i)...... $ 789 $ 866 $ 903 $ 924 $ 981 $ 981 $ 1,004 $ 1,006 $1,006
Number of
directories......... 90 97 106 118 128 128 49 57 57
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....... $4,377
Total assets.......... 54,353
Total debt............ 185,430
Member deficit(j)..... (156,005)
</TABLE>
(See footnotes on following page)
11
<PAGE> 17
NOTES TO SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
(a) Effective May 1, 1993, an investor group and CIVC formed the Partnership to
acquire the TransWestern business from US West. The results of operations of
the predecessor are not directly comparable to the results of operations of
the Company due to (i) the incurrence of interest expense from borrowings to
finance the acquisition and subsequent distributions, and (ii) the effect of
increased depreciation and amortization expense associated with the
acquisition.
(b) For the six months ended October 31, 1997 consolidated net revenue increased
$204,000 and EBITDA decreased $1.3 million as compared to the six months
ended October 31, 1996 primarily due to changes in the publication schedule
which caused a different mix of directories to be published in the
respective six month periods. EBITDA for the latest twelve months ended
October 31, 1997 and November 30, 1997 was $23,707 and $24,730 respectively.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(c) Non-cash interest expense relating to amortization of debt issuance costs
for pro forma fiscal 1997 and the pro forma six months ended October 31,
1997 was $1,023 and $511, respectively.
(d) "EBITDA" is defined as income (loss) before extraordinary item plus interest
expense, discretionary contributions to the Equity Compensation Plan (as
defined herein) (such contributions represent special distributions to the
Equity Compensation Plan in connection with refinancing transactions) and
depreciation and amortization and is consistent with the definition of
EBITDA in the Indenture and in the Senior Credit Facility. Contributions to
the Equity Compensation Plan were $525 in fiscal 1995, $796 in fiscal 1996
and $5,543 for the six months ended October 31, 1997. EBITDA is not a
measure of performance under generally accepted accounting principles
("GAAP"). EBITDA should not be considered in isolation or as a substitute
for net income, cash flows from operating activities and other income or
cash flow statement data prepared in accordance with GAAP, or as a measure
of profitability or liquidity. However, management has included EBITDA
because it may be used by certain investors to analyze and compare companies
on the basis of operating performance, leverage and liquidity and to
determine a company's ability to service debt. The Company's definition of
EBITDA may not be comparable to that of other companies. See the tabular
presentation of EBITDA included in "Unaudited Pro Forma Financial
Data -- Unaudited Pro Forma Statement of Operations for the Fiscal Year
Ended April 30, 1997" and "-- Unaudited Pro Forma Statement of Operations
for the Six Months Ended October 31, 1997."
(e) "EBITDA margin" is defined as EBITDA as a percentage of net revenues.
Management believes that EBITDA margin provides a valuable indication of the
Company's ability to generate cash flow available for debt service.
(f) "Bookings" is defined as the daily advertising orders received from accounts
during a given period and generally occur at a steady pace throughout the
year. In fiscal 1997, net revenues included $4,200 from acquired
directories, while bookings does not reflect this adjustment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
(g) "Advance payments as a percentage of net revenues" is defined as, for a
given period, all cash deposits received on advertising orders prior to
revenue recognition as a percentage of net revenues recognized upon
directory distribution.
(h) "Number of accounts" is defined as the total number of advertising accounts
for all directories published during a given period. Customers are counted
as multiple accounts if advertising in more than one directory.
(i) "Average net revenues per account" is defined as net revenues divided by the
number of accounts.
(j) Member equity (deficit) represents the value of equity contributions to the
Company by its Member plus net income of the Company less Member
distributions for income taxes and distributions related to recapitalization
transactions completed during fiscal 1995 and 1996 and in the six months
ended October 31, 1997. Member distributions for income taxes in fiscal
1995, 1996, 1997 and in the six months ended October 31, 1997 totaled
$3,250, $3,400, $5,801 and $2,100, respectively. Member distributions made
in connection with recapitalization transactions completed in fiscal 1995
and fiscal 1996 and in the six months ended October 31, 1997 totaled
$31,076, $36,400 and $174,381, respectively.
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RISK FACTORS
This Prospectus contains certain forward-looking statements including,
without limitation, statements concerning the Company's operations, economic
performance and financial condition, including in particular statements relating
to the Company's business strategy. Such forward-looking statements are based on
the beliefs of the Company's management as well as on assumptions made by and
information currently available to the Company at the time such statements were
made. When used in this Prospectus, the words "anticipate," "believe,"
"estimate," "expect," "intend" and similar expressions, as they relate to the
Company, are intended to identify forward-looking statements. Prospective
investors should be aware that actual results could differ materially from those
projected by such forward-looking statements as a result of the risk factors set
forth below or other factors. Prospective investors should consider carefully
the following factors as well as the other information and data included in this
Prospectus in tendering Old Notes in exchange for Exchange Notes. The Issuers
caution the reader, however, that this list of factors may not be exhaustive and
that these or other factors could have an adverse effect on the Company's
ability to service its indebtedness, including principal and interest payments
on the Notes.
RISKS ASSOCIATED WITH A HIGH LEVEL OF INDEBTEDNESS AND ABILITY TO SERVICE DEBT
The Company incurred significant debt in connection with the
Recapitalization. As of October 31, 1997, after giving pro forma effect to the
Initial Offerings and the Asset Drop-Down, the Company would have had
outstanding indebtedness of approximately $185 million and member deficit of
approximately $156 million. After giving pro forma effect to the Initial
Offerings and the Asset Drop-Down, the Company's ratio of earnings to fixed
charges would have been 1.03 to 1 for the fiscal year ended April 30, 1997, and
the Company's earnings would have been insufficient to cover fixed charges by
approximately $7.6 million for the six-month period ended October 31, 1997. The
Company also has additional borrowing capacity on its Revolving Credit Facility
under the Senior Credit Facility. The lenders under the Senior Credit Facility
have an exclusive security interest in substantially all of the assets of the
Company.
The Company's leveraged financial position poses substantial consequences
to holders of the Notes, including the risks that (i) a substantial portion of
the Company's cash flow from operations will be dedicated to the payment of
interest on the Notes and the payment of principal and interest under the Senior
Credit Facility and other indebtedness, (ii) the Company's leveraged position
may impede its ability to obtain financing in the future for working capital,
capital expenditures, acquisitions and general corporate purposes, and (iii) the
Company's highly leveraged financial position may make it more vulnerable to
economic downturns and may limit its ability to withstand competitive pressures.
Based upon the successful implementation of management's business and operating
strategy, the Company believes it will have sufficient capital to carry on its
business and will be able to meet its scheduled debt service requirements.
However, there can be no assurance that the future cash flow of the Company will
be sufficient to meet the Company's obligations and commitments. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
In addition, as of October 31, 1997, after giving effect to the
consummation of the Initial Offerings and the Asset Drop-Down, the Company would
have had outstanding indebtedness of approximately $85 million under the Senior
Credit Facility and would have had $40.0 million of additional borrowing
availability under the Senior Credit Facility. The Senior Credit Facility bears
interest at floating rates. Accordingly, an increase in prevailing interest
rates which causes a corresponding increase in the interest rates under the
Senior Credit Facility could have an adverse impact on the Company's business,
operating results or financial condition. See "Description of Certain
Indebtedness -- Senior Credit Facility."
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<PAGE> 19
The Company will be required to make quarterly scheduled principal payments
on the Term Loans (as defined herein) under the Senior Credit Facility
commencing on January 1, 1998 and to repay the Term Loans in full in 2004. The
Senior Credit Facility also provides that the Revolving Credit Facility will be
reduced each year commencing on January 1, 2000 and that all borrowings under
the Revolving Credit Facility will become due in 2003. The Company's ability to
make the required scheduled payments will depend on its financial and operating
performance, which is subject to prevailing economic and competitive conditions
and to certain financial, business and other factors beyond its control,
including interest rates, unscheduled shutdowns at the Company's suppliers or
printers, paper prices and other developments. If the Company is unable to
generate sufficient cash flow from operations in the future to service its
indebtedness and to meet its other commitments, the Company will be required to
adopt one or more alternatives, such as refinancing or restructuring its
indebtedness, selling material assets or operations or seeking to raise
additional debt or equity capital. There can be no assurance that any of these
actions could be effected on a timely basis or on satisfactory terms or that
these actions would enable the Company to continue to satisfy its capital
requirements. In addition, the terms of existing or future debt agreements,
including the Indenture and the Senior Credit Facility, may prohibit the Company
from adopting any of these alternatives, which could cause the Company to
default on a portion of, or all of, its indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Certain
Indebtedness -- Senior Credit Facility" and "Description of the Notes."
RISKS RELATED TO THE SUBORDINATED RANKING OF THE NOTES
The Notes will be unsecured and subordinated to the prior right of payment
of all existing and future Senior Indebtedness of the Issuers, including
obligations under the Senior Credit Facility. The indebtedness under the Senior
Credit Facility will also become due prior to the time the principal obligations
under the Notes become due. Subject to certain limitations, the Indenture will
permit the Issuers to incur and secure additional Senior Indebtedness. See
"Description of the Notes -- Certain Covenants -- Limitation on Additional
Indebtedness." As a result of the subordination provisions contained in the
Indenture, in the event of a liquidation or insolvency, the assets of the
Issuers will be available to pay obligations on the Notes only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then outstanding. Claims
in respect of the Notes will be effectively subordinated to all liabilities
(including trade payables) of any subsidiary of the Company that is not a
Guarantor (as defined herein) of the Notes. In addition, substantially all of
the assets of the Issuer's future subsidiaries will be pledged to secure other
indebtedness of the Issuers. See "Description of Certain Indebtedness -- Senior
Credit Facility" and "Description of the Notes."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The agreements governing the outstanding indebtedness of the Company impose
certain operating and financial restrictions on the Company. The Senior Credit
Facility requires the Company to comply with financial covenants with respect to
(i) a minimum interest coverage ratio, (ii) a minimum EBITDA (as defined in the
Senior Credit Facility), (iii) a maximum leverage ratio, and (iv) a minimum
fixed charge coverage ratio. In addition, the Senior Credit Facility restricts,
among other things, the Company's ability to (i) declare dividends or redeem or
repurchase capital stock, (ii) prepay, redeem or purchase debt, (iii) incur
liens and engage in sale lease-back transactions, (iv) make loans and
investments, (v) incur additional indebtedness, (vi) amend or otherwise alter
debt and other material agreements, (vii) make capital expenditures, (viii)
engage in mergers, acquisitions and asset sales, (ix) transact with affiliates,
(x) alter the business it conducts, (xi) enter into guarantees of indebtedness,
and (xii) make optional payments on or modify the terms of subordinated debt. A
failure to comply with the restrictions contained in the Senior Credit Facility
could lead to an event of default thereunder which could result in an
acceleration of such indebtedness. Such an acceleration would constitute an
event of default under the Indenture relating to the Notes. See "Description of
Certain Indebtedness -- Senior Credit Facility."
The Indenture contains a number of covenants which restrict, among other
things, the Company's ability to (i) incur additional Indebtedness, (ii) pay
dividends and make distributions, (iii) issue stock of
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<PAGE> 20
subsidiaries, (iv) make certain investments, (v) repurchase stock, (vi) create
liens, (vii) enter into transactions with affiliates, (viii) enter into sale
lease-back transactions, (ix) merge or consolidate the Company or any
Guarantors, and (x) transfer or sell assets. A failure to comply with the
restrictions in the Indenture could result in an event of default under the
Indenture. See "Description of the Notes."
IMPORTANCE OF ACCOUNT EXECUTIVES; RISKS ASSOCIATED WITH TURNOVER AMONGST ACCOUNT
EXECUTIVES
The Company's ability to achieve its business plan depends to a significant
extent on its ability to identify, hire, train and retain qualified sales
personnel in each of the regions in which the Company operates. Historically,
the Company's revenue performance has been closely related to the aggregate
number of the Company's sales people. The Company's aggregate number of
salesperson days increased by approximately 59% from fiscal 1993 to fiscal 1997
and the Company's net revenues increased by approximately 66% over the same
period. In fiscal 1993, 1994, 1995, 1996 and 1997, the Company experienced a
turnover of approximately 34%, 48%, 55%, 73% and 73%, respectively, in its sales
force, particularly among new hires. As a result of these turnover rates, the
Company expends a significant amount of resources and management time on
identifying and training its account executives. While the Company has been able
to achieve its objectives for increasing the number of sales days, the Company's
ability to attract and retain qualified sales personnel depends on numerous
factors, including factors out of the Company's control, such as conditions in
the local employment markets in which the Company operates. The Company's
business plan calls for a continued increase in the number of account
executives, and there can be no assurance that the Company will be able to hire
or retain a sufficient number of account executives to achieve its financial
objectives. A decrease in the number of account executives could have an adverse
effect on the Company's ability to service its indebtedness, including principal
and interest payments on the Notes, and could have a material adverse effect on
the Company's business, operating results or financial condition.
RISKS RELATED TO VARIATION IN QUARTERLY RESULTS
The Company's net revenues and operating results have exhibited some degree
of variability from quarter to quarter and between periods and some degree of
seasonality. Although the Company records bookings and receives advance payments
at a fairly constant rate, the Company does not recognize net revenues with
respect to bookings or cash receipts for any given directory or the costs
directly related to sales, production, printing and distribution of that
directory until the month in which it is distributed. The actual publication and
distribution dates of individual directories are subject to change and a
significant number of individual directories are not published during the same
month each year, which results in significant monthly fluctuation in the
Company's net revenues and EBITDA. Thus, EBITDA and other financial indicators
generally relied on by investors to evaluate a company's ability to service its
debt may not, in the case of the Company, reflect actual cash received during a
given period. Also, changes to the Company's sales canvassing, production and
distribution schedules could have a material adverse effect on the Company's
ability to satisfy certain of the covenants in the Senior Credit Facility and
the Indenture. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
RISK ASSOCIATED WITH THE EXTENSION OF CREDIT TO SMALL BUSINESSES
Approximately 95% of the Company's net revenues come from selling
advertising to local businesses. In the ordinary course of its business, the
Company extends credit to its customers for advertising purchases. Full
collection of delinquent accounts can take up to 18 to 24 months. The Company's
net accounts receivable for a given month fluctuates based on the number and
size of directories published each month. The Company's net accounts receivable
was as low as $17.7 million in June 1996 and as high as $23.3 million in April
1997. As of December 31, 1997, the Company had approximately 20,800 credit
customers, with an average amount due per customer of approximately $1,100.00.
The Company's average accounts receivable turnover was approximately 167 days in
fiscal 1997. A reserve for bad debt and errors is established when revenue is
recognized for individual directories. The estimated bad debt expense is
determined on a market basis taking into account actual collection history over
a period of 15 to 21 months following publication of individual directories.
Actual write-offs are taken against the reserve when management determines that
an account is uncollectible, which
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<PAGE> 21
typically is determined after completion of the next annual selling cycle.
Therefore, actual account write-offs may not occur for 18 to 24 months after
directory publication. The estimated provision for bad debt totaled $6.4
million, $7.1 million and $8.9 million, respectively, in fiscal 1995, 1996 and
1997 or 9.2%, 9.1% and 9.8%, respectively of net revenues. Actual account
write-offs equaled $7.3 million or 10.5% of net revenues in fiscal 1995. As
described above, actual account write-offs for fiscal 1996 and 1997 have not yet
been determined. Based on current estimates, management believes that actual
write-offs in fiscal 1996 will total approximately $7.5 million or 9.7% of net
revenues.
As a group, local businesses tend to have fewer financial resources and
higher financial failure rates than larger businesses. Consequently, although
the Company attempts to mitigate this exposure through the size, geographic and
industry diversification of its customer base as well as through collection of
advance payments, there can be no assurance that it will not be adversely
affected by its dependence on local businesses. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General."
DEPENDENCE ON KEY PERSONNEL; RISKS ASSOCIATED WITH THE LOSS OF KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team, including its regional sales management personnel. In connection with the
Recapitalization, the Company's previous Chairman of the Board and Chief
Executive Officer resigned and was replaced, in his Chief Executive Officer
capacity, by Ricardo Puente, the Company's existing President and, in his
capacity as Chairman of the Board, by Laurence H. Bloch, the Company's previous
Vice Chairman and Chief Financial Officer. Otherwise, the Company has retained
the services of its existing senior management team, all of whom have
significant experience in the yellow pages publishing industry. Messrs. Puente
and Bloch have each entered into an employment contract with the Company which
provides for their continued employment for a five year term. See
"Management -- Employment Agreements." Although the Company believes it could
replace such key employees in an orderly fashion should the need arise, the loss
of such key personnel could have a material adverse effect on the Company's
business, operating results or financial condition. See "Management -- Directors
and Executive Officers."
RISKS ASSOCIATED WITH ACQUISITIONS OF DIRECTORIES AND START-UPS OF NEW
DIRECTORIES
A substantial portion of the Company's growth, approximately 39% of revenue
growth, since the 1993 Acquisition has resulted from the acquisition of
directories from other independent yellow pages publishers and start-ups of new
directories. While one of the Company's strategies for achieving its financial
objectives is increasing the number of directories it publishes and the local
markets which it serves, there can be no assurance that the Company's historical
success with acquisitions or start-ups will continue. The Company intends to
continue to seek out opportunities for future expansion, but there can be no
assurance that the Company will be able to develop new directories or identify,
negotiate and consummate acquisitions on attractive terms, nor can there be any
assurance that new acquisitions or start-ups can be operated profitably or
integrated successfully into the Company's operations. Furthermore, start-ups
and acquisitions both require substantial attention from and place substantial
demands upon the senior management of the Company, which may divert attention
from and adversely impact their ability to manage the Company's existing
businesses. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
RISKS ASSOCIATED WITH SUBSTANTIAL COMPETITION
The yellow pages directory advertising business is highly competitive.
There are over 250 independent publishers operating in competition with the
regional Bell operating companies and other telephone utilities. In most
markets, the Company competes not only with the telephone utilities, but also
with one or more independent yellow pages publishers. Many of these telephone
utility competitors are larger and have greater financial resources than the
Company. Other media in competition with yellow pages for local business and
professional advertising include newspapers, radio, television, billboards and
direct mail. There can be no assurance that the Company will be able to compete
effectively with these other firms for advertising or acquisitions in the
future.
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RISK OF CHANGING TECHNOLOGY; NEW PRODUCT DEVELOPMENT
The yellow pages directory advertising business is subject to changes
arising from developments in technology (including information distribution
methods) and users' technological preferences. As a result of these factors, the
Company's growth and future financial performance may depend upon its ability to
develop and market new products and services and create new distribution
channels, while enhancing existing products, services and distribution channels,
in order to accommodate the latest technological advances and user preferences,
including the use of the Internet. The increasing use of the Internet by
consumers as a means to transact commerce may result in new technologies being
developed and services provided that could compete with the Company's products
and services. The Company has entered into a strategic agreement with InfoSpace,
Inc. ("InfoSpace") with respect to its Internet service. However, there can be
no assurance that the Company will be successful in its attempt to provide its
services over the Internet. A failure by the Company to anticipate or respond
adequately to changes in technology and user preferences, or an inability to
finance the necessary capital expenditures, could have a material adverse effect
on the Company's business, operating results or financial condition.
RISK ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS
The Company is dependent upon outside suppliers for all of its raw material
needs and, therefore, is subject to price increases and delays in receiving
supplies of such materials. The Company's principal raw material is paper, and
it used approximately 16.4 million and 17.6 million pounds of directory grade
paper in its fiscal years ended April 30, 1996 and 1997, respectively, resulting
in a total cost of paper during such periods of $6.0 million and $5.8 million,
respectively. Certain commodity grades of paper, including directory grade
paper, have shown considerable price volatility since 1989. Paper prices rose
sharply in 1995 and then fell throughout 1996. The Company does not purchase
paper directly from paper mills; instead, the Company's printers purchase the
paper on behalf of the Company at prices negotiated by the Company. Changes in
the supply of, or demand for, paper could affect delivery times and prices. No
assurances can be given that the Company will continue to have available
necessary raw materials at reasonable prices or that any increases in paper
costs would not have a material adverse effect on the Company's business,
financial condition or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Result of Operations -- Overview" and
"Business -- Raw Materials."
RISKS ASSOCIATED WITH THE SENSITIVITY OF THE COMPANY'S REVENUE TO GENERAL
ECONOMIC CONDITIONS
The Company derives its net revenues from the sale of advertising in its
directories. Advertising revenues of the Company, as well as those of yellow
pages publishers in general, generally do not fluctuate widely with economic
cycles. However, a prolonged national or regional economic recession could have
a material adverse effect on the Company's business, operating results or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business -- Industry
Overview."
ABILITY OF CONTROLLING EQUITYHOLDER TO CONTROL THE POLICIES AND OPERATIONS OF
THE COMPANY
The THL Parties own approximately 59% of TCC's Common Stock. Under the
terms of the Investors Agreement (as defined herein), all of the stockholders of
TCC have agreed to vote in favor of those individuals designated by THL to serve
on the Board of Directors of TCC, and THL has the right to appoint a majority of
the Directors until the occurrence of certain events. As a result, THL has the
ability to control the policies and operations of the Company. Circumstances may
occur in which the interests of THL, as the principal equity holder of the
Company could be in conflict with the interests of the holders of the Notes. In
addition, the equity investors may have an interest in pursuing acquisitions,
divestitures or other transactions that, in their judgment, could enhance their
equity investment, even though such transactions might involve risks to the
holders of the Notes. See "Security Ownership of Certain Beneficial Owners and
Management."
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LIMITATIONS ON CHANGE OF CONTROL; ABILITY TO PURCHASE NOTES UPON A CHANGE OF
CONTROL
In the event of a Change of Control, the Issuers will be required to make
an offer for cash to purchase the Notes at 101% of the principal amount thereof,
plus any accrued and unpaid interest, if any, thereon to the purchase date.
Certain events involving a Change of Control may result in an event of default
under the Senior Credit Facility or other indebtedness of the Issuers that may
be incurred in the future. Moreover, the exercise by the holders of the Notes of
their right to require the Issuers to purchase the Notes may cause an event of
default under the Senior Credit Facility or such other indebtedness, even if the
Change of Control does not. The Issuers' obligations under this provision of the
Indenture could delay, deter or prevent a sale of the Company which might
otherwise be advantageous to holders of the Notes. Finally, there can be no
assurance that the Issuers will have the financial resources necessary to
purchase the Notes upon a Change of Control. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Description of the Notes -- Change of Control Offer."
RISKS OF WAIVER OF DEFAULTS, COMPLIANCE WITH THE INDENTURE AND MODIFICATION OF
THE INDENTURE BY THE HOLDERS OF A MAJORITY IN PRINCIPAL AMOUNT OF THE NOTES
OUTSTANDING
Subject to certain limitations specified in the Indenture, the holders of a
majority in principal amount of the Notes then outstanding have the right to (i)
waive certain existing Defaults (as defined in the Indenture) or Events of
Default (as defined in the Indenture), (ii) waive compliance with certain
provisions of the Indenture or the Notes, (iii) modify or supplement the
Indenture, and (iv) direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee. These provisions of the
Indenture could allow actions affecting the Notes to be taken without the
approval of all of the holders of the Notes and thus, may have an adverse effect
on the holders of the Notes who do not approve of such actions. See "Description
of the Notes -- Events of Default" and "-- Modification of Indenture."
RISK ASSOCIATED WITH FRAUDULENT CONVEYANCE LIABILITY
Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if the Company, at
the time it borrowed under the Senior Credit Facility and the Senior
Subordinated Facility or issued the Notes (i) incurred such indebtedness with
intent to hinder, delay or defraud creditors or (ii)(a) received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (b)(1) was insolvent at the time of incurrence, (2) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (3) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital to carry on its businesses or (4) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they mature, then, in each case, a court of competent jurisdiction could void,
in whole or in part, the Notes, or, in the alternative, subordinate the Notes to
existing and future indebtedness of the Company. The measure of insolvency for
purposes of the foregoing will vary depending upon the law applied in such case.
Generally, however, the Company would be considered insolvent if the sum of its
debts, including contingent liabilities, was greater than all of its assets at
fair valuation or if the present fair saleable value of its assets was less than
the amount that would be required to pay the probable liability on its existing
debts, including contingent liabilities, as they become absolute and matured.
Management believes that, for purposes of the U.S. Bankruptcy Code and
state fraudulent transfer or conveyance laws, the Notes were issued and are
being exchanged without the intent to hinder, delay or defraud creditors and for
proper purposes and in good faith and that the Company, after the issuance and
exchange of the Notes and the application of the proceeds thereof, will be
solvent (this belief is not based on an opinion of counsel), will have
sufficient capital for carrying on its business and will be able to pay its
debts as they mature. There can be no assurance, however, that a court passing
on such questions would agree with management's view.
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ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for Exchange Notes by
holders who are entitled to participate in this Exchange Offer. The holders of
Old Notes (other than any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who are not eligible to
participate in the Exchange Offer are entitled to certain registration rights,
and the Company is required to file a Shelf Registration Statement with respect
to such Old Notes. The Exchange Notes will constitute a new issue of securities
with no established trading market. The Company does not intend to list the
Exchange Notes on any national securities exchange or seek the admission thereof
to trading in the National Association of Securities Dealers Automated Quotation
System. The Initial Purchasers have advised the Company that they currently
intend to make a market in the Exchange Notes, but they are not obligated to do
so and may discontinue such market making at any time. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Exchange Act and may be limited during the Exchange Offer and the pendency
of the Shelf Registration Statement. Accordingly, no assurance can be given that
an active public or other market will develop for the Exchange Notes or as to
the liquidity of the trading market for the Exchange Notes. If a trading market
does not develop or is not maintained, holders of the Exchange Notes may
experience difficulty in reselling the Exchange Notes or may be unable to sell
them at all. If a market for the Exchange Notes develops, any such market may be
discontinued at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tender of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer certain registration rights under the
Registration Rights Agreement will terminate. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. See "The Exchange Offer."
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THE ISSUERS
TransWestern Publishing Company LLC. In November 1997, the Partnership
formed and contributed substantially all of its assets to TransWestern,
TransWestern assumed or guaranteed all of the liabilities of the Partnership and
the Partnership changed its name to TransWestern Holdings L.P. As a result of
the Asset Drop-Down, TransWestern succeeded to all of the Partnership's
operations and became its wholly-owned subsidiary. The Partnership was formed by
CIVC, the Management Investors and certain other investors in May 1993 to
acquire the TransWestern business from US West. US West assembled the assets and
management team that comprised the TransWestern business through the acquisition
of 15 independent directory companies between 1985 and 1989.
TWP Capital Corp. II. Capital II, a wholly-owned subsidiary of
TransWestern, was incorporated in 1997 for the purpose of serving as a co-issuer
of the Notes in order to facilitate the Senior Subordinated Facility and the
Initial Offering. Capital II will not have substantial operations or assets of
any kind and will not have any revenues. As a result, prospective purchasers of
the Notes should not expect Capital II to participate in servicing the interest
or principal obligations of the Notes. The Indenture will impose substantial
restrictions on the activities of Capital II.
The Company's principal executive offices are located at 8344 Clairemont
Mesa Boulevard, San Diego, California 92111, and its telephone number is (619)
467-2800.
20
<PAGE> 26
THE TRANSACTIONS
The Initial Offering was consummated in conjunction with the Partnership's
$312.7 million Recapitalization plan set forth in the Securities Purchase and
Redemption Agreement, dated as of August 27, 1997, as amended, among the THL
Parties, CIBC WG Argosy Merchant Fund 2, L.L.C. ("CIBC Merchant Fund"), an
affiliate of CIBC Oppenheimer, which was one of the Initial Purchasers, the
Partnership and each of the Partnership's existing limited partners (the
"Existing Limited Partners").
In the Recapitalization, the THL Parties, CIBC Merchant Fund and CIVC
Partners III ("CIVC III" and together with the THL Parties and CIBC Merchant
Fund, the "New Investors"), the Management Investors and certain of the other
Existing Limited Partners made the Equity Investment in the Partnership and TCC.
The proceeds of the Equity Investment, together with approximately $182.7
million of aggregate proceeds from the debt financings described below, were
used (i) for $224.5 million of Recapitalization consideration, (ii) to repay
$75.6 million under the Old Credit Facility, (iii) to pay $10.6 million of fees
and expenses and (iv) for $2.0 million for general corporate purposes, including
working capital. The Recapitalization consideration consisted of (a) $174.4
million for redemption of outstanding partnership units, (b) $42.7 million of
capital which was reinvested by the Management Investors and certain other
Existing Limited Partners, (c) $5.5 million reserved for payments pursuant to
the Equity Compensation Plan, (d) $1.4 million for the purchase of TCC common
stock and (e) $0.5 million representing debt assumed.
The Recapitalization was financed with (i) the Equity Investment of $130.0
million, (ii) borrowings of approximately $107.7 million under the Senior Credit
Facility and (iii) borrowings of $75.0 million under the Senior Subordinated
Facility.
The Senior Credit Facility was provided by Canadian Imperial Bank of
Commerce, New York Agency, as lender and administrative agent ("CIBC"), and
First Union National Bank, as lender and documentation agent ("First Union"),
both of which are affiliates of the Initial Purchasers. The Senior Subordinated
Facility was provided by CIBC Oppenheimer and First Union Corporation, an
affiliate of First Union Capital Markets Corp., which is one of the Initial
Purchasers. TCC is owned approximately pro rata by all the equity investors in
the Partnership.
One half of the $5.5 million reserved for payments pursuant to the Equity
Compensation Plan was paid in the Recapitalization and one half remains an
obligation of the Company and was not borrowed concurrently with the other steps
of the Recapitalization. However, the entire $5.5 million for payments pursuant
to the Equity Compensation Plan is included in the sources and uses of funds
outlined below. See "Management -- Equity Compensation Arrangements."
The following table sets forth the sources and uses of funds in the
Recapitalization (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Senior Credit Facility(a)(b)...................................... $107.7
Senior Subordinated Facility(b)................................... 75.0
Equity Investment(c).............................................. 130.0
------
Total sources............................................. $312.7
======
USES:
Recapitalization consideration(d)................................. $224.5
Repayment of Old Credit Facility(e)............................... 75.6
Fees and expenses................................................. 10.6
Working capital................................................... 2.0
------
Total uses................................................ $312.7
======
</TABLE>
- ---------------
(a) Includes borrowings of $85.0 million in Term Loans and $22.7 million under
the Revolving Credit Facility. Although the Company had actually drawn $17.2
million under the Revolving Credit Facility as of October 1, 1997, this
table reflects an amount, $22.7 million, that would have been borrowed under
the Revolving Credit Facility if all estimated fees and expenses, other debt
assumed and the total amount to be paid under the Equity Compensation Plan
had been paid on that date.
21
<PAGE> 27
(b) The net proceeds of the Initial Offering were applied to (i) repay the
Senior Subordinated Facility, (ii) reduce the outstanding balance under the
Revolving Credit Facility, (iii) pay fees and expenses related to the
Initial Offering and (iv) for general corporate purposes, including working
capital.
(c) Includes $87.3 million from the New Investors, comprised of (i) $77.0
million invested by the THL Parties, (ii) $5.0 million invested by the CIBC
Merchant Fund, (iii) $4.5 million invested by CIVC III and (iv) $0.8 million
from new management investors. Also includes $42.7 million from continuing
investors, comprised of (i) $25.5 million from CIVC, (ii) $11.2 million from
the Management Investors, (iii) $5.0 million from FUCP and (iv) $1.0 million
from the Partnership's former Chairman.
(d) Includes $174.4 million for redemption of outstanding partnership units,
$1.4 million for the purchase of TCC common stock, $5.5 million reserved for
payments pursuant to the Equity Compensation Plan, $0.5 million representing
debt assumed and $42.7 million of capital which was reinvested by the
Management Investors and certain other Existing Limited Partners.
(e) The Old Credit Facility was provided by First Union, as lender and
administrative agent, and CIBC Inc., an affiliate of CIBC Oppenheimer, as
lender and documentation agent.
As a result of the Recapitalization, the THL Parties became the holders of
a majority of the equity of the Partnership. The following chart shows the
structure of the Partnership after the Recapitalization (the percentages shown
below reflect the approximate percentage ownership of both Class A and Preferred
Units):
[CHART]
In November 1997, the Partnership formed and contributed substantially all
of its assets to Trans- Western, TransWestern assumed or guaranteed all of the
liabilities of the Partnership, and the Partnership changed its name to
TransWestern Holdings L.P. As a result of the Asset Drop-Down, Holdings' only
assets are all of the TransWestern membership interests and all of Capital's
capital stock. All of the operations that were previously conducted by the
Partnership are now being conducted by TransWestern.
22
<PAGE> 28
The following chart shows the structure of the Company after the Asset
Drop-Down:
[CHART]
Concurrent with the Initial Offering, Holdings and Capital offered $32.5
million in initial aggregate principal amount ($57.9 million principal amount at
maturity) of 11 7/8% Senior Discount Notes due 2008. The Discount Notes are
unsecured obligations of the Discount Notes Issuers and are effectively
subordinated to all liabilities of Holdings' subsidiaries, including the Notes
and trade payables. The net proceeds of the Initial Discount Note Offering were
used to redeem approximately $31.3 million of the Equity Investment.
After giving effect to the Initial Offerings and the Asset Drop-Down, the
THL Parties collectively own approximately 59% of the equity of Holdings and the
CIVC Parties, the Management Investors and TCC own approximately 23%, 9% and
1.7% of the equity of Holdings, respectively. The remainder of the equity of
Holdings is held by other investors.
23
<PAGE> 29
THE PRINCIPAL INVESTORS
After giving effect to the Initial Offerings and the Asset Drop-Down, the
THL Parties are collectively the principal investors in the Company, owning
approximately 59% of the Preferred Units, the Class A Units and the stock of
TCC. THL, which is the principal THL Party, is managed by THL Co., one of the
oldest and most successful private equity investment firms in the United States.
Founded in 1974, THL Co. focuses on identifying and acquiring ownership stakes
in middle market growth companies. THL Co. currently manages more than $3
billion of capital and has participated in more than 100 acquisitions and
investments.
CIVC and CIVC III (the "CIVC Parties") together own approximately 23% of
the Preferred Units, the Class A Units and the stock of TCC. CIVC is a private
equity firm and a licensed small business investment company. Since 1990, CIVC
has invested approximately $300 million in small and middle market businesses
and was the principal investor in the 1993 Acquisition. CIVC is an indirect
subsidiary of BankAmerica Corporation, an international financial services
organization.
All of the Management Investors, who own in the aggregate approximately 9%
of the Preferred Units, the Class A Units and the stock of TCC, have been
officers and/or senior operational managers of the Company since the 1993
Acquisition. The Management Investors have extensive experience in the yellow
pages publishing business. See "Management."
24
<PAGE> 30
USE OF PROCEEDS
The Partnership and Capital incurred $75.0 million of indebtedness under
the Senior Subordinated Facility on October 1, 1997 in connection with the
Recapitalization. The net proceeds of the Initial Offering, were approximately
$94.5 million (after deduction of estimated discounts to the Initial Purchasers
and other Offering expenses). The Company used (i) $75.0 million to make a
distribution to Holdings which was used to repay the Senior Subordinated
Facility (ii) $16.0 million to repay the Company's outstanding balance and
interest due on the Revolving Credit Facility and (iii) the remaining net
proceeds for general corporate purposes, including working capital. The Initial
Purchasers or their affiliates purchased the notes issued by the Partnership and
Capital under the Senior Subordinated Facility and are lenders, and the agents,
under the Senior Credit Facility.
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange Offer Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. In consideration for issuing the Exchange Notes contemplated in
this Prospectus, the Company will receive Old Notes in like principal amount,
the form and terms of which are the same as the form and terms of the Exchange
Notes (which replace the Old Notes), except as otherwise described herein.
25
<PAGE> 31
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 31, 1997, after giving effect to the Initial Offerings and the Asset
Drop-Down. The Old Notes surrendered in exchange for Exchange Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company. As such, no effect has been given to the Exchange Offer in the
following capitalization table. The information in this table should be read in
conjunction with "The Transactions," "Unaudited Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and accompanying notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-----------------------------
PRO FORMA
FOR THE INITIAL
OFFERINGS
AND THE
ACTUAL ASSET DROP-DOWN
--------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt:
Senior Credit Facility:
Revolving Credit Facility(a)................................ $ 16,000 $ --
Term Loans.................................................. 85,000 85,000
Senior Subordinated Facility................................... 75,000 --
Notes.......................................................... -- 100,000
Other debt..................................................... 430 430
-------- --------
Total debt.................................................. 176,430 185,430
Total member deficit............................................. (152,605) (156,005)
-------- --------
Total capitalization........................................ $ 23,825 $ 29,425
======== ========
</TABLE>
- ---------------
(a) The Senior Credit Facility consists of a $40 million Revolving Credit
Facility and $85 million in Term Loans. See "Description of Certain
Indebtedness -- Senior Credit Facility." Although the Company had actually
drawn $17.2 million under the Revolving Credit Facility as of October 1,
1997, this table reflects an amount, $22.7 million, that would have been
borrowed under the Revolving Credit Facility if all estimated fees and
expenses, other assumed debt and the total amount to be paid under the
Equity Compensation Plan had been paid on that date. On a pro forma basis,
the Company would have had approximately $40 million of additional borrowing
availability under the Revolving Credit Facility after applying a portion of
the proceeds from the issuance of the Notes to reducing the outstanding
balance under the Revolving Credit Facility.
26
<PAGE> 32
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data are derived from the
Company's financial statements appearing elsewhere in this Prospectus, as
adjusted to give effect to the Transactions. The unaudited pro forma statements
of operations data for the fiscal year ended April 30, 1997 and the six-month
period ended October 31, 1997 give effect to the Transactions as if they had
occurred at the beginning of such periods, and the unaudited pro forma balance
sheet data give effect to the Initial Offerings and the Asset Drop-Down as if
they had occurred on October 31, 1997. The pro forma adjustments are based upon
available data and certain assumptions that the Company believes are reasonable.
The unaudited pro forma financial data do not purport to represent what the
Company's results of operations or financial position would actually have been
had the Transactions in fact occurred at such prior times or to project the
Company's results of operations or financial position for or at any future
period or date. The unaudited pro forma financial data should be read in
conjunction with the financial statements of the Company and the information
contained in "The Transactions," "Use of Proceeds," and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere herein.
27
<PAGE> 33
TRANSWESTERN PUBLISHING COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
TRANSACTIONS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ---------
<S> <C> <C> <C>
Net revenues............................................. $ 91,414 $ 91,414
Cost of revenues......................................... 19,500 19,500
------- --------
Gross profit........................................... 71,914 71,914
Operating expenses:
Sales and marketing.................................... 36,640 36,640
General and administrative............................. 16,821 $ (100)(a) 16,721
------- -------- --------
Total operating expenses................................. 53,461 (100) 53,361
------- -------- --------
Income from operations................................... 18,453 100 18,553
Other income (expense), net.............................. 48 48
Interest expense......................................... (7,816) (10,223)(b) (18,039)
------- -------- --------
Income before extraordinary item......................... $ 10,685 $(10,123) $ 562
======= ======== ========
EBITDA data:
Income before extraordinary item....................... $ 10,685 $ 562
Interest expense....................................... 7,816 18,039
Depreciation and amortization.......................... 6,399 6,399
------- --------
EBITDA................................................. $ 24,900 $ 25,000
======= ========
Ratio of earnings to fixed charges(c).................... 2.29x 1.03x
======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Statements of Operations.
28
<PAGE> 34
TRANSWESTERN PUBLISHING COMPANY LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
TRANSACTIONS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ---------
<S> <C> <C> <C>
Net revenues............................................... $ 38,254 $ 38,254
Cost of revenues........................................... 9,172 9,172
------- -------
Gross profit............................................. 29,082 29,082
Operating expenses:
Sales and marketing...................................... 17,114 17,114
General and administrative............................... 7,893 $ (50)(a) 7,843
Contribution to Equity Compensation Plan................. 5,543 (5,543)(d) --
------- ------- -------
Total operating expenses................................... 30,550 5,593 24,957
------- ------- -------
Income (loss) from operations.............................. (1,468) 5,593 4,125
Other income (expense), net................................ (107) (107)
Interest expense........................................... (4,333) (7,239)(b) (11,572)
------- ------- -------
Income (loss) before extraordinary item.................... $ (5,908) $ (1,646) $ (7,554)
======= ======= =======
EBITDA data:
Income (loss) before extraordinary item.................. $ (5,908) $ (7,554)
Interest expense......................................... 4,333 11,572
Contribution to Equity Compensation Plan................. 5,543 --
Depreciation and amortization............................ 3,274 3,274
------- -------
EBITDA..................................................... $ 7,242 $ 7,292
======= =======
Ratio of earnings to fixed charges(c)...................... -- --
======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Statements of Operations.
29
<PAGE> 35
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
APRIL 30, OCTOBER 31,
1997 1997
---------- ----------------
<S> <C> <C> <C>
(a) Entry records elimination of expenses of former Chairman
net of expenses associated with the Management Fee (as
defined herein)........................................... $ (100) $ (50)
(b) Pro forma adjustments to interest expense as a result of the
Transactions are as follows:
Interest expense:
Term Loans ($85,000 @ 8.50%).............................. 7,191 3,613
Notes ($100,000 @ 9.625%)................................. 9,625 4,813
Unused Revolving Credit Facility fee...................... 200 100
------- -------
Pro forma cash interest expense........................... 17,016 8,526
Amortization of debt issuance costs (i)................... 1,023 511
------- -------
Total pro forma interest expense.......................... 18,039 9,037
------- -------
Less historical interest expense.......................... (7,816) (1,798)
------- -------
$ 10,223 $ 7,239
======= =======
</TABLE>
(i) It is anticipated that the total amount of the Senior Subordinated
Facility debt issuance costs of $3,400 will be written off upon
consummation of the Offerings.
(c) Earnings consist of income (loss) before extraordinary item plus
contributions to the Equity Compensation Plan plus fixed charges. Fixed
charges consist of (i) interest, whether expensed or capitalized, (ii)
amortization of debt issuance costs, whether expensed or capitalized, and
(iii) an allocation of one-fourth of the rental expense from operating
leases which management considers is a reasonable approximation of the
interest factor of rental expense. Pro forma earnings were insufficient to
cover fixed charges by $7,554 for the six-month period ended October 31,
1997.
(d) Due to the non-recurring nature of the contribution to the Equity
Compensation Plan (terminated upon consummation of the Recapitalization) in
connection with the Recapitalization, the above Pro Forma Statement of
Operations does not reflect the $5.5 million charge in arriving at income
(loss) from operations and income (loss) before extraordinary item.
30
<PAGE> 36
TRANSWESTERN PUBLISHING COMPANY LLC
UNAUDITED PRO FORMA BALANCE SHEET
OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
INITIAL
OFFERINGS AND
THE
ASSET DROP-DOWN
HISTORICAL ADJUSTMENTS PRO FORMA
---------- --------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 2,223 $ 3,515(a) $ 5,738
Trade receivables................................ 17,230 17,230
Deferred directory costs......................... 8,417 8,417
Other current assets............................. 475 475
--------- ---------
Total current assets............................... 28,345 31,860
Property, equipment and leasehold improvements,
net.............................................. 2,881 2,881
Acquired intangibles, net.......................... 9,281 9,281
Other assets, primarily debt
issuance costs, net.............................. 8,246 5,485(a) 10,331
(3,400)(b)
--------- -------- ---------
$ 48,753 $ 5,600 $ 54,353
========= ======== =========
LIABILITIES AND MEMBER DEFICIT
Current liabilities:
Accounts payable................................. $ 2,925 $ 2,925
Salaries and benefits payable.................... 2,498 2,498
Other accrued liabilities........................ 4,753 4,753
Customer deposits................................ 14,752 14,752
Current portion, long-term debt.................. 2,555 2,555
--------- ---------
Total current liabilities.......................... 27,483 27,483
Long-term debt:
Senior Credit Facility........................... 98,875 $ (16,000)(a) 82,875
Senior Subordinated Facility..................... 75,000 (75,000)(a) --
Notes............................................ -- 100,000(a) 100,000
Member deficit..................................... (152,605) (3,400)(b) (156,005)
--------- -------- ---------
$ 48,753 $ 5,600 $ 54,353
========= ======== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Balance Sheet.
31
<PAGE> 37
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Reflects the actual sources and uses of funds for the Recapitalization
through October 31, 1997 and the estimated pro forma sources and uses for
the Initial Offering as if it had occurred as of October 31, 1997:
<TABLE>
<CAPTION>
INITIAL
RECAPITALIZATION OFFERING
--------------------- --------
<S> <C> <C> <C>
SOURCES OF FUNDS:
New Investors(i):
THL Parties............................................... $75,674
CIVC III.................................................. 4,422
CIBC Merchant Fund ....................................... 4,914
Management Investors...................................... 738 $ 85,748
-------
Continuing investors(i)(ii):
CIVC ..................................................... 25,061
Management Investors and the former Chairman.............. 12,048
FUCP...................................................... 4,914 42,023
New financing:
Senior Credit Facility(iii):
Revolving Credit Facility............................... 22,716
Term Loans.............................................. 85,000
Senior Subordinated Facility.............................. 75,000 182,716
-------
Notes..................................................... $100,000
-------- --------
$310,487(v) $100,000
======== ========
USES OF FUNDS:
Repay Old Credit Facility .................................. $ 75,600
Repay amount due General Partner............................ 833
Redemption of partnership units............................. 174,381
Continuing investors(ii).................................... 42,023
Repay Revolving Credit Facility............................. $ 16,000
Repay Senior Subordinated Facility.......................... 75,000
Contribution to Equity Compensation Plan.................... 5,543
Transaction costs and fees(iv):
Senior Credit Facility.................................... $ 3,319
Senior Subordinated Facility.............................. 3,428
Transaction costs......................................... 3,858 10,605 5,485
Prepaid offering costs.................................... 1,000
Funds available for working capital......................... 502 3,515
-------- --------
$310,487(v) $100,000
======== ========
</TABLE>
32
<PAGE> 38
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(i) The table below sets forth the Equity Investment from New Investors and
continuing investors and TCC's partnership interests as of the
Recapitalization and as adjusted to reflect the Initial Discount Note
Offering and the redemption of the Preferred Units.
<TABLE>
<CAPTION>
AS ADJUSTED
PREFERRED FOR THE
AS OF THE UNIT INITIAL
RECAPITALIZATION REDEMPTIONS OFFERINGS
---------------- ----------- -----------
<S> <C> <C> <C>
New Investors:
THL Parties................................... $ 75,674 $ (18,191) $57,483
CIVC III...................................... 4,422 (1,063) 3,359
CIBC Merchant Fund............................ 4,914 (1,182) 3,732
Management Investors.......................... 738 (177) 561
Continuing investors:
CIVC.......................................... 25,061 (6,024) 19,037
Management Investors and the former
Chairman.................................... 12,048 (2,894) 9,154
FUCP.......................................... 4,914 (1,181) 3,733
TCC............................................. 2,238 (538) 1,700
-------- -------- -------
$130,009 $ (31,250) $98,759
======== ======== =======
</TABLE>
(ii) Based on the purchase price per unit for the New Investors, multiplied
by the number of units retained by the continuing investors in the
Recapitalization. See "The Transactions." This implied value does not
represent (a) a purchase, sale or other change in such equity
investment for accounting or tax purposes or (b) any funds or proceeds
paid to or used by the Company in the Recapitalization.
(iii) The Senior Credit Facility makes available up to $40,000 under the
terms of the Revolving Credit Facility. The terms of the Term Loans
require annual principal payments of $2,125 (in years one through
five), $27,625 in year six and $46,750 in year seven.
(iv) The transaction costs and fees and the allocation to the various
components of the Recapitalization and the Initial Offering have been
estimated by management and may be subject to change. Transaction
costs and fees include legal and accounting fees and transaction
charges from lenders and investors and other incremental costs related
directly to the Transactions. The costs and fees were allocated to the
various consideration in the Transactions based on specific charges,
and to the extent charges were applicable to all of the various
consideration, a pro rata allocation was made based on the amounts
involved. Management believes that the final allocation of the
transaction costs and fees will not have a material impact on the
Company's financial statements.
(v) Does not include approximately $2.2 million expended by the New
Investors to purchase common stock of TCC directly from the holders
thereof in connection with the Recapitalization.
(b) Entry records write-off of debt issuance costs:
<TABLE>
<CAPTION>
OFFERING
--------
<S> <C>
Senior Subordinated Facility...................................................... $3,400
</TABLE>
33
<PAGE> 39
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
The following tables present selected historical financial data and,
insofar as they relate to each of the five fiscal years in the period ended
April 30, 1997, have been derived from the audited financial statements of the
Company and the TransWestern business. The audited statements of operations of
the Company for each of the three years in the period ended April 30, 1997 and
the audited balance sheet of the Company as of April 30, 1996 and 1997 and the
notes thereto appear elsewhere in this Prospectus. The balance sheet data at
April 30, 1993, 1994 and 1995 and the statement of operations data for each of
the years ended April 30, 1993 and 1994 have been derived from the audited
financial statements of the Company and the TransWestern business which do not
appear in this Prospectus. The selected historical statement of operations and
balance sheet data of the Company as of and for the six months ended October 31,
1996 and 1997 have been derived from unaudited financial statements of the
Company included elsewhere in this Prospectus, which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such information. Results for
the six months ended October 31, 1997 are not necessarily indicative of results
that may be expected for the entire year. See "Unaudited Pro Forma Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and the financial statements of the Company and notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, SIX MONTHS ENDED
------------------------------------------------------------------ OCTOBER 31,
PREDECESSOR ---------------------
1993(a) 1994 1995 1996 1997 1996 1997
----------- ------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues................ $54,949 $62,219 $ 69,845 $ 77,731 $ 91,414 $38,050 $ 38,254(b)
Cost of revenues............ 17,839 18,788 16,956 18,202 19,500 8,996 9,172
------- ------- ------- ------- ------- ------- -------
Gross profit.............. 37,110 43,431 52,889 59,529 71,914 29,054 29,082
Operating expenses:
Selling and marketing..... 26,473 26,301 27,671 29,919 36,640 15,888 17,114
General and
administrative.......... 8,793 13,037 13,804 15,072 16,821 7,870 13,436
------- ------- ------- ------- ------- ------- -------
Total operating expenses.... 35,266 39,338 41,475 44,991 53,461 23,758 30,550
------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................ 1,844 4,093 11,414 14,538 18,453 5,296 (1,468)
Other income(expense),
net....................... 243 344 470 375 48 18 (107)
Interest expense............ (342) (2,951) (4,345) (6,630) (7,816) (4,029) (4,333)
------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item........ 1,745 1,486 7,539 8,283 10,685 1,285 (5,908)
Extraordinary (loss)(c)..... (296) -- (392) (1,368) -- -- (1,391)
------- ------- ------- ------- ------- ------- -------
Net (loss) income........... $ 1,449 $ 1,486 $ 7,147 $ 6,915 $ 10,685 $ 1,285 $ (7,299)
======= ======= ======= ======= ======= ======= =======
OTHER DATA:
Depreciation and
amortization.............. $ 1,129 $ 4,603 $ 4,593 $ 4,691 $ 6,399 $ 3,122 $ 3,274
Capital expenditures........ 743 769 496 484 1,034 259 580
CASH FLOWS PROVIDED BY (USED
FOR):
Operating Activities...... 9,022 9,853 14,608 13,091 15,302 5,672 6,245
Investing Activities...... (743) (3,121) (2,838) (8,344) (3,592) (2,817) (8,762)
Financing Activities...... (8,174) (6,075) (11,550) (4,361) (11,776) (2,875) 3,486
EBITDA(d)................... 3,216 9,040 17,002 20,400 24,900 8,586 7,292(b)
EBITDA margin(e)............ 5.9% 14.5% 24.3% 26.2% 27.2% 22.6% 19.1%
Gross margin................ 67.5% 69.8% 75.7% 76.6% 78.7% 76.4% 76.0%
Bookings(f)................. $54,188 $64,269 $ 70,013 $ 75,709 $ 86,859 $44,485 $ 49,926
Advance payments as a % of
net revenues(g)........... 26.2% 31.8% 36.9% 41.0% 45.1% 43.6% 46.6%
Number of accounts(h)....... 69,632 71,832 77,371 84,117 93,157 37,904 38,025
Average net revenues per
account(i)................ $ 789 $ 866 $ 903 $ 924 $ 981 $ 1,004 $ 1,006
Number of directories....... 90 97 106 118 128 49 57
Ratio of earnings to fixed
charges(j)................ 3.55x 1.44x 2.69x 2.28x 2.29x 1.17x --
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital............. $10,436 $12,034 $ 3,496 $ 2,088 $ 24 ($1,522) $ 862
Total assets................ 46,594 43,879 41,831 47,423 48,231 47,975 48,753
Total debt.................. 28,921 25,724 47,961 84,410 78,435 84,335 176,430
Member equity
(deficit)(k).............. 5,850 4,458 (22,721) (55,606) (50,722) (57,675) (152,605)
</TABLE>
See accompanying Notes to Selected Historical Financial and Other Data.
34
<PAGE> 40
NOTES TO SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
(a) Effective May 1, 1993, an investor group and CIVC formed the Partnership to
acquire the Transwestern business from US West. The results of operations
of the predecessor are not directly comparable to the results of operations
of the Company due to (i) the incurrence of interest expense from
borrowings to finance the acquisition and subsequent distributions, and
(ii) the effect of increased depreciation and amortization expense
associated with the acquisition.
(b) For the six months ended October 31, 1997 consolidated net revenue
increased $204,000 and EBITDA decreased $1.3 million as compared to the six
months ended October 31, 1996 primarily due to changes in the publication
schedule which caused a different mix of directories to be published in the
respective six month periods. EBITDA for the latest twelve months ended
October 31, 1997 and November 30, 1997 was $23,707 and $24,730
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(c) "Extraordinary item" represents the write-off of unamortized debt issuance
costs related to the repayment of debt prior to maturity. See Note 4 of the
Notes to the Financial Statements.
(d) "EBITDA" is defined as income (loss) before extraordinary item plus
interest expense, discretionary contributions to the Equity Compensation
Plan (such contributions represent special distributions to the Equity
Compensation Plan in connection with refinancing transactions) and
depreciation and amortization and is consistent with the definition of
EBITDA in the Indenture and in the Senior Credit Facility. Contributions to
the Equity Compensation Plan were $525 in fiscal 1995, $796 in fiscal 1996
and $5,543 for the six months ended October 31, 1997. EBITDA is not a
measure of performance under GAAP. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity.
However, management has included EBITDA because it may be used by certain
investors to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a company's ability to
service debt. The Company's definition of EBITDA may not be comparable to
that of other companies. See the tabular presentation of EBITDA included in
"Unaudited Pro Forma Financial Data -- Unaudited Pro Forma Statement of
Operations for the Fiscal Year Ended April 30, 1997" and "-- Unaudited Pro
Forma Statement of Operations for the Six Months Ended October 31, 1997."
(e) "EBITDA margin" is defined as EBITDA as a percentage of net revenues.
Management believes that EBITDA margin provides a valuable indication of
the Company's ability to generate cash flows available for debt service.
(f) "Bookings" is defined as the daily advertising orders received from
accounts during a given period and generally occur at a steady pace
throughout the year. In fiscal 1997, net revenues included $4,200 from
acquired directories, while bookings does not reflect this adjustment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
(g) "Advance payments as a percentage of net revenues" is defined as, for a
given period, all cash deposits received on advertising orders prior to
revenue recognition as a percentage of net revenues recognized upon
directory distribution.
(h) "Number of accounts" is defined as the total number of advertising accounts
for all directories published during a given period. Customers are counted
as multiple accounts if advertising in more than one directory.
(i) "Average net revenues per account" is defined as net revenues divided by
the number of accounts.
(j) Earnings consist of income (loss) before extraordinary item plus
contributions to the Equity Compensation Plan plus fixed charges. Fixed
charges consist of (i) interest, whether expensed or capitalized, (ii)
amortization of debt issuance costs, whether expensed or capitalized, and
(iii) an allocation of one-fourth of the rental expense from operating
leases which management considers is a reasonable approximation of the
interest factor of rental expense.
(k) Member equity (deficit) represents the value of equity contributions to the
Company by its Member plus net income of the Company less Member
distributions for income taxes and distributions related to
recapitalization transactions completed during fiscal 1995 and 1996 and in
the six months ended October 31, 1997. Member distributions for income
taxes in fiscal 1995, 1996, 1997 and in the six months ended October 31,
1997 totaled $3,250, $3,400, $5,801 and $2,100, respectively. Member
distributions made in connection with recapitalization transactions
completed in fiscal 1995 and fiscal 1995 and in the six months ended
October 31, 1997 totaled $31,076, $36,400 and $174,381, respectively.
35
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Partnership was formed in May 1993 to acquire the TransWestern business
from US West. In November 1997, the Partnership formed and contributed
substantially all of its assets to TransWestern, TransWestern assumed or
guaranteed all of the liabilities of the Partnership, and the Partnership
changed its name to TransWestern Holdings L.P. All of the operations that were
previously conducted by the Partnership are now being conducted by TransWestern.
Revenue Recognition. The Company recognizes net revenues from the sale of
advertisements placed in each directory when the completed directory is
distributed. Costs directly related to sales, production, printing and
distribution of each directory are capitalized initially as deferred directory
costs and then matched against related net revenues upon distribution. All other
operating costs are recognized during the period when incurred. As the number of
directories grows, the publication schedule is periodically adjusted to
accommodate new books. In addition, changes in distribution dates are affected
by market and competitive conditions and the staffing level required to achieve
the individual directory revenue goals. As a result, the Company's directories
may be published in a month earlier or later than the previous year and may move
from one fiscal quarter or year to another. Year to year results depend on both
timing and performance factors.
Notwithstanding significant monthly fluctuation in net revenues recognized
based on actual distribution dates of individual directories, the Company's
bookings and cash collection activities generally occur at a steady pace
throughout the year. The table below demonstrates that quarterly bookings,
collection of advance payments and total cash receipts vary less than net
revenues or EBITDA:
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997 FISCAL 1998
----------------------------- ----------------------------- -------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues(a).... $20.7 $14.7 $20.9 $21.4 $23.3 $14.7 $23.5 $29.9 $19.2 $19.1
EBITDA............. 5.5 2.4 7.0 5.5 5.8 2.6 6.9 9.6 4.0 3.2
Bookings(b)........ 18.1 20.0 17.6 20.0 20.5 23.9 21.4 21.1 22.7 27.2
Advance payments... 8.0 8.0 8.2 9.6 8.8 10.1 10.4 12.2 11.1 11.8
Total cash
receipts(c)...... 17.7 18.0 17.4 19.5 18.5 20.9 20.0 22.6 22.6 24.1
</TABLE>
- ---------------
(a) Fiscal 1997 includes $4.2 million of net revenues from contracts acquired
by the Company in connection with directory acquisitions.
(b) Excludes $4.2 million from contracts booked before the related directories
were acquired by the Company.
(c) Includes both advance payments and collection of accounts receivable.
Revenue Growth. Since the 1993 Acquisition, the Company's total number of
directories increased by 52, from 90 to 142, and the Company increased its total
number of accounts from nearly 70,000 to more than 93,000. Four acquisitions
completed since May 1995 expanded the Company's presence in northern California,
upstate New York, western Massachusetts, southern Indiana, Kentucky and
Tennessee and accounted for the addition of 24 directories and approximately
$9.2 million of net revenues in fiscal 1997. In addition, the Company started 26
new directories since fiscal 1993 which accounted for $5.2 million of net
revenues in fiscal 1997. Excluding these new and acquired directories, the
Company's net revenues grew 9.0% in fiscal 1995, 7.2% in fiscal 1996 and 6.7% in
fiscal 1997 with average revenue per account increasing from $919 in fiscal 1995
to $959 in fiscal 1996 and $1,017 in fiscal 1997. The Company's overall revenue
renewal and account retention rates have averaged 86% and 76%, respectively,
over the last five years.
Bookings. The length of the measurement periods for revenues and bookings
are the same; however, the measurement period for bookings for each month is the
thirty-day period ending on the twentieth of that month. Consequently, the
measurement period for bookings lags the measurement period for revenue and
other items by 10 days. Growth in bookings, which is closely correlated with the
number of account
36
<PAGE> 42
executives, has been 9.7% through the seven months ended November 30, 1997
versus the same period in 1996. Through November 30, 1997, the Company has
recognized net revenues of $42.8 million and has account bookings of $39.9
million for directories scheduled but not yet published in fiscal 1998, compared
to $42.0 million of net revenues and $37.4 million of bookings recognized
through November 30, 1996. To facilitate future growth, the Company increased
the size of its sales force by approximately 12.0%, increasing the number of
account executives from 400 as of November 30, 1996 to 448 as of November 30,
1997. Average bookings per week has grown from approximately $1.6 million for
the 12-month period ended November 30, 1996 to $1.8 million for the 12-month
period ended November 30, 1997, an increase of approximately 12.5%.
Cost of Revenues. The Company's principal operating costs are production,
paper and printing. Total operating costs represented 21.3% of net revenues in
fiscal 1997. At the individual directory level, production, printing,
distribution and licensing costs are largely fixed for an established
circulation, resulting in high marginal profit contribution from incremental
advertising sales into an existing directory. Since fiscal 1995, the Company's
constant focus on process improvement and increased productivity has enabled it
to minimize additional production and administrative costs while increasing the
number of its directories. Despite the addition of 52 directories and an
approximately 34% increase in the total number of accounts since fiscal 1993,
improved production and administrative processing has enabled the Company to
reduce total non-sales staffing from 214 in fiscal 1993 to 148 in fiscal 1997
and to improve the proportion of account executives to total employees from
43.1% in fiscal 1993 to 64.3% in fiscal 1997.
The Company's principal raw material is paper. The Company used
approximately 16.4 million and 17.6 million pounds of directory grade paper in
fiscal 1996 and 1997, respectively, resulting in a total cost of paper during
such periods of approximately $6.0 million and $5.8 million, respectively. White
pages listings are licensed from telephone utilities for a set fee per name and
the number of listings correspond directly to planned circulation and does not
fluctuate. Total licensing fees incurred by the Company in fiscal 1997 were $1.1
million. Distribution is provided by two third-party vendors at a fixed delivery
cost per directory as established by individual market.
Selling and Marketing Expenses. Direct sales expense correlates closely
with the size of the Company's sales force. As the Company continues to increase
the number of directories and to expand its total customer base, the number of
account executives required to complete the annual selling cycle grows
accordingly. The Company's ability to complete selling each directory within a
prescribed time frame depends on account executive staffing levels and
productivity. Historically, the Company has experienced a high turnover rate
among its account executives, particularly among new hires, and therefore
continues to invest in recruiting and training account executives to build the
size of its sales force and to continue to grow revenue. The number of account
executives has grown from 296 at the end of fiscal 1995 to 433 at the end of
fiscal 1997 and 448 as of November 30, 1997. However, as a result of a
significantly increased percentage of revenue attributable to new accounts,
revenue per account executive has decreased from $236,000 in fiscal 1995 to
$211,000 in fiscal 1997. Revenue per account executive has decreased because the
selling time required to develop a new account typically exceeds the time
required to service a renewal account and new accounts typically commit to
smaller advertising programs than do established renewal accounts. Although the
account renewal rate is typically lower for newer accounts than for established
accounts, as new accounts renew and mature, the net revenues from such accounts
generally increase, while the cost of revenues for such accounts decreases.
Direct sales expense accounted for approximately 19% of net revenues in fiscal
1997, 18% of net revenues in fiscal 1996 and 17% of net revenues in fiscal 1995.
Cash Flow Management. The Company has instituted several policies to
accelerate customer payments including (i) requiring customers to make minimum
deposits on their annual purchase at the time of contract signing, (ii)
requiring customers with small advertising purchases to pay 100% at the time of
contract signing, (iii) offering a cash discount to customers who pay 100% at
the time of contract signing, (iv) providing commission incentives to account
executives to collect higher customer deposits earlier in the sales process, (v)
shortening customer payment terms from 12 months to eight months or less, and
(vi) requiring new customers to begin payments immediately after contract
signing rather than waiting for the directory to be
37
<PAGE> 43
distributed. As a result of these initiatives, advance payments received prior
to directory publication as a percentage of net revenues has increased from
26.2% in fiscal 1993 to 45.1% in fiscal 1997.
Although the Company generally collects an advance payment from all
advertisers, credit is extended based upon the size of the advertising program
and customer collection history. While the Company's accounts receivable are not
subject to any concentrated credit risk, credit losses represent a cost of doing
business due to the nature of the Company's customer base, largely local
businesses, and the use of extended credit terms. Generally, for larger and
established accounts, credit may be extended under eight to 12 month installment
payment terms. In addition, customers are given credits for the current year
when errors occur in their advertisements. A reserve for bad debt and errors is
established when revenue is recognized for individual directories. The estimated
bad debt expense is determined on a market by market basis taking into account
prior years' collection history. Actual write-offs are taken against the reserve
when management determines that an account is uncollectible, which typically
will be determined after completion of the next annual selling cycle. Therefore,
actual account write-offs may not occur until 18 to 24 months after a directory
has been published. The estimated provision for bad debt equaled 9.2%, 9.1% and
9.8% of net revenues for fiscal years 1995, 1996 and 1997, respectively. Actual
account write-offs equaled 10.2% of net revenues in fiscal 1995. As described
above, actual account write-offs for fiscal 1996 and fiscal 1997 have not yet
been determined. Based on current estimates, management believes that the actual
write-offs in fiscal 1996 will be approximately 9.7% of net revenues. Management
regularly reviews actual write-offs of accounts receivable as compared to the
reserve estimates made at the time individual directories are published. During
fiscal 1997, the Company's provision for bad debt included approximately
$600,000 more than management expects to write-off with respect to fiscal 1997
directories. This addition was made to offset lower realized collections with
respect to the fiscal 1995 directories.
Recapitalization Accounting and Tax Effects. The Company believes the
Recapitalization qualifies for recapitalization accounting treatment, pursuant
to which the Company has incurred substantial negative net worth. For tax
purposes the Company's basis in its assets is increased to approximately $225
million. This step-up in the basis of its assets will increase the Company's
amortization expense for tax purposes by approximately $15 million per year over
the next 15 years. Under current federal tax laws, Holdings' partners, not
Holdings, pay federal income taxes with respect to Holdings' net income.
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of
operations as a percentage of net revenues for the fiscal years ended April 30,
1995, 1996 and 1997 and for the six month periods ended October 31, 1996 and
1997:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED APRIL 30, OCTOBER 31,
------------------------- ---------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 24.3 23.4 21.3 23.6 24.0
----- ----- ----- ----- -----
Gross profit............................... 75.7 76.6 78.7 76.4 76.0
Selling and marketing...................... 39.6 38.5 40.1 41.8 44.7
General and administrative................. 19.8 19.4 18.4 20.7 35.1
----- ----- ----- ----- -----
Income (loss) from operations.............. 16.3% 18.7% 20.2% 13.9% (3.8)%
===== ===== ===== ===== =====
EBITDA(a).................................. 24.3% 26.2% 27.2% 22.6% 18.9%
</TABLE>
- ---------------
(a) "EBITDA" is defined as income (loss) before extraordinary item plus interest
expense, discretionary contributions to the Equity Compensation Plan (such
contributions represent special distributions to the Equity Compensation
Plan in connection with refinancing transactions) and depreciation and
amortization and is consistent with the definition of EBITDA in the
Indenture and in the Senior Credit Facility. Contributions to the Equity
Compensation Plan were $525 in fiscal 1995 and $796 in fiscal 1996 and
$5,543 for the six months ended October 31, 1997. EBITDA is not a measure of
performance under GAAP. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with GAAP, or as a
measure of profitability or liquidity. However, management has included
EBITDA because it may be used by certain investors to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt. The Company's definition
of EBITDA may not be comparable to that of other companies. See the tabular
presentation of EBITDA included in "Unaudited Pro Forma Financial
Data -- Unaudited Pro Forma Statement of Operations for the Fiscal Year
Ended April 30, 1997" and "-- Unaudited Pro forma Statement of Operations
for the Six Months Ended October 31, 1997."
38
<PAGE> 44
SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 31,
1996
The Company's financial results were affected by changes in the publishing
schedule during the first six months of fiscal 1998 compared to the same period
in fiscal 1997, resulting in differences in the number and mix of directories
published. As a result, interim results are not indicative of results that may
be expected for the entire year, as the impact of changes in the Company's
publishing schedule is diminished over longer reporting periods.
On October 1, 1997 the Company consummated the Recapitalization, the
effects of which are included in the financial results of the six month period
ending October 31, 1997.
Net revenues increased $204,000, from $38.1 million for the first six
months of fiscal 1997 to $38.3 million during the first six months of fiscal
1998. The Company published 57 directories during the first six months of fiscal
1998 and 49 directories during the first six months of fiscal 1997. The increase
in net revenue consisted of $2.0 million from year to year growth of the same 43
directories published during both periods, $0.6 million from four new
directories and $3.6 million from directories for which the publication date
moved into the period offset by $6.0 million from directories for which the
publication date moved out of the period.
Same book revenue growth for the 43 directories published in both periods
was 6.1% and the average revenue per account was 6.4% higher in the first six
months of fiscal 1998 than in the first six months of fiscal 1997.
Cost of revenues for the first six months of fiscal 1998 increased $176,000
from $9.0 million to $9.2 million for the same period in fiscal 1997, primarily
due to changes in the mix of publications. Cost of revenues for the same 43
directories published in both periods decreased by $426,000, from 20.3% of
revenue to 17.9% and was attributable to a reduction in printing and
distribution expenses.
Gross profit for the six months ended October 31, 1997 remained flat at
$29.1 million compared to the same period in fiscal 1997. Timing changes led to
the publication during the first six months of fiscal 1998 of more directories
with lower profit contributions than those published during the same period in
fiscal 1997, the effect of which was partially offset by an increase in gross
profit of $2.2 million, or 9.2%, for the same 43 directories published in both
periods and $266,000 of gross profit associated with four new directories. Gross
margin decreased slightly from 76.4% during the first six months of fiscal 1997
to 76.0% during the same period in fiscal 1998.
Selling and marketing expense increased $1.2 million from $15.9 million for
the first six months of fiscal 1997 to $17.1 million for the same period in
fiscal 1998. This increase in selling and marketing costs was attributable to
increased selling costs of $0.7 million for the same 43 directories published in
both periods, $0.4 million for the four new directories and $0.1 million from an
increase in sales management costs. The provision for bad debt as a percentage
of net revenues increased from 8.7% to 9.1% due to the change in the mix of
directories published. Selling and marketing expense as a percentage of net
revenues increased from 41.8% during the first six months of fiscal 1997 to
44.7% during the same period in fiscal 1998 due to an increase in the number of
sales representatives selling advertising for the same 43 books and higher
start-up selling costs for the four new directories.
General and administrative expense increased $5.5 million from $7.9 million
in the first six months of fiscal 1997 to $13.4 million in the same period of
fiscal 1998 as a result of a contribution to the Equity Compensation Plan of
$5.5 million made on October 1, 1997 in connection with the Recapitalization.
There were no such contributions made in the first six months of fiscal 1997.
General and administrative expenses as a percentage of net revenues increased
from 20.7% for the first six months of fiscal 1997 to 35.1% during the same
period in fiscal 1998.
As a result of the above factors, income (loss) from operations decreased
$6.8 million, from $5.3 million for the first six months of fiscal 1997 to
($1.5) million for the same period in fiscal 1998. Income (loss) from operations
as a percentage of net revenues decreased from 13.9% during the first six months
of fiscal 1997 to (3.8%) during the same period of fiscal 1998.
39
<PAGE> 45
Depreciation and amortization increased $152,000 from $3.1 million for the
first six months of fiscal 1997 to $3.3 million in fiscal 1998.
Interest expense increased $304,000 from $4.0 million for the first six
months of fiscal 1997 to $4.3 million in fiscal 1998.
Income (loss) before extraordinary item decreased $7.2 million from $1.3
million in the first six months of fiscal 1997 to ($5.9) million in fiscal 1998.
Extraordinary item charges of $1.4 million in the six month period ended
October 31, 1997 were in connection with the Recapitalization and consisted of
write-off of unamortized debt issuance costs related to the repayment of debt
prior to maturity.
YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR ENDED APRIL 30, 1996
Net revenues increased $13.7 million, or 17.6%, from $77.7 million in
fiscal 1996 to $91.4 million in fiscal 1997. The Company published 128
directories in fiscal 1997 as compared to 118 directories in fiscal 1996. The
net revenue growth was due to (i) $9.5 million from 21 new directories published
in fiscal 1997, (ii) an increase in net revenues of $5.6 million in the same 106
directories published in both periods, and (iii) $2.0 million from the second
publication of the Tyler, Texas directory during fiscal 1997, offset by $3.4
million of net revenues associated with 12 directories published in fiscal 1996
but not in fiscal 1997.
Same book revenue growth for the 106 directories published in both periods
was 7.8%, and was the result of 74.2% of accounts representing 85.3% of the
fiscal 1996 net revenues renewing their advertising program in fiscal 1997, with
new accounts contributing to the balance of the growth. In addition, the average
revenue per account was 4.8% higher in fiscal 1997 than in fiscal 1996.
Cost of revenues increased $1.3 million, or 7.1%, from $18.2 million in
fiscal 1996 to $19.5 million in fiscal 1997. The increase was the result of (i)
$2.7 million of costs associated with 21 new directories published in fiscal
1997 and (ii) $0.5 million of additional production and distribution overhead
costs, offset by (a) $1.0 million of lower costs for the same 106 directories
published in both fiscal years and (b) $0.9 million of costs associated with 12
directories published during fiscal 1996, but not in fiscal 1997. For the same
106 directories that were published in both fiscal years, cost of revenues as a
percentage of net revenues improved from 23.4% in fiscal 1996 to 21.3% in fiscal
1997, primarily due to a decrease in printing and production costs and license
fees.
As a result of the above factors, gross profit increased $12.4 million, or
20.8%, from $59.5 million in fiscal 1996 to $71.9 million in fiscal 1997. Gross
margin increased from 76.6% in fiscal 1996 to 78.7% in fiscal 1997 as a result
of reduced printing and production costs and license fees and increased sales on
a same directory basis.
Selling and marketing expense increased $6.7 million, or 22.5%, from $29.9
million in fiscal 1996 to $36.6 million in fiscal 1997. The majority of the
increase was attributable to increased sales staffing for new and acquired
directories, the establishment of a permanent sales office in the Nashville,
Tennessee market and an increase in the provision for bad debt for write-offs
expected on fiscal 1995 directories. Selling and marketing expense as a
percentage of net revenues increased from 38.5% in fiscal 1996 to 40.1% in
fiscal 1997.
General and administrative expense increased $1.7 million, or 11.6%, from
$15.1 million in fiscal 1996 to $16.8 million in fiscal 1997, primarily as a
result of increased depreciation and amortization. General and administrative
expense as a percentage of net revenues decreased from 19.4% in fiscal 1996 to
18.4% in fiscal 1997.
As a result of the above factors, income from operations increased $3.9
million, or 26.9%, from $14.5 million in fiscal 1996 to $18.5 million in fiscal
1997. Income from operations as a percentage of net revenues increased from
18.7% in fiscal 1996 to 20.2% in fiscal 1997.
Depreciation and amortization expense increased $1.7 million, or 37.2%,
from $4.7 million in fiscal 1996 to $6.4 million in fiscal 1997.
40
<PAGE> 46
Interest expense increased $1.2 million, or 17.9%, from $6.6 million in
fiscal 1996 to $7.8 million in fiscal 1997.
Income before extraordinary item increased $2.4 million, or 29.0%, from
$8.3 million in fiscal 1996 to $10.7 million in fiscal 1997.
YEAR ENDED APRIL 30, 1996 COMPARED TO YEAR ENDED APRIL 30, 1995
Net revenues increased $7.9 million, or 11.3%, from $69.8 million in fiscal
1995 to $77.7 million in fiscal 1996. The Company published 118 directories in
fiscal 1996 as compared to 106 directories in fiscal 1995. The growth in net
revenues was the result of (i) $2.7 million from the addition of 15 new
directories, (ii) $5.4 million of increased net revenues from the same 103
directories published in both periods, partially offset by $209,000 from the
discontinuation of three Oklahoma directories.
Same book revenue growth for the 103 directories published in both periods
was 7.8%, and was the result of 76.3% of accounts accounting for 87.5% of the
fiscal 1995 net revenues renewing their advertising program in fiscal 1996, with
new accounts contributing to the balance of the growth. In addition, the average
revenue per account was 4.0% higher in fiscal 1996 than in fiscal 1995.
Cost of revenues increased $1.2 million, or 7.3%, from $17.0 million in
fiscal 1995 to $18.2 million in fiscal 1996. The increase was the result of $1.2
million for new directories, $0.5 million from an increase in paper prices and
distribution costs for the same 103 directories published in both fiscal 1996
and 1995, offset by $323,000 associated with the discontinuation of three
Oklahoma directories and $200,000 of production cost savings. For the same 103
directories that were published in both fiscal years, cost of revenues as a
percentage of net revenues improved from 19.4% in fiscal 1995 to 18.6% to fiscal
1996, primarily due to a decrease in printing and production costs and license
fees.
As a result of the above factors, gross profit increased $6.6 million, or
12.6%, from $52.9 million in fiscal 1995 to $59.5 million in fiscal 1996. Gross
profit margin grew from 75.7% in fiscal 1995 to 76.6% in fiscal 1996, primarily
due to improved margins on the same 103 directories published during both fiscal
1995 and 1996, new directories and from improvements in production processing.
Selling and marketing expense increased $2.2 million, or 8.1%, from $27.7
million in fiscal 1995 to $29.9 million in fiscal 1996. The bulk of this
increase was due to increased sales staffing for the 15 new directories
introduced in 1996 as well as the same 103 directories published during both
fiscal years. Selling and marketing expense as a percentage of net revenues
decreased from 39.6% in fiscal 1995 to 38.5% in fiscal 1996.
General and administrative expense increased $1.3 million, or 9.2%, from
$13.8 million in fiscal 1995 to $15.1 million in fiscal 1996. This increase was
due to higher salaries and benefits, additional costs associated with travel and
recruiting and an increase in incentives paid for the collection of advance
payments. General and administrative expense as a percentage of net revenues
decreased from 19.8% in fiscal 1995 to 19.4% in fiscal 1996.
As a result of the above factors, income from operations increased $3.1
million, or 27.4%, from $11.4 million in fiscal 1995 to $14.5 million in fiscal
1996. Income from operations as a percentage of net revenues increased from
16.3% in fiscal 1995 to 18.7% in fiscal 1996.
Depreciation and amortization expense increased $98,000, or 2.1%, from $4.6
million in fiscal 1995 to $4.7 million in fiscal 1996.
Interest expense increased $2.3 million, or 52.6%, from $4.3 million in
fiscal 1995 to $6.6 million in fiscal 1996. This increase in interest expense
was due to a refinancing of the Partnership that was consummated in November
1995.
Income before extraordinary item increased $0.7 million, or 9.9%, from $7.5
million in fiscal 1995 to $8.3 million in fiscal 1996 due to Equity Compensation
Plan expenses.
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<PAGE> 47
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are not capital intensive. Capital expenditures
were $496,000, $484,000 and $1.0 million in fiscal 1995, 1996 and 1997,
respectively. Capital spending is largely for computer hardware and software
upgrades for the maintenance of its production and operating systems. The
increase of $0.5 million in fiscal 1997 was related to the purchase of graphics
workstations that will allow the Company to produce color advertisements
in-house and avoid the high cost for color processing charged by third-party
vendors. As of the end of fiscal 1997 and October 31, 1997, the Company did not
have any material commitments for capital expenditures.
Through its focus on increasing customer advance payments and the
acceleration of cash receipts, the Company has been able to reduce working
capital requirements despite strong revenue growth. Several factors have
contributed to this reduction, including (i) programs designed to accelerate
advance payments, (ii) shortening billing options for credit payments, (iii)
improved production and administrative processing to reduce non-sales staffing
and the elimination of costly third party vended services, and (iv) consistent
earnings growth. Net accounts receivable, which represents the largest component
of working capital, increased to $23.3 million in fiscal 1997 compared to $17.5
million in fiscal 1993. This increase of $5.7 million, or 32.8%, compares
favorably to the net revenue growth of $36.5 million, or 66.4%, over the same
period. In addition, advance payments as a percentage of net revenues increased
from 26.2% in fiscal 1993 to 45.1% in fiscal 1997.
Net cash provided by operating activities was approximately $6.2 million in
the six months ended October 31, 1997 as compared to approximately $5.7 million
in the same period in 1996. This increase was primarily related to substantially
increased sources of funds from lower accounts receivable and higher customer
deposits. Despite an increase in the absolute number of directories published in
the six months ended October 31, 1997, the average amount of billed receivables
was lower due to increased advance payments. Collection of accounts receivable
also improved over the previous year. Cash flows in the six month period were
also favorably impacted by timing differences in the directory publishing
schedule, which had a favorable impact on net cash provided by accrued expenses
and payables.
Net cash provided by operating activities was approximately $14.6 million,
$13.1 million and $15.3 million in fiscal 1995, 1996 and 1997, respectively. The
decrease from 1995 to 1996 was caused by increased write-offs of doubtful
accounts totaling $(2.1) million due to a review of older balances, reduced
accounts payable and accrued liabilities of $(1.7) million caused primarily by
publication schedule changes and accrued interest of $(1.1) million related to
the write-off of unamortized financing fees booked as part of the 1996
refinancing. The increase from 1996 to 1997 was primarily related to the $3.8
million increase in net income and increased non-cash charges for depreciation,
amortization and provision for bad debt along with an approximate $1.0 million
reduction in write-offs of doubtful accounts to an amount which is in line with
normal levels associated with the growth in revenue. Also, the use of cash in
fiscal 1997 from increased trade receivables associated with higher published
revenues was partially offset by the timing impact on accrued interest and
accounts payable balances totaling $1.9 million.
Net cash used for investing activities was approximately $(8.8) million in
the six months ended October 31, 1997 as compared to approximately $(2.8)
million in the same period in 1996. This increase was primarily the result of
debt issuance costs related to the Recapitalization and cash paid for directory
acquisitions. Net cash used for investing activities was approximately $(2.8)
million, $(8.3) million and $(3.6) million in fiscal 1995, 1996 and 1997,
respectively. The increase from 1995 to 1996 was related to payments for
purchases of directories, and the decrease from 1996 to 1997 was caused by
reduced amounts paid in connection with directory asset purchases compared to
fiscal 1996 and refinancing costs in 1996 which did not recur in 1997.
Net cash provided by (used for) financing activities was approximately $3.5
million in the first six months of October 31, 1997 as compared to approximately
$(2.9) million in the same period in 1996. This increase was primarily the
result of net proceeds from the Recapitalization. Net cash used for financing
activities was approximately $(11.6) million, $(4.4) million and $(11.8) million
in fiscal 1995, 1996 and 1997, respectively. The decrease from 1995 to 1996 was
primarily related to a refinancing of the Partnership completed in fiscal 1996
which was relatively larger in amount than a refinancing completed in fiscal
1995. The increase from
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<PAGE> 48
1996 to 1997 was caused by a decrease in the net proceeds of long term debt as
fiscal 1997 did not include any refinancing activity.
In connection with the Transactions, the Company incurred significant debt.
As of October 31, 1997, after giving effect to the consummation of the Initial
Offerings and the Asset Drop-Down, the Company would have had total outstanding
debt of approximately $185 million, of which $100 million is represented by the
Notes and $85 million is outstanding borrowings under the Senior Credit
Facility, which ranks senior to the Notes. In addition, the Company would have
had $40.0 million of additional borrowing availability under the Senior Credit
Facility. The Company's pro forma earnings were insufficient to cover fixed
charges by approximately $7.6 million for the six-month period ended October 31,
1997.
The ability of the Company to pay principal and interest on the Notes will
depend upon future operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, some of which are
beyond the control of the Company, as well as borrowings under the Senior Credit
Facility. If the Company's operating cash flow is insufficient to meet its
operating expenses and to service its debt requirements as they become due, the
Company may be required to refinance all or a portion of the principal of the
Notes and amounts outstanding under the Senior Credit Facility. If the Company
is unable to service its indebtedness, it will be forced to take actions such as
reducing or delaying capital expenditures, selling assets, restructuring or
refinancing its indebtedness or seeking additional equity capital. There can be
no assurance that any of these remedies can be effected on satisfactory terms,
if at all. Based on current levels of operations and anticipated growth, the
Company does not believe that the indebtedness incurred in connection with the
Transactions will have a material adverse effect on the Company's business,
operations or capital expenditures, although there can be no assurance in this
regard. In addition, the Company may require additional capital to fund the
start up and selective acquisition portion of its growth strategy, and there can
be no assurance that such funds will be available. See "Description of Certain
Indebtedness -- Senior Credit Facility" and "Description of the Notes."
The Company's principal sources of funds following the Transactions are
anticipated to be cash flows from operating activities and borrowings under the
Revolving Credit Facility. See "Description of Certain Indebtedness -- Senior
Credit Facility." Based upon the successful implementation of management's
business and operating strategy, the Company believes that these funds will
provide it with sufficient liquidity and capital resources to meet current and
future financial obligations, including the payment of principal and interest on
the Notes, as well as to provide funds for the Company's working capital,
capital expenditures and other needs for the next twelve months. The Company's
future operating performance and ability to service or refinance the Notes and
to repay, extend or refinance the Senior Credit Facility will be subject to
future economic conditions and to financial, businesses and other factors, many
of which are beyond the Company's control. There can be no assurance that such
sources of funds will be adequate and that the Company will not require
additional capital from borrowings or securities offerings to satisfy such
requirements. In addition, the Company may require additional capital to fund
future acquisitions and there can be no assurance that such capital will be
available. See "Risk Factors."
In connection with its strategy of growing revenues from existing
directories, the Company has increased its sales force from 223 employees at the
end of fiscal 1993 to 448 as of November 30, 1997. The Company seeks to continue
to increase the absolute size of its sales force, however the Company currently
does not believe that its sales force will increase at a rate equal to the
percentage increase from 1993 to 1997. The Company does not believe that
increases in the number of its sales personnel will materially impact its
liquidity.
Upon the occurrence of a Change of Control, the Company will be required to
make an offer for cash to purchase the Notes at a purchase price equal to 101%
of the principal amount thereof, together with accrued and unpaid interest, if
any, thereon to the purchase date. Certain events involving a Change of Control
may result in an event of default under the Senior Credit Facility or other
indebtedness of the Company that may be incurred in the future. Moreover, the
exercise by the holders of the Notes of their right to require the Company to
purchase the Notes may cause an event of default under the Senior Credit
Facility or such other indebtedness, even if the Change of Control does not.
Finally, there can be no assurance that the Company
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<PAGE> 49
will have the financial resources necessary to purchase the Notes upon a Change
of Control. See "Risk Factors -- Limitations on Change of Control; Ability to
Purchase Notes Upon A Change of Control" and "Description of the Notes -- Change
of Control Offer."
FINANCING ACTIVITIES RELATING TO THE RECAPITALIZATION
The Company applied the net proceeds of the Initial Offering to the
repayment of the Senior Subordinated Facility and to reduce indebtedness
outstanding under the Revolving Credit Facility. See "The Transactions" and "Use
of Proceeds."
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<PAGE> 50
BUSINESS
The Company is one of the largest independent yellow pages directory
publishers in the United States. The Company's 142 directories serve communities
in the 12 states of California, Connecticut, Indiana, Kansas, Kentucky,
Louisiana, Massachusetts, New York, Ohio, Oklahoma, Tennessee and Texas. The
Company's presence in its markets is well-established; more than 70% of its
directories have been in publication for more than 10 years. The Company's
revenues are derived from the sale of advertising to a diversified base of over
93,000 accounts consisting primarily of small to medium-sized local businesses.
Yellow pages are an important advertising medium for local businesses due to
their low advertising cost, widespread distribution, lasting presence, and high
consumer usage. The strength of the Company's directories is evidenced by high
revenue renewal and account retention rates, which have averaged 86% and 76%,
respectively, during the last five years.
Since the 1993 Acquisition, the Company's management team has successfully
executed its strategy of growing revenues from existing directories, improving
operating efficiency, accelerating cash flows and starting and acquiring new
directories. Over this period, the Company increased average revenue per account
from $789 to $981 and increased its number of directories from 90 to 142,
driving the Company's net revenues from $54.9 million to $91.4 million and its
net income from $1.4 million to $10.7 million. The Company achieved this growth
without significantly increasing working capital or capital expenditures, while
leveraging its existing cost structure and creating a platform for future
growth. As a result, the Company's EBITDA increased from $3.2 million to $24.9
million and its EBITDA margin increased from 5.9% to 27.2%.
INDUSTRY OVERVIEW
The United States yellow pages directory industry generated revenues of
approximately $10.8 billion in 1996, with circulation of approximately 316
million directories. Yellow pages directories are published by both telephone
utilities and, in many markets, independent directory publishers, such as the
Company, which are not affiliated with the telephone service provider. More than
250 independent directory publishers circulated over 77 million directories and
generated an estimated $677 million in revenues during 1996. Between 1991 and
1996, while industry-wide yellow pages advertising revenues grew at a compound
annual rate of 3.5%, advertising revenues of independent directories grew at a
compound annual rate of approximately 6.9%. Concurrent with the overall
expansion of the yellow pages advertising market, independent directory
publishers have steadily increased their market share from 5.5% in 1991 to 6.5%
in 1996. This has occurred because the diverse needs of both consumers and
advertisers are often not satisfied by a single utility directory.
Yellow pages directories accounted for approximately 6.0% of total
advertising spending in 1996 and compete with all other forms of media
advertising, including television, radio, newspapers and direct mail. In
general, media advertising may be divided into three categories: (i) market
development or image advertising (e.g., television, radio and newspapers), (ii)
direct response sales promotion (e.g., direct mail), and (iii) point of purchase
or directional advertising (e.g., classified directories). Yellow pages
directories are primarily directional advertising because they are used either
at home or in the workplace when consumers are contemplating a purchase or in
need of a service.
Yellow pages advertising expenditures tend to be more stable than other
forms of media advertising and do not fluctuate widely with economic cycles.
Yellow pages directory advertising is considered a "must buy" by many small and
medium-sized businesses since it is often their principal means of soliciting
customers. The strength of the yellow pages as compared to other forms of
advertising lies in its consumer reach, lasting presence and cost-effectiveness.
Yellow pages are present in nearly every household and business in the United
States. Once an advertisement is placed in a directory, it remains within reach
of its target audience until the directory is replaced with the next annual
edition or discarded.
The independent publisher segment of the yellow pages industry is highly
fragmented and growing. There are approximately 250 independent yellow pages
publishers in the United States and the five largest independent publishers
accounted for 63% of 1996 revenues in the independent publisher segment.
Successful independent publishers effectively compete with telephone utilities
by differentiating their product based on geographical market segmentation,
pricing strategy and enhanced product features. To maximize both
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<PAGE> 51
advertiser value and consumer usage, independent directory publishers target
their directory coverage areas based on consumer shopping patterns. In contrast,
most directories published by telephone utilities coincide with their telephone
service territories, which may incorporate multiple local markets or only
portions of a single market. Also, independent publishers generally offer yellow
pages advertisements at a significant discount to the price that competing
telephone utilities usually charge. As a result, independent yellow pages
directories allow local advertisers to better target their desired market and
are often more useful for consumers.
Independent yellow pages publishers generally compete in rural and suburban
markets and not major urban markets, where the high distribution quantities for
each edition create a barrier to entry. In most markets, independent directory
publishers compete with the telephone utility and with one or more independent
yellow pages publishers. In markets where two or more directory publishers
compete, advertisers frequently purchase advertisements in multiple directories.
In some markets, independent directory publishers compete by "overscoping"
multiple telephone utilities. Overscoping refers to publishing a directory which
encompasses the service territories of two or more telephone utilities. For
example, an independent publisher may publish a single overscoped directory
which provides coverage of an entire county that also contains three smaller
utility books corresponding to different telephone service territories. The
overscoped directory provides advertisers with a lower cost, more efficient
means to reach the entire area, and provides consumers with the most complete
yellow pages resource for the area.
In other markets, independent directory publishers compete by
"underscoping" a utility company's directory. For example, an independent
publisher may publish multiple smaller community directories which provide
targeted local coverage in an area in which a utility publishes a single
directory to cover an entire county consisting of many discrete communities.
Underscoping provides more efficient advertising for certain types of local
businesses for whom advertising outside the immediate community is unproductive,
and for consumers interested in local services, the community directory
frequently represents a more convenient and relevant source of information than
the county-wide directory.
Independent directory publishers also distinguish their directories from
the telephone utility directories on the basis of advertisement pricing. The
independents typically price advertising at a significantly lower rate than the
utility directories in the same market areas. Advertising rates are specifically
tailored to reflect the different size, market position, stage of development
and penetration rate of each directory. As a result, businesses generally are
able to place either multiple advertisements or a larger advertisement in an
independent directory for the same price as a single advertisement with the
telephone utility's directory.
OPERATING STRENGTHS
The Company believes that it benefits from the following operating
strengths:
High Revenue Stability and Account Renewal Rates. The Company's high
revenue renewal and account retention rates (averaging 86% and 76%,
respectively, during the last five fiscal years) have provided considerable
revenue and profit stability and form a strong base of business from which to
grow. For many local businesses, yellow pages directory advertising is their
principal form of advertising and provides an effective means of reaching their
potential customers. Also, advertisement placement within a directory is based
on size and seniority, and therefore advertisers have a strong incentive to
increase the size of their advertisements and to renew their advertising
program. In addition, advertisers are reluctant to cancel their advertising
programs when their local competition is well-represented in that directory.
Geographic, Directory, Industry and Account Diversity. The Company's 142
directories serve communities in 12 states across the country. No single
directory accounted for more than 5% of net revenues, and the top five
directories accounted for less than 19% of net revenues in fiscal 1997. The
Company's 93,000 accounts represent a wide variety of service, retailing and
other businesses and its top 1,000 accounts represented less than 12% of the
Company's fiscal 1997 net revenues. This high level of diversification reduces
the Company's exposure to adverse regional economic conditions and enhances
revenue and cash flow stability.
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<PAGE> 52
Favorable Cash Flow Characteristics. The Company's favorable cash flow
characteristics result from its stable revenues, high level of advance payments,
predictable cost structure, low working capital investment and minimal capital
expenditure needs. During fiscal 1997, the Company collected approximately 45%
of its net revenues prior to publication of its directories, up from
approximately 26% in fiscal 1993. In addition to collecting higher levels of
advance payments, the Company shortened customer payment terms and reduced
credit exposure to its smallest customers. Further, the Company's capital
expenditures have averaged less than $750,000 per year over the last five fiscal
years.
Proven, Experienced Management. The Company has a proven senior management
team with extensive experience in the yellow pages business. Since the 1993
Acquisition, management has demonstrated the ability to grow the Company
profitably while the Company has had significant financial leverage.
Collectively, management owns approximately 9% of Holdings and also participates
in a substantial equity-based incentive program tied to the successful long-term
performance of the Company.
BUSINESS STRATEGY
The Company's strategy is to capitalize on its operating structure,
consisting of a decentralized sales force and centralized production and
administrative operations, in order to grow its position as a leading
independent yellow pages publisher. This strategy recognizes the inherent
operating leverage of established directories where production and
administrative costs are largely fixed, resulting in high marginal profit from
incremental sales. At the same time, the Company's focus on continuous process
improvements has significantly expanded capacity without increasing production
costs, establishing a platform to start and acquire directories in a highly
profitable manner. Specific elements of the Company's business strategy are as
follows:
Grow Revenues from Existing Directories. Management believes there are
opportunities to increase revenues from both existing advertisers and new
accounts. Specific initiatives include (i) cross-selling advertisers into
multiple directories, (ii) encouraging customers to purchase larger
advertisements or advertisements under multiple headings within the same
directory, (iii) introducing new premium advertising features, including color,
at premium prices, and (iv) offering Internet directory listings.
The Company also utilizes its proprietary database to increase its customer
penetration by systematically targeting potential customers and converting them
into new advertisers. To support this strategy, the Company has expanded its
sales force from 223 employees at the end of fiscal 1993 to 448 as of November
30, 1997, representing an increase of approximately 101%. Management believes
that new account growth drives long term profitability and improves the quality
of its directories. Although in connection with this strategy, the Company seeks
to continue to increase the absolute size of its sales force, the Company
currently does not believe that its sales force will increase at a rate equal to
the percentage increase from 1993 to 1997.
Improve Operating Efficiency. The Company works to continuously improve
its production processes and systems in order to increase its operating
efficiency. Management has created a team-oriented environment focused on
managing costs, streamlining processes and cross-training personnel to adjust to
fluctuations in production levels. These efforts have resulted in increased
capacity and lower production costs.
Accelerate Cash Flows. The Company continues to focus on increasing the
amount of cash it collects from advertisers prior to the publication of each
directory. Increasing advance payments and shortening customer payment terms (i)
reduces the Company's investment in working capital, (ii) decreases collection
and bad debt costs and (iii) permits the Company to finance the introduction of
new directories from internally generated funds. During 1997, the Company
collected approximately 45% of its net revenues prior to publication of its
directories, up from approximately 26% in fiscal 1993. In fiscal 1997, the
Company's average accounts receivable turnover was approximately 167 days.
Accounts receivable as a percentage of the Company's revenue decreases as the
Company increases the percentage of its net revenues that it collects prior to
directory publication.
New Directory Growth. The Company's strategy includes growth through new
directory start-ups and selective acquisitions. The Company minimizes start-up
risks by launching new directories in areas contiguous to the Company's existing
markets where the Company has existing sales infrastructure and local
recognition
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<PAGE> 53
and where existing customers can provide an initial revenue base. Since the 1993
Acquisition, the Company has introduced 26 new "fill-in" directory start-ups in
California, Connecticut, Indiana, Louisiana, New York, Oklahoma and Texas.
Since the 1993 Acquisition, the Company has acquired 24 directories in
California, Indiana, Kentucky, Massachusetts, New York and Tennessee. Although
the Company has no current acquisition commitments, management continuously
reviews acquisition opportunities and believes it can successfully acquire and
integrate additional directories into its existing production and administrative
infrastructure.
RECENT ACQUISITION
On February 2, 1998, the Company acquired eight directories from Mast for
approximately $9.0 million. The purchase price consisted of (i) approximately
$7.7 million of cash, (ii) a $265,000 promissory note due in one year from the
Company to Mast (subject to adjustment based on the actual bad debt experience
of the acquired directories) and (iii) certain assumed liabilities of
approximately $1.0 million. The cash portion of the purchase price was funded
with borrowings under the Revolving Credit Facility and is subject to further
adjustment based on the actual net costs of the acquired directories. Six of the
acquired directories are located in Northern Ohio and Southern Michigan and
serve the Toledo and Columbus areas, and two of the acquired directories are
contiguous with the Nashville market. The Company retained 2 area sales managers
and 22 account executives associated with the acquired directories. The eight
directories generated approximately $4.7 million of net revenue in 1997.
MARKETS SERVED
The Company publishes 142 yellow pages directories serving distinct
communities in 12 states, including California, Connecticut, Indiana, Kansas,
Kentucky, Louisiana, Massachusetts, New York, Ohio, Oklahoma, Tennessee and
Texas. The Company's directories are generally well-established in their local
communities and are clustered in contiguous geographic areas to create a strong
local market presence and to achieve selling efficiencies.
The Company's net revenues are not materially concentrated in any single
directory, industry, geographic region or customer. In fiscal 1997, the Company
served approximately 93,000 active accounts with its top 1,000 accounts
representing less than 12% of net revenues and no single directory accounting
for more than 5% of net revenues. Approximately 95% of the Company's net
revenues are derived from local accounts with the remaining 5% coming from
national companies advertising locally. The Company's high level of
diversification reduces exposure to adverse regional economic conditions and
provides additional stability in operating results. During fiscal 1997, the
Company published 128 directories with a total circulation of approximately 7.0
million copies. The Company's geographic diversity is evidenced in the table
below:
<TABLE>
<CAPTION>
NUMBER OF DIRECTORIES NET REVENUES
--------------------------------------------- ---------------------------------------------
REGION F'93 F'94 F'95 F'96 F'97 F'93 F'94 F'95 F'96 F'97
- ------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northeast.. 34 37 39 42 45 $23.9 $26.2 $29.2 $33.1 $38.0
Central.. 25 26 28 35 42 9.9 11.2 12.5 14.8 19.7
Southwest.. 16 19 22 23 23 13.1 16.0 18.2 19.7 22.0
West... 15 15 17 18 18 8.0 8.8 9.9 10.1 11.7
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total.. 90 97 106 118 128 $54.9 $62.2 $69.8 $77.7 $91.4
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
PRODUCTS
The Company's yellow pages directories are designed to meet the
informational needs of consumers and the advertising needs of local businesses.
Each directory consists of (i) a yellow pages section containing display
advertisements and a listing of businesses by various headings, (ii) a white
pages section listing the names, addresses, and phone numbers of residences and
businesses in the area served, (iii) a community
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<PAGE> 54
information section providing reference information about general community
services such as listings for government offices, schools and hospitals, and
(iv) a map of the geographic area covered by the directory.
Advertising space is sold throughout the directory including in-column and
display advertising space in the yellow pages, bold listings and business card
listings in the white pages, banner advertising in the community pages, and
image advertisements on the front, back, inside, and outside covers. The Company
is also currently in the process of upgrading its production capacity to include
options such as full color advertisements which generate significantly higher
advertising rates. This diversity of product offerings enables the Company to
create customized advertising programs that are responsive to specific customer
needs and financial resources.
The Company's directories are an efficient source of information for
consumers. With over 2,000 headings in its directories and an expansive list of
businesses by heading in each local market, the Company's directories are both
comprehensive and conveniently organized. The Company's management believes that
the completeness and accuracy of the data in a directory is essential to
consumer acceptance.
Although the Company remains primarily focused on its printed directories,
it has recently initiated an Internet directory service. The Company has entered
into a strategic alliance with InfoSpace to offer electronic directory services
in each of its local markets. Under this strategic alliance, InfoSpace is
responsible for the technical aspects of the alliance and the Company is
providing local content and selling advertisement space in this electronic
directory. This arrangement enables the Company to avoid technical risks which
it is not presently staffed to manage and permits the Company to participate in
any opportunities that develop through the Internet. Management believes that
the Company's experience, reputation and account relationships within its local
markets will help it successfully market this service. Although the growing use
of the Internet has not had any appreciable impact on the Company to date,
management has not yet determined how, if at all, the Internet will impact its
performance, prospects or operations. The Company cross promotes its Internet
service and its printed directories. The Company's web site is at
http://www.transwesternpub.com.
SALES AND MARKETING
Yellow pages marketing is a direct sales business which requires both
servicing existing accounts and developing new customers. Repeat customers
comprise the Company's core account base and a number of these customers have
advertised in the Company's directories for many years. On average, since fiscal
1993, accounts representing 86% of the prior year's net revenues for each
directory have renewed their advertising program in the current edition of each
directory. Management believes that this high revenue renewal rate reflects the
importance of the Company's directories to its local accounts for whom yellow
pages directory advertising is a principal form of advertising. In addition,
yellow pages advertising often comprises an integral part of the local
advertising strategy for larger national companies operating at the local level.
Advertisers have a strong incentive to increase the size of their advertisement
and to renew their advertising programs because advertisements are placed within
each heading of a directory based first on size then on seniority. Generally,
larger advertisements are more effective than smaller advertisements and
advertisements placed near the beginning of a heading generate more responses
than similarly sized advertisements placed further back in the heading.
The Company also builds on its account base by generating new business
leads from multiple sources including a comprehensive compilation of data about
individual company advertising expenditures in competitive yellow page
directories. The Company has developed a proprietary database of high potential
customers based on each individual customer's yellow page advertising
expenditures and focuses its sales resources on those potential customers. In
support of this strategy, the Company has expanded its sales force from 223
employees at the end of fiscal 1993 to 448 employees as of November 30, 1997,
representing an increase of approximately 101%. Management has observed a direct
correlation between adding new sales force employees and revenue growth.
The Company employs seven regional vice presidents and 49 area and district
sales managers who, together, are responsible for supervising the activities of
the account executives. The Company's 448 account
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executives generate virtually all of the Company's revenues and are responsible
for servicing existing advertising accounts and developing new accounts within
their assigned service areas.
The Company has well-established practices and procedures to manage the
productivity and effectiveness of its sales force. All new account executives
complete a formal two-week training program and receive continuous on-the-job
training through the regional sales management structure. Each account executive
has a specified account assignment consisting of both new business leads and
renewal accounts and is accountable for daily, weekly and monthly sales and
advance payment goals. Account executives are compensated in the form of base
salary, commissions and car allowance. Approximately 50% of total account
executive compensation is in the form of commissions, such that sales force
compensation is largely tied to sales performance and account collection. As of
November 30, 1997, the Company employed approximately 690 people, 536 of whom
were engaged in sales and sales support functions.
The sales cycle of a directory varies based on the size of the revenue base
and can extend from a few weeks to as long as six months. Once the canvass of
customers for a directory is completed, the directory is "closed" and the
advertisements are assembled into directories in the production cycle.
PRODUCTION AND DISTRIBUTION
The Company develops a production planning guide for each directory, which
is a comprehensive planning tool setting forth production specifications and the
cost structure for that directory. Each production planning guide is
incorporated into the Company's annual production schedule and serves as the
foundation for the Company's annual budgeting process. Although the Company
views its directories as annual publications, the actual interval between
publications may vary from 11 to 13 months. New directory starts can be
incorporated into the production schedule without significant disruption because
directory production is staggered throughout the year. As of November 30, 1997,
the Company had a production staff of approximately 90 full-time employees.
The production process includes post-sales, national sales order
processing, advertisement design and manufacturing, white pages licensing and
production, yellow pages production, community pages production and pagination.
Production operations are primarily managed in-house to minimize costs and to
assure a high level of accuracy.
Prior to fiscal 1995, the Company purchased specialized yellow pages data
processing services from a third-party provider to supplement its own internal
information processing and management functions. In fiscal 1995, the Company
began eliminating a substantial portion of third-party information processing
services by internally generating leads and processing white pages and yellow
pages with its own management information systems.
Major production initiatives since fiscal 1994 which have resulted in
significant savings, include (i) the conversion of yellow pages processing from
a third-party vendor to an internal process, (ii) the internal production of all
in-column and display advertising graphics and elimination of all third-party
vendor graphic costs, (iii) internal processing of sales leads and elimination
of third-party lead processing costs, (iv) the re-negotiation and reduction of
third-party charges for keying data, (v) the internal typesetting of pages, (vi)
the internal production of community pages, and (vii) direct production cost
reductions for white pages processing and cover graphics.
After the in-house production process is complete, the directories are then
sent to outside vendors to be printed. The Company does not print any of its
directories but instead contracts with a limited number of printers to print and
bind its directories. The Company contracts with two outside vendors to
distribute its directories to each business and residence in its markets.
RAW MATERIALS
The Company's principal raw material is paper. The Company used
approximately 17.6 and 16.4 million pounds of directory grade paper in its
fiscal years ended April 30, 1997 and 1996, respectively, resulting in a total
cost of paper during such periods of approximately $5.8 million and $6.0
million, respectively. The
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<PAGE> 56
Company does not purchase paper directly from the paper mills; instead, the
Company's printers purchase the paper on behalf of the Company at prices
negotiated by the Company.
COMPETITION
The yellow pages directory advertising business is highly competitive.
There are over 250 independent publishers operating in competition with the
regional Bell operating companies and other telephone utilities. In most
markets, the Company competes not only with the local utilities, but also with
one or more independent yellow pages publishers. Other media in competition with
yellow pages for local business and professional advertising include newspapers,
radio, television, billboards and direct mail.
INTELLECTUAL PROPERTY
The Company has registered one trademark and one service mark used in its
business. In addition, each one of the Company's publications is protected under
Federal copyright laws. Telephone utilities are required to license directory
listings of names and telephone numbers that the Company then licenses for a set
fee per name for use in its white pages listings. Total licensing fees paid by
the Company were $1.1 million in fiscal 1997. In addition, the Company believes
that the phrase "yellow pages" and the walking fingers logo are in the public
domain in the United States. Otherwise, the Company believes that it owns or
licenses the intellectual property rights necessary to conduct its business.
PROPERTIES
The Company houses its corporate, administrative and production staff at
its headquarters located at 8344 Clairemont Mesa Boulevard, San Diego,
California. Information relating to the Company's corporate headquarters and
other regional sales offices is set forth in the following table:
<TABLE>
<CAPTION>
SQUARE TERM
LOCATION ADDRESS FOOTAGE EXPIRATION DESCRIPTION OF USE
- -------------------------- -------------------------------- ------- ---------- ------------------
<S> <C> <C> <C> <C>
San Diego, CA............. 8344 Clairemont Mesa Boulevard 35,824 10/31/03 Corporate Office/
Sales/Production
Houston, TX............... 11243 Fuqua 9,600 3/31/01 Sales Office
Elmsford, NY.............. 150 Clearbrook Road 8,775 12/31/00 Sales Office
Albany, NY................ 501 New Karner Road, Suite 1 7,565 3/31/99 Sales Office
Bedford, TX............... 4001 Airport Fwy., Suite 230 5,697 7/31/00 Sales Office
Louisville, KY............ 2300 Envoy Circle, #2301 5,600 3/31/02 Sales Office
Highland, NY.............. 7-9 Cummings Lane 5,000 4/30/99 Sales Office
Stamford, CT.............. 333 Ludlow Street 4,895 8/31/02 Sales Office
Nashville, TN............. 2525 Perimeter Drive, Suite 105 3,637 5/31/01 Sales Office
Oklahoma City, OK......... 4901 W. Reno, Suite 800 2,931 6/30/02 Sales Office
</TABLE>
The Company leases 24 other sales offices for more remote sales areas and
periodically leases small facilities for temporary storage of directories.
EMPLOYEES
As of November 30, 1997, the Company employed approximately 690 full-time
employees, none of whom are members of a union. The Company believes that it has
good relations with its employees.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. Management does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
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<PAGE> 57
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information (ages as of November 30,
1997) with respect to the persons who are members of the Board of Directors (the
"Board") of TCC or executive officers of Holdings or TransWestern. TCC controls
the policies and operations of Holdings and TransWestern. See "Limited
Partnership Agreement." THL has the ability to appoint a majority of the members
of the Board of TCC pursuant to the Investors Agreement. See "Certain
Transactions -- Investors Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
- ---------------------------------- --- -------------------------------------------------
<S> <C> <C>
Laurence H. Bloch................. 44 Chairman of the Board, Secretary and Director
Ricardo Puente.................... 44 President, Chief Executive Officer and Director
Joan M. Fiorito................... 43 Vice President, Chief Financial Officer and
Assistant Secretary
Marybeth Brennan.................. 41 Vice President - Operations
Joseph L. Wazny................... 52 Vice President - Information Services
Robert Bambace.................... 56 Regional Vice President - Sales
Richard Beck...................... 52 Regional Vice President - Sales
Michael Bynum..................... 42 Regional Vice President - Sales
Steve Cartlidge................... 47 Regional Vice President - Sales
Richard Mellert................... 53 Regional Vice President - Sales
Ita Shea-Oglesby.................. 40 Regional Vice President - Sales
C. Hunter Boll.................... 42 Director
Terrence M. Mullen................ 30 Director
Christopher J. Perry.............. 42 Director
Scott A. Schoen................... 40 Director
Marcus D. Wedner.................. 34 Director
</TABLE>
Laurence H. Bloch is Chairman and Secretary of TransWestern and Holdings
and has been a Director of TCC since 1993. Prior to the Recapitalization, Mr.
Bloch served as Vice Chairman and Chief Financial Officer of the Company. Before
joining the Company, Mr. Bloch was Senior Vice President and Chief Financial
Officer of Lanxide Corporation, a materials technology company. Mr. Bloch was a
Vice President, then Managing Director of Smith Barney from 1985 to 1990, prior
to which he was Vice President, Corporate Finance with Thomson McKinnon
Securities, Inc. Mr. Bloch received a BA from the University of Rochester and an
MBA from Wharton Business School. Mr. Bloch also serves as a Director of The
Petersen Companies, Inc.
Ricardo Puente has been President of TransWestern and Holdings and a
Director of TCC since 1993 and became Chief Executive Officer as of the
Recapitalization. Previously, he held the positions of Vice President of Sales
and Controller of the TransWestern business which he joined in 1988. Before
joining US West, Mr. Puente held various financial positions with the Pillsbury
Company for nine years. After receiving his MS in Accounting from the University
of Miami, Mr. Puente was a senior auditor with Touche Ross & Co. Mr. Puente
earned a BS in Accounting from Florida State University.
Joan M. Fiorito is the Vice President, Chief Financial Officer and
Assistant Secretary of TransWestern and Holdings and prior to the
Recapitalization was Vice President and Controller. Ms. Fiorito joined the
TransWestern business in 1989 as Manager, Financial Planning & Analysis and
subsequently was promoted to Controller. Prior to joining the TransWestern
business, Ms. Fiorito was Controller of Coastal Office Products. Ms. Fiorito
received a BS in Management from Dominican College and an MBA in Finance from
Fordham University.
Marybeth Brennan has been the Company's Vice President of Operations since
its formation in 1993. Ms. Brennan joined the TransWestern business in 1987 as
Production Manager, prior to which Ms. Brennan
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<PAGE> 58
was Director of Publications for Maynard-Thomas Publishing. Ms. Brennan received
a BA in English from Stonehill College.
Joseph L. Wazny has been the Vice President, Management Information Systems
of the Company since its formation in 1993. Before joining the Company, Mr.
Wazny was Director of Systems Development and Director, Information Systems with
R.H. Donnelley Corp. Mr. Wazny graduated with a degree in Business
Administration and Computer Sciences from Roosevelt University.
Robert Bambace has been a Regional Vice President of the Company since
1993. Mr. Bambace oversees the Downstate New York Region. Mr. Bambace joined the
TransWestern business as a District Sales Manager in 1983, and was promoted to
his current position in 1993. Mr. Bambace holds a BA in Business Administration
from the State University of New York.
Richard Beck has been a Regional Vice President of the Company since 1993.
Mr. Beck oversees the Kentucky/Ohio/Indiana Region. Mr. Beck joined the
TransWestern business in 1980 in a sales position. He holds an AA in Business
Administration from the University of Kentucky.
Michael Bynum has been a Regional Vice President of the Company since 1993.
Mr. Bynum oversees the Oklahoma/Kansas/Tennessee Region. Mr. Bynum joined the
TransWestern business in 1985 as a sales associate and holds a BA in Management
from Cameron University.
Steve Cartlidge has been a Regional Vice President of the Company since
1993. Mr. Cartlidge oversees the North Texas Region. Mr. Cartlidge joined the
TransWestern business from Donnelley Publishing in 1989 as an Area Sales Manager
and shortly thereafter was promoted to District Sales Manager. Mr. Cartlidge
earned a BA from Howard Payne University.
Richard Mellert has been a Regional Vice President of the Company since
1993. Mr. Mellert oversees the Upstate New York Region. Mr. Mellert joined the
TransWestern business in 1980. Mr. Mellert was promoted to District Sales
Manager in 1991. Mr. Mellert holds an AA degree from Dutchess Community College.
Ita Shea-Oglesby has been a Regional Vice President of the Company since
1993. Ms. Shea-Oglesby oversees the South Texas, Louisiana Region and the
Northern California Region. Ms. Shea-Oglesby joined the TransWestern business in
1983 and previously held the positions of Area Sales Manager, Sales Trainer and
District Sales Manager. Ms. Shea-Oglesby earned a BA from Louisiana State
University.
C. Hunter Boll became a Director of TCC upon the consummation of the
Recapitalization. Mr. Boll is a Managing Director of Thomas H. Lee Company where
he has been employed since 1986. Mr. Boll is also a Trustee of THL Equity Trust
III, the General Partner of THL Equity Advisors Limited Partnership III, which
is the General Partner of Thomas H. Lee Equity Fund III, L.P. Mr. Boll also
serves as a Director of Stanley Furniture Company, Inc., New York Restaurant
Group, Inc., Freedom Securities Corporation and Select Beverages, Inc. Mr. Boll
holds an MBA from Stanford University and a BA from Middlebury College.
Terrence M. Mullen became a Director of TCC upon consummation of the
Recapitalization. Mr. Mullen is currently an Associate of the Thomas H. Lee
Company. Mr. Mullen worked at the Thomas H. Lee Company from 1992 to 1994 and
rejoined in 1996. From 1990 to 1992, Mr. Mullen worked in the Corporate Finance
Department of Morgan Stanley & Co., Incorporated. Mr. Mullen also serves as a
Director of Anchor Advanced Products, Inc. Mr. Mullen received a BBA in Finance
and Economics from the University of Notre Dame and an MBA from the Harvard
Graduate School of Business Administration.
Christopher J. Perry has been a Director of TCC since 1994. Mr. Perry is
currently Managing Director and President of Continental Illinois Venture
Corporation, a position he has held since 1994, and is also a Managing Partner
of CIVC Partners III. Mr. Perry has been at Bank of America or, prior to its
merger with Bank of America, Continental Bank, since 1985. Prior positions with
Bank of America or Continental Bank include Managing Director and head of the
Mezzanine Investments Group and Managing Director and head of the Chicago
Structured Finance Group. Prior to joining Continental Bank, Mr. Perry was in
the Corporate Finance Department of Northern Trust. In addition to being a
Director of TCC, Mr. Perry is a Director of Teletouch Communications. Mr. Perry
received a BS from the University of Illinois and an MBA from Pepperdine
University and is a certified public accountant.
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<PAGE> 59
Scott A. Schoen became a Director of TCC upon consummation of the
Recapitalization. Mr. Schoen is a Managing Director of the Thomas H. Lee Company
where he has been employed since 1986. Mr. Schoen is also a Trustee of THL
Equity Trust III, the General Partner of THL Equity Advisors Limited Partnership
III, which is the General Partner of Thomas H. Lee Equity Fund III, L.P. Mr.
Schoen also serves as Vice President of Thomas H. Lee Advisors I and Thomas H.
Lee Advisors II. Mr. Schoen is a director of Anchor Advanced Products, Inc.,
First Alert, Inc., Signature Brands USA, Inc., Rayovac Corporation and Syratech
Corporation. Mr. Schoen received a BA in History from Yale University, a JD from
Harvard Law School and an MBA from the Harvard Graduate School of Business
Administration. Mr. Schoen is a member of the New York Bar.
Marcus D. Wedner has been a Director of TCC since its formation in 1993.
Mr. Wedner is currently a Managing Director of Continental Illinois Venture
Corporation, a position he has held since 1992, and is also a Managing Partner
of CIVC Partners III. Mr. Wedner joined Continental Illinois Venture Corporation
in 1988. Previously, Mr. Wedner held marketing and sales management positions at
Pacific Telesis Group and as an associate with Goldman, Sachs & Co. In addition
to being a Director of the TCC, Mr. Wedner is a Director of Teletouch
Communications. Mr. Wedner holds a BA from the University of California at Los
Angeles and received an MBA from Harvard Graduate School of Business
Administration.
COMPENSATION OF DIRECTORS
TransWestern is a limited liability company and Holdings is a limited
partnership, both of which are controlled by TCC. See "Limited Partnership
Agreement" and "Limited Liability Company Agreement." The Directors of TCC will
not be paid for their services, although Directors are reimbursed for
out-of-pocket expenses incurred in connection with attending Board meetings.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of TransWestern will be determined
by the Board of TCC. The following Summary Compensation Table includes
individual compensation information for the former Chairman and Chief Executive
Officer, the current President and Chief Executive Officer and each of the three
other most highly compensated executive officers of the Company in fiscal 1997
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company during fiscal 1997. There were no stock options
exercised during the Company's last fiscal year nor were there any options
outstanding at the end of the Company's last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(a)
- ------------------------------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
James D. Dunning, Jr.(b)............................... $277,709 $277,709 $20,510
Former Chairman and Chief Executive Officer
Laurence H. Bloch(c)................................... 222,167 222,167 11,998
Chairman of the Board and Secretary
Ricardo Puente......................................... 199,519 171,822 21,360
President, Chief Executive Officer(d)
Marybeth Brennan....................................... 132,698 120,030 20,405
Vice President -- Operations
Joan M. Fiorito(e)..................................... 119,460 105,649 21,049
Vice President, Chief Financial Officer and Assistant
Secretary
</TABLE>
- ---------------
(a) Includes auto allowance, long-term disability insurance, personal life
insurance, profit sharing, tax preparation and bonuses paid pursuant to the
Equity Compensation Plan.
(b) Mr. Dunning resigned as Chairman of the Board and Chief Executive Officer
upon consummation of the Recapitalization.
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<PAGE> 60
(c) Mr. Bloch served as Vice Chairman until consummation of the
Recapitalization, at which time he became Chairman.
(d) Mr. Puente served as President until consummation of the Recapitalization,
at which time he became President and Chief Executive Officer.
(e) Ms. Fiorito served as Vice President-Controller until consummation of the
Recapitalization, at which time she became Vice President, Chief Financial
Officer and Assistant Secretary.
EQUITY COMPENSATION ARRANGEMENTS
Holdings' Class B Units are designed to encourage performance by providing
the members of management the opportunity to participate in the equity growth of
TransWestern. There are 10,000 Class B Units authorized, 8,500 of which were
issued to the Management Investors and 1,500 of which were issued to the Equity
Compensation Plan discussed below. See "Limited Partnership Agreement" and
"Certain Transactions -- Executive Agreements."
In fiscal 1994, the Company established the TransWestern Publishing
Company, L.P. Equity Compensation Plan (the "Equity Compensation Plan") to
provide approximately 60 of the Company's managers (other than Messrs. Dunning,
Bloch and Puente) the opportunity to participate in the equity growth of the
Company without having direct ownership of the Company's securities. In
connection with the Recapitalization, the Company reserved $5.5 million for
distributions to participants in the Equity Compensation Plan, one half of which
was distributed in October 1997, and one half of which will be distributed in
October 1998 to participants employed by the Company at the time the
distribution is made. The Equity Compensation Plan was terminated upon the
consummation of the Recapitalization; however, a new plan has been established
on terms substantially the same as those of the Equity Compensation Plan which
also requires that participants must be employees of the Company on the date of
any distribution. Special distributions made pursuant to the Equity Compensation
Plan were recorded as an expense in the Company's financial statements when
declared by the Board of Directors. Employees participating in the Equity
Compensation Plan were eligible to receive a ratable per unit share of cash
distributions made pursuant to the Equity Compensation Plan, if and when,
declared. In fiscal 1997, distributions totaling $411,000 were paid and at April
30, 1997, there were no undistributed proceeds under the Equity Compensation
Plan.
EMPLOYMENT AGREEMENTS
Messrs. Bloch and Puente have each entered into an Employment Agreement
(each, an "Employment Agreement") with the Company. The Employment Agreements
provide for the employment of Mr. Bloch as the Chairman of the Board of
Directors of TCC and Chairman of the Partnership and Mr. Puente as the President
and Chief Executive Officer of the Partnership and TCC until October 1, 2002
unless terminated earlier as provided in the respective Employment Agreement.
The Employment Agreements of Messrs. Bloch and Puente provide for (i) an annual
base salary of $222,167 and $199,519 ($235,500 effective May 1, 1998),
respectively (subject to annual increases based on the consumer price index) and
(ii) annual bonuses based on the achievement of certain EBITDA (as defined in
each Employment Agreement) targets of up to 100% of their base salary. Each
executive's employment may be terminated by the Company at any time with cause
or without cause. If such executive is terminated by the Company with cause or
resigns other than for good reason, the executive will be entitled to his base
salary and fringe benefits until the date of termination, but will not be
entitled to any unpaid bonus. Messrs. Bloch and Puente will be entitled to their
base salary and fringe benefits and any accrued bonus for a period of 12 months
following their termination in the event such executive is terminated without
cause or resigns with good reason. The Employment Agreements also provide each
executive with customary fringe benefits and vacation periods. "Cause" is
defined in the Employment Agreements to mean (i) the commission of a felony or a
crime involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud, (ii) conduct tending to bring the
Company or any of its subsidiaries into substantial public disgrace or
disrepute, (iii) the substantial and repeated failure to perform duties as
reasonably directed by TCC or the Company, (iv) gross negligence or willful
misconduct with respect to the Company or any subsidiary, or (v) any other
material breach of the Employment Agreement or Company policy established by the
Board, which breach, if curable, is not cured within 15 days
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<PAGE> 61
after written notice thereof to the executive. "Good Reason" is defined to mean
the occurrence, without such executive's consent, of (i) a reduction by the
Company of the executive's annual base salary by more than 20%, (ii) any
reduction in the executive's annual base salary (in effect immediately prior to
such reduction) if in the fiscal year prior to such reduction the EBITDA for
such prior fiscal year was equal to or greater than 80% of the target EBITDA for
such prior year, (iii) any willful action by the Company that is intentionally
inconsistent with the terms of the Employment Agreement or the executive's
Executive Agreement (as defined herein), or (iv) any material reduction in the
powers, duties or responsibilities which the executive was entitled to exercise
as of the date of the Employment Agreement. Messrs. Bloch and Puente have also
entered into Executive Agreements with the Company pursuant to which they
purchased Class B Units of the Partnership. See "Certain
Transactions -- Executive Agreements."
401(k) AND PROFIT SHARING PLAN
The Company has a 401(k) and profit-sharing retirement plan (the "Profit
Sharing Plan") for the benefit of substantially all of its employees, which was
qualified for tax exempt status by the Internal Revenue Service. Employees can
make contributions to the plan up to the maximum amount allowed by federal tax
code regulations. The Company may match the employee contributions, up to 83% of
the first 6% of annual earnings per participant. The Company may also make
annual discretionary profit sharing contributions. The Company's contributions
to the Profit Sharing Plan for the years ended April 30, 1995, 1996 and 1997
were approximately $0.6 million, $0.8 million and $0.8 million, respectively.
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<PAGE> 62
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of TransWestern's membership interests are owned by Holdings. The
following table sets forth certain information regarding the beneficial
ownership of the equity securities of Holdings by: (i) each of the Directors of
TCC and the executive officers of TransWestern; (ii) all Directors of TCC and
executive officers of TransWestern as a group; (iii) all Management Investors as
a group and (iv) each owner of more than 5% of any class of equity securities of
the Partnership ("5% Owners"). Unless otherwise noted, the address for each
executive officer of TransWestern and the Directors of TCC is c/o TransWestern,
8344 Clairemont Mesa Boulevard, San Diego, California 92111. All of Capital's
issued and outstanding capital stock is owned by Holdings. All of Capital II's
issued and outstanding capital stock is owned by TransWestern.
<TABLE>
<CAPTION>
CLASS A
COMMON PERCENT PREFERRED PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER UNITS(a) OF CLASS UNITS OF CLASS
- -------------------------------------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Laurence H. Bloch(b).............................. 19,209 1.51% 9,974 1.51%
Ricardo Puente(c)................................. 28,813 2.27 14,961 2.27
Joan M. Fiorito(d)................................ 5,282 * 2,743 *
Marybeth Brennan(d)............................... 5,282 * 2,743 *
Joseph L. Wazny(d)................................ 5,282 * 2,743 *
C. Hunter Boll(e)................................. 715,193 56.29 371,351 56.29
Terrence M. Mullen(e)............................. 712,231 56.06 369,813 56.06
Christopher J. Perry(f)........................... 288,134 22.68 149,608 22.68
Scott A. Schoen(e)................................ 715,193 56.29 371,351 56.29
Marcus D. Wedner(f)............................... 288,134 22.68 149,608 22.68
All Directors and executive officers as a group
(10 persons).................................... 1,070,551 84.27 555,862 84.27
All Management Investors as a group............... 115,250 9.07 59,841 9.07
5% OWNERS:
Thomas H. Lee Equity Fund III, L.P.(g)............ 712,034 56.05 369,710 56.05
Thomas H. Lee Foreign Fund III, L.P.(h)........... 712,034 56.05 369,710 56.05
THL-CCI Limited Partnership(i).................... 712,034 56.05 369,710 56.05
Continental Illinois Venture Corporation(j)....... 288,134 22.68 149,608 22.68
CIVC Partners III(k).............................. 288,134 22.68 149,608 22.68
</TABLE>
- ---------------
* Represents less than one percent.
(a) Holders of Class A Units are entitled to share in any distribution on a pro
rata basis, but only if the holders of the Preferred Units have received the
Preference Amount (as defined herein). The Partnership also issued Class B
Units to the Management Investors. The Class B Units will be entitled to
share in any such distributions only if the holders of the Preferred Units
and Class A Units have achieved an internal rate of return on their total
investment of 12%. The percentage of such distributions that the Class B
Units will be entitled to receive will range from 10% to 20%, based on the
internal rate of return achieved by the holders of the Preferred and Class A
Units. All Common Units listed in the table represent Class A Units unless
otherwise noted. See "Limited Partnership Agreement."
(b) Does not include 800 Class B Units which are subject to vesting in equal
installments over a five year period.
(c) Does not include 2,500 Class B Units which are subject to vesting in equal
installments over a five year period.
(d) Does not include 352 Class B Units which are subject to vesting in equal
installments over a five year period.
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<PAGE> 63
(e) Includes 712,034 Class A Units and 369,710 Preferred Units beneficially
owned by Thomas H. Lee Equity Fund III, L.P. Such persons disclaim
beneficial ownership of all such interests. Such person's address is c/o
Thomas H. Lee Company, 75 State Street, Suite 2600, Boston, Massachusetts
02109.
(f) Includes 244,914 Class A Units and 127,167 Preferred Units owned by CIVC and
43,220 Class A Units and 22,441 Preferred Units owned by CIVC Partners III.
Such persons disclaim beneficial ownership of all such interests. Such
person's address is c/o Continental Illinois Venture Corporation, 231 South
LaSalle Street, Chicago, Illinois 60697.
(g) Includes 39,259 Class A Units and 20,385 Preferred Units owned by Thomas H.
Lee Foreign Fund III, L.P. and 38,305 Class A Units and 19,889 Preferred
Units owned by THL-CCI Limited Partnership. Such person disclaims beneficial
ownership of all such interests. Such person's address is c/o Thomas H. Lee
Company, 75 State Street, Suite 2600, Boston, Massachusetts 02109.
(h) Includes 634,470 Class A Units and 329,437 Preferred Units owned by Thomas
H. Lee Equity Fund III, L.P. and 38,305 Class A Units and 19,889 Preferred
Units owned by THL-CCI Limited Partnership. Such person disclaims beneficial
ownership of all such interests. Such person's address is c/o Thomas H. Lee
Company, 75 State Street, Suite 2600, Boston, Massachusetts 02109.
(i) Includes 634,470 Class A Units and 329,437 Preferred Units owned by Thomas
H. Lee Equity Fund III, L.P. and 39,259 Class A Units and 20,385 Preferred
Units owned by Thomas H. Lee Foreign Fund III, L.P. Such person disclaims
beneficial ownership of all such interests. Such person's address is c/o
Thomas H. Lee Company, 75 State Street, Suite 2600, Boston, Massachusetts
02109.
(j) Includes 43,220 Class A Units and 22,441 Preferred Units owned by CIVC
Partners III. Such person disclaims beneficial ownership of such interests.
Such person's address is c/o Continental Illinois Venture Corporation, 231
South LaSalle Street, Chicago, Illinois 60697.
(k) Includes 244,914 Class A Units and 127,167 Preferred Units owned by CIVC.
Such person disclaims beneficial ownership of all such interests. Such
person's address is c/o Continental Illinois Venture Corporation, 231 South
LaSalle Street, Chicago, IL 60697.
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<PAGE> 64
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENT
Effective upon the Recapitalization, the Company entered into a Management
Agreement with THL Co. pursuant to which THL Co. agreed to provide (i) general
executive and management services, (ii) identification, negotiation and analysis
of financial and strategic alternatives, and (iii) other services agreed upon by
the Company and THL Co. On the Recapitalization closing date, THL Co. and the
other equity investors in the Company each received their pro rata portion of a
$5.0 million transaction fee. In addition, THL and all other equity investors
will receive a pro rata portion of the $500,000 annual management fee (the
"Management Fee"), plus THL will be reimbursed for all reasonable out-of-pocket
expenses (payable monthly in arrears). The Management Agreement has an initial
term of one year, subject to automatic one-year extensions, unless the Company
or THL Co. provides written notice of termination no later than 30 days prior to
the end of the initial or any successive period.
INVESTORS AGREEMENT
Pursuant to the Recapitalization, Holdings, TCC, the New Investors and the
reinvesting Existing Limited Partners (together with the New Investors, the "New
Partners") entered into an Investors Agreement (the "Investors Agreement"). The
Investors Agreement requires that each of the parties thereto vote all of his or
its voting securities and take all other necessary or desirable actions to cause
the size of the Board of Directors of TCC to be established at nine members and
to cause the election to the Board of five representatives designated by THL
(the "THL Designees"), each of the then current chairman and president of the
Partnership (the "Executive Directors") and two representatives designated by
the CIVC Parties (the "CIVC Designees"), of which one CIVC Designee will at all
times serve on the Board's compensation committee, audit committee and executive
committee. Currently, however, only three of the THL Designees have been
appointed to TCC's Board of Directors. The respective rights of THL and the CIVC
Parties to designate representatives to the Board terminates at such time when
such party owns less than 30% of the Common Units held by such party as of the
Recapitalization closing date. If at any time THL and its permitted transferees
own less partnership interests in Holdings or less equity securities in TCC than
the amount of such partnership interests or such equity securities, as the case
may be, owned by the CIVC Parties and the Management Investors, taken as a
group, then the number of THL Designees will be reduced automatically from five
to three and the number of CIVC Designees will be increased automatically from
two to three. The Investors Agreement provides that certain significant actions
may not be taken without the express approval of the at least one of the CIVC
Designees and at least one of the Executive Directors.
In addition to the foregoing, the Investors Agreement (i) requires the
holders of interests in Holdings and common stock of TCC (other than THL and
CIVC) to obtain the prior written consent of THL prior to transferring any
interests in Holdings or TCC stock (other than interests or securities held by
the Management Investors pursuant to Executive Agreements), (ii) grants in
connection with the sale of interests in Holdings or TCC stock by the Management
Investors certain preemptive rights with respect to such sale first to Holdings,
then to the limited partners, (iii) grants the New Partners certain
participation rights in connection with certain transfers made by THL, (iv)
grants the New Partners certain preemptive rights in connection with certain
issuances, sales or other transfers for consideration of any securities by
Holdings or TCC, (v) requires the holders of shares of TCC's common stock to
consent to a sale of TCC to an independent third party if such sale is approved
by the Board and the holders of a majority of the shares of TCC's common stock,
and (vi) requires the holders of interests in Holdings to consent to the sale of
Holdings in the event TCC and the holders of a majority of Class A Units approve
a sale of Holdings. The foregoing agreements terminate on the earlier of October
1, 2007 and the date on which the Partnership consummates a public offering of
$40 million or more of its equity securities (a "Qualified Public Offering").
The agreements with respect to the participation rights and preemptive rights
described above continue with respect to each security until the earlier of (i)
October 1, 2007, (ii) a Qualified Public Offering, (iii) the transfer in a
public sale of such security, (iv) with respect to equity securities of
Holdings, upon the sale of the Holdings, and (v) with respect to equity
securities of TCC, upon the sale of TCC.
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REGISTRATION AGREEMENT
Pursuant to the Recapitalization, Holdings, TCC, and the New Partners
entered into a registration agreement (the "Registration Agreement"). Under the
Registration Agreement, the holders of a majority of registrable securities
owned by the THL Parties and the CIVC Parties have the right at any time,
subject to certain conditions, to require Holdings to register any or all of
their interests in Holdings' under the Securities Act on Form S-1 (a "Long-Form
Registration") on three occasions at Holdings' expense and on Form S-2 or Form
S-3 (a "Short-Form Registration") on three occasions at Holdings' expense.
Holdings is not required, however, to effect any such Long-Form Registration or
Short-Form Registration within six months after the effective date of a prior
demand registration. In addition, all holders of registrable securities are
entitled to request the inclusion of such securities in any registration
statement at Holdings' expense whenever Holdings proposes to register any of its
securities under the Securities Act (other than pursuant to a demand
registration). In connection with such registrations, Holdings has agreed to
indemnify all holders of registrable securities against certain liabilities,
including liabilities under the Securities Act. In addition, Holdings has the
one-time right to preempt a demand registration with a piggyback registration.
EXECUTIVE AGREEMENTS
Each Management Investor has entered into an Executive Agreement with
Holdings and TCC (each, an "Executive Agreement"), pursuant to which such
Management Investor purchased Class B Units which are subject to a five-year
vesting period, which vesting schedule accelerates upon a sale of Holdings.
Under each Management Investor's Executive Agreement, in the event that such
Management Investor's employment with the Company is terminated for any reason,
Holdings has the option to repurchase all of such Management Investor's vested
Class B Units and all other of such Management Investor's interests in Holdings
and TCC. In addition, in the event of a termination of the Management Investor's
employment by Holdings without "cause" or by such Management Investor for "good
reason" or such Management Investor's death or disability, such Management
Investor may require Holdings or TCC to repurchase his or her vested Class B
Units and all other interests of such Management Investor in Holdings and TCC.
RECAPITALIZATION AGREEMENT
The Recapitalization Agreement contained customary provisions for such
agreements, including representations and warranties with respect to the
condition and operations of the business, covenants with respect to the conduct
of the business prior to the Recapitalization closing date and various closing
conditions, including the continued accuracy of representations and warranties.
The representations and warranties made by Holdings and the Existing Limited
Partners do not survive the Recapitalization closing date; except that no party
is prevented from bringing a claim or action against any other person for any
fraud or intentional tort committed directly by such person.
Pursuant to the Recapitalization Agreement, each Existing Limited Partner
that reinvested in Holdings has agreed that for a period ending on the later of
the second anniversary of the Recapitalization closing date and the one year
anniversary of the termination of such Reinvesting Manager's employment with the
Company not to own, control, participate or engage in any yellow pages directory
publishing directory business or any business competing for the same customers
as the businesses of the Company as such businesses exist or are in process
during such period in any markets (or markets contiguous thereto) in which the
Company engages or plans to engage during such period.
James D. Dunning, Jr., the Partnership's and TCC's former Chairman and
Chief Executive Officer, has agreed that for the three-year period commencing on
the Recapitalization closing date not to participate, directly or indirectly, in
any yellow pages directory publishing business in the United States or any
business competing for the same customers as the Company in the geographic areas
in which the Company is engaged in the local or national yellow pages directory
publishing business as of August 27, 1997; provided that Mr. Dunning may
participate in any industry specific yellow pages business or any trade or
industry publications.
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<PAGE> 66
In addition, each Existing Limited Partner that reinvested in Holdings has
agreed that for the two-year period commencing on the Recapitalization closing
date not to solicit the employment of or hire any employee of the Company (other
than Laurence Bloch), and further, under the Recapitalization Agreement, during
such two-year period, each Existing Limited Partner that reinvested in Holdings
is subject to a confidentiality agreement with respect to all information
concerning the business of the Company and TCC of which such person has
knowledge and which is not in the public domain.
BENEFITS OF THE RECAPITALIZATION TO CERTAIN EXISTING SECURITY OWNERS AND
MANAGEMENT INVESTORS
Pursuant to the Recapitalization, Holdings redeemed a portion of the
limited partnership interests held by Existing Limited Partners and the New
Investors purchased a portion of TCC's common stock from the Existing Limited
Partners. In the Recapitalization, the Company's Named Executive Officers
received approximately $50 million and exchanged their remaining limited
partnership interests, valued at approximately $7 million in the
Recapitalization, for newly issued Preferred and Class A Units. As a group, the
Named Executive Officers continuing with the Company received an aggregate of
approximately $24 million in the Recapitalization and exchanged their remaining
limited partnership interests, valued at approximately $6 million in the
Recapitalization, for newly issued Preferred and Class A Units. All Management
Investors as a group received an aggregate of approximately $38 million in the
Recapitalization and exchanged their remaining limited partnership interests,
valued at approximately $11 million in the Recapitalization, for newly issued
Preferred and Class A Units. CIVC and its affiliates, including Christopher J.
Perry and Marcus D. Wedner, received an aggregate of approximately $70 million
in the Recapitalization and exchanged their remaining limited partnership
interests, valued at approximately $25 million in the Recapitalization, for
newly issued Preferred and Class A Units. In addition, CIVC III, an affiliate of
CIVC, contributed $4.4 million at the closing of the Recapitalization in
exchange for newly issued Preferred and Class A Units and paid approximately
$78,000 to certain of the Existing Limited Partners to purchase TCC common
stock.
Affiliates of the Initial Purchasers also participated in the equity
component of the Recapitalization. FUCP received an aggregate of approximately
$178,000 in the Recapitalization and exchanged its remaining limited partnership
interests, valued at approximately $5 million in the Recapitalization, for newly
issued Preferred and Class A Units of Holdings. CIBC Merchant Fund contributed
approximately $5 million at the closing of the Recapitalization in exchange for
newly issued Preferred and Class A Units and paid approximately $87,000 to
certain of the Existing Limited Partners to purchase TCC common stock.
PAYMENTS ON TCC NOTE
Since the 1993 Acquisition, TCC loaned to the Company all amounts
distributed to TCC in connection with the periodic and special distributions
made by the Company to its partners (the "TCC Loans"). As of September 1, 1997,
the aggregate amount of principal and interest due under the TCC Loans was
$833,419. Shortly before the consummation of the Recapitalization, the Company
repaid in full the outstanding balance of all TCC Loans.
TCC used the proceeds received from the TCC Loans to (i) pay $500,000 to
First Union Capital Markets Corp. for certain advisory services rendered in
advance of the Recapitalization, (ii) pay $100,000 to Kirkland & Ellis, counsel
to the Company, for certain services rendered in advance of the
Recapitalization, (iii) pay $143,419 for miscellaneous expenses and (iv) pay a
dividend immediately prior to the Recapitalization to TCC's stockholders of
$90,000 in the aggregate.
REDEMPTION OF PREFERRED UNITS
Holdings used $31.3 million of the proceeds of the Initial Discount Note
Offering to redeem a portion of the Equity Investment. Holdings' limited
partners received the following amounts as a result of the redemption of
approximately one half of the Preferred Units: THL Parties $18.6 million; Named
Executive Officers $1.7 million; Named Executive Officers continuing with the
Company $1.5 million; Management Investors $2.9 million; CIVC $6.1 million; CIVC
III $1.1 million; FUCP $1.2 million; CIBC Merchant Fund $1.2 million.
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CERTAIN OTHER FEES IN CONNECTION WITH THE TRANSACTIONS
Upon issuing the notes under the Senior Subordinated Facility, the Company
paid CIBC Oppenheimer and First Union Corporation customary commitment and
funding fees for committing to provide, and providing, the Senior Subordinated
Facility. In addition, upon consummation of the Recapitalization, the Company
paid CIBC Oppenheimer a financial advisory fee of $2 million for advisory
services rendered in connection with the Recapitalization. In addition, upon
issuance of the Old Discount Notes, the Company paid CIBC Oppenheimer and First
Union Capital Markets Corp. customary underwriting fees.
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<PAGE> 68
LIMITED PARTNERSHIP AGREEMENT
Holdings is a limited partnership formed under the Delaware Revised Uniform
Limited Partnership Act (as amended from time to time, the "Delaware Limited
Partnership Act"). Holdings is governed by its Third Amended and Restated
Agreement of Limited Partnership, as amended (the "Partnership Agreement"),
between Holdings and each of the New Investors. Interests in Holdings are owned
98.3% by the New Investors and 1.7% by TCC. TCC is a corporation organized under
the Delaware General Corporation Law. The Partnership Agreement governs the
relative rights and duties of its limited partners and its general partner with
respect to Holdings.
TCC controls, directs and exercises full control over all of Holdings
activities and the Partnership Agreement vests all management powers over the
business and affairs of Holdings exclusively in TCC. Holdings' limited partners
have no right of control or management power over the business and affairs of
Holdings except in their various capacities as an officer or director of
Holdings or TCC, as the case may be. Any change affecting the rights and
liabilities of any of Holdings' limited partners requires the consent of such
limited partner.
TCC may not withdraw as Holdings' general partner without the consent of
the holders of a majority of the Class A Units, except that TCC shall be deemed
to have withdrawn as Holdings' general partner upon the effective date of the
transfer of all of its interests in Holdings. See "Certain
Transactions -- Investors Agreement."
The ownership interests in Holdings consist of Preferred Units and Common
Units. The Preferred Units are entitled to a preferred yield of 12.0% per annum,
compounded quarterly, and an amount equal to their original investment in such
Preferred Units (net of any prior repayments of Preferred Units) plus any
accrued and unpaid preferred yield (collectively, the "Preference Amount") on
any liquidation or other distribution by Holdings. The Common Units represent
the common equity of Holdings and consist of Class A Units and Class B Units.
After payment of the Preference Amount, partners holding Class A Units are
entitled to share in any remaining proceeds of any liquidation or other
distribution by Holdings pro rata according to the number of Class A Units held
by such partners. Holders of Class B Units will also be entitled to share in any
such distributions, but only if the holders of the Preferred Units and the Class
A Units have achieved an internal rate of return on their total investment of
12.0% (the "Target 1 IRR"). After the achievement of the Target 1 IRR, the
holders of Class B Units will be entitled to share in 10.0% of any distributions
made after payment of the Preference Amount. The holders of Class B Units will
be entitled to share in 15.0% of any distributions, pro rata, according to the
number of Class B Units held by such partners if the holders of the Preferred
Units and the Class A Units achieve the second target internal rate of return
and 20.0% of any distributions if such holders achieve the third target internal
rate of return during the periods set forth below.
<TABLE>
<CAPTION>
TIME PERIOD SECOND TARGET THIRD TARGET
- ------------------------- ------------- ------------
<S> <C> <C>
10/1/97 through 9/30/98 32.500% 45%
10/1/98 through 9/30/99 29.375 40
10/1/99 through 9/30/00 26.250 35
10/1/00 through 9/30/01 23.125 30
after 9/30/01 20.000 25
</TABLE>
Both the Senior Credit Facility and the Indenture generally limit Holdings'
ability to pay cash distributions to its partners other than distributions in
amounts approximately equal to the income tax liability of the partners of
Holdings resulting from the taxable income of Holdings (the "Tax
Distributions"). Tax Distributions will be based on the approximate highest
combined tax rate that applies to any one of Holdings' partners.
The Partnership Agreement, and therefore Holdings' existence, will continue
in effect until the earlier to occur of (i) December 31, 2043, (ii) the
withdrawal of TCC if Holdings' limited partners to do not elect a successor
general partner, and (iii) the occurrence of an act that results in TCC ceasing
to be general partner under the Delaware Limited Partnership Act.
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LIMITED LIABILITY COMPANY AGREEMENT
TransWestern is a limited liability company formed under the Delaware
Limited Liability Company Act (as amended from time to time, the "Limited
Liability Act") and is governed by the Limited Liability Company Agreement of
TransWestern Publishing Company LLC (the "LLC Agreement") executed by its
manager, TCC.
The membership interests of TransWestern's members consists of a single
class of common units (the "Member Units"). Holdings is the sole initial member
of TransWestern and currently holds 100% of the Member Units. Distributions to
TransWestern's members are in the sole discretion of the manager. However, the
Senior Credit Facility and the Indenture generally limit TransWestern's ability
to pay cash distributions to its members other than distributions in amounts
equal to the tax liability of the partners of Holdings resulting from the
taxable income of TransWestern (the "Tax Distributions"). The Tax Distributions
will be based on the approximate highest combined tax rate that applies to any
one of Holdings' limited partners.
TCC has the sole right to make decisions regarding the management and
affairs of TransWestern and has all the powers and rights necessary or
appropriate to effectuate and carry out the purposes and business of
TransWestern, including the authority to act for and bind TransWestern.
The LLC Agreement provides that TransWestern's existence shall continue
until such time as the manager determines it is appropriate to dissolve, windup
and terminate TransWestern or, if earlier, upon the occurrence of (i) the entry
of judicial dissolution in accordance with the Limited Liability Act or (ii) the
expulsion, bankruptcy, dissolution or withdrawal of Holdings. In the event of a
termination of TransWestern, after satisfaction of all of TransWestern's debts
and liabilities, all of the assets of TransWestern would be distributed to
Holdings or if TransWestern then has more than one member, pro rata based on the
relative percentage interests in TransWestern of its members.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITY
In connection with the Recapitalization, the Issuers entered into the
Senior Credit Facility, among CIBC, First Union (together with CIBC and the
several banks and other financial institutions from time to time parties
thereto, the "Lenders") and the Issuers, pursuant to which the Lenders will lend
to the Company up to $125.0 million consisting of a revolving credit facility of
up to $40.0 million (the "Revolving Credit Facility") and term loans in
aggregate principal amount of $85.0 million (the "Term Loans").
Repayment. Commitments under the Revolving Credit Facility will be reduced
on a quarterly basis commencing on January 1, 2000 and the Term Loans will be
amortized on a quarterly basis commencing January 1, 1998 each in accordance
with the following schedule:
<TABLE>
<CAPTION>
REVOLVING
DATE TERM LOANS CREDIT FACILITY
--------------------------------------------------- ---------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998............................................... $ 2,125 $ 0
1999............................................... 2,125 0
2000............................................... 2,125 6,000
2001............................................... 2,125 6,000
2002............................................... 2,125 6,000
2003............................................... 27,625 22,000
2004............................................... 46,750 0
------- -------
Total.............................................. $ 85,000 $40,000
======= =======
</TABLE>
Security; Guaranty. The Revolving Credit Facility and the Term Loans will
be secured by a first priority lien on substantially all of the properties and
assets of the Company and its future subsidiaries, including a pledge of all of
the shares of the Company's future subsidiaries. Future subsidiaries of the
Company will be required to guarantee the Revolving Credit Facility and the Term
Loans.
Interest. At the Company's option, the interest rates per annum applicable
to the Revolving Credit Facility and the Term Loans will be a fluctuating rate
of interest measured by reference to (i) LIBOR plus the applicable borrowing
margin, or (ii) a rate per annum equal to the higher of the published prime rate
of the Agent Bank or the Federal Funds Rate (as defined in the Senior Credit
Facility) as quoted by the Agent Bank plus 1/2 of 1% (the "ABR") plus the
applicable borrowing margin. The applicable borrowing margin for the Revolving
Credit Facility will range from 1.375% to 2.500% for LIBOR based borrowings and
0.375% to 1.500% for ABR based borrowings. The applicable borrowing margin for
the Term Loans will range from 1.875% to 2.750% for LIBOR based borrowings and
0.875% to 1.750% for ABR based borrowings.
Fees. The Company has agreed to pay customary fees with respect to the
Senior Credit Facility including upfront facility fees, agent and arrangement
fees and commitment fees on the unused portion of the Revolving Credit Facility.
Use of Proceeds. The entire amount of the Term Loans and $22.7 million of
the Revolving Credit Facility were made available to the Company at the time of
the Recapitalization and the remainder of the Revolving Credit Facility will be
made available to finance certain permitted acquisitions, working capital
requirements and general corporate purposes of the Company.
Prepayments; Reductions of Commitments. The Term Loans are required to be
prepaid and commitments under the Revolving Credit Facility are required to be
permanently reduced with: (i) 100% of the net cash proceeds of asset sales or
other dispositions of property if such proceeds are not used to purchase or
acquire other assets within 180 days of the original asset sale, subject to
limited exceptions, (ii) 50% of excess cash flow for a fiscal year if the
Company's total leverage ratio determined as of the last day of such fiscal year
equals or exceeds 5.0 to 1, (iii) 100% of excess insurance proceeds and (iv)
100% of the net proceeds of issuances of equity securities or debt obligations
of the Company, subject to limited exceptions, and subject to reduction to 50%
of such proceeds if the Company's total leverage ratio is less than 5.0 to 1.
Such mandatory
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prepayments and reductions will first be applied to the permanent reduction of
the Term Loans and second to the permanent reduction of the Revolving Credit
Facility. Within the Term Loans, prepayments with proceeds described in clause
(i) or (iii) above will be applied pro rata to the remaining installments of the
Term Loans and prepayments with proceeds described in clause (ii) or (iv) above
will be applied to each remaining installment of the Term Loans in inverse order
of maturity. The Company may make voluntary prepayments in minimum principal
amounts of $50,000 or a whole multiple thereof.
Covenants. The Senior Credit Facility contains covenants restricting the
ability of the Company and its subsidiaries to, among others (i) declare
dividends or redeem or repurchase capital stock, (ii) prepay, redeem or
repurchase debt, (iii) incur liens and engage in sale lease-back transactions,
(iv) make loans and investments, (v) incur additional indebtedness, (vi) amend
or otherwise alter debt and other material agreements, (vii) make capital
expenditures, (viii) engage in mergers, acquisitions and asset sales, (ix)
transact with affiliates, (x) alter its line of business, (xi) enter into
guarantees of indebtedness, and (xii) make optional payments on or modify the
terms of subordinated debt. The Company must also make certain customary
indemnifications of the Lenders and their agents and will also be required to
comply with financial covenants with respect to: (a) a minimum interest coverage
ratio, (b) a minimum EBITDA (as defined in the Senior Credit Facility), (c) a
maximum leverage ratio, and (d) a minimum fixed charge coverage ratio. The
Senior Credit Facility also contains certain customary affirmative covenants.
Events of Default. Events of default under the Senior Credit Facility
include (i) the Company's failure to pay principal or interest when due, (ii)
the Company's material breach of any covenant, representation or warranty
contained in the loan documents, (iii) customary cross-default provisions, (iv)
events of bankruptcy, insolvency or dissolution of the Company, (v) the levy of
certain judgements against the Company, (vi) certain adverse events under ERISA
plans of the Company, (vii) the actual or asserted invalidity of security
documents or guarantees of the Company or its subsidiaries, and (viii) a change
of control of the Company.
DISCOUNT NOTES
Concurrent with the Initial Offering, the Discount Note Issuers offered
$32.5 million initial aggregate principal amount ($57.9 million principal amount
at maturity) of their 11 7/8% Senior Discount Notes due 2008. The Discount Notes
are joint and several obligations of Holdings and Capital.
The Discount Notes were issued at a substantial discount to their principal
amount at maturity. The issue price to investors per Discount Note was $561.16,
which represents a yield to maturity on the Discount Notes of 11 7/8% per annum
(computed on a semi-annual bond equivalent basis and assuming no Discount Notes
were issued in lieu of cash interest thereon). A holder of Discount Notes will
be required to include the accretion of the original issue discount as gross
income for U.S. federal income tax purposes prior to the receipt of the cash
payments to which such income is attributable.
Interest on the Discount Notes will not accrue or be payable prior to
November 15, 2002. Thereafter, interest on the Discount Notes will accrue on the
principal amount at maturity at a rate of 11 7/8% per annum, and will be payable
semiannually on each May 15 and November 15, commencing May 15, 2003. Interest
will be payable at the option of Holdings at a rate of 13 3/8% per annum by the
issuance of additional Discount Notes (valued at 100% of the face amount
thereof) in lieu of cash interest.
The Discount Notes are senior unsecured obligations of the Discount Note
Issuers and rank senior in right of payment to any subordinated indebtedness of
the Discount Note Issuers. The Discount Notes are effectively subordinated in
right of payment to all existing and future indebtedness and other liabilities,
including trade payables, of subsidiaries of Holdings. As of October 31, 1997,
after giving effect to the consummation of the Initial Offerings and the Asset
Drop-Down, such subsidiaries would have had approximately $185.0 million
aggregate principal amount of Indebtedness outstanding. In addition, such
subsidiaries would have had $40.0 million of additional borrowing availability
under the Senior Credit Facility.
The Discount Notes are redeemable at the option of the Discount Note
Issuers, in whole or in part, at any time on or after November 15, 2002, at the
redemption prices set forth in the Discount Note indenture,
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together with accrued and unpaid interest thereon, if any, to the redemption
date. In addition, the Discount Note Issuers, at their option, may redeem all,
but not less than all, of the principal amount of the Discount Notes outstanding
at any time on or prior to November 15, 2002 at a redemption price equal to
111.875% of the Accreted Value (as defined in the Discount Note indenture)
thereof, out of the net proceeds of one or more public equity offerings,
provided, however, that any such redemption occurs within 90 days following the
closing of any such public equity offering.
Upon the occurrence of a Change of Control, each holder of the Discount
Notes will be entitled to require the Discount Note Issuers to purchase such
holder's Discount Notes at a purchase price equal to (i) 101% of the Accreted
Value thereof, if the repurchase date is on or prior to November 15, 2002 or
(ii) 101% of the principal amount at maturity thereof, together with accrued and
unpaid interest thereon, if any, to the repurchase date, if such date is after
November 15, 2002.
The Discount Note Issuers will be obligated in certain instances to make an
offer to repurchase the Discount Notes at a purchase price equal to (i) 100% of
the Accreted Value thereof, if the repurchase date is on or prior to November
13, 2002, or (ii) 100% of the principal amount at maturity thereof, together
with accrued and unpaid interest thereon to the purchase date, with the net cash
proceeds of certain asset sales.
The Discount Note indenture contains covenants for the benefit of the
holders of the Discount Notes that, among other things, restrict the ability of
the Discount Note Issuers and any of their Restricted Subsidiaries (including
the Company) to (i) incur additional Indebtedness, (ii) pay dividends and make
distributions, (iii) issue stock of subsidiaries, (iv) make certain investments,
(v) repurchase stock, (vi) enter into transactions with affiliates, (vii) enter
into sale lease-back transactions and (viii) merge or consolidate the Company.
The Discount Note Issuers are also limited in their ability to create liens and
transfer or sell assets. These covenants are subject to a number of important
exceptions, including the allowance of Permitted Tax Distributions as a result
of Holdings' status as a limited partnership.
Pursuant to a registration rights agreement among the Discount Note Issuers
and the Initial Purchasers, the Discount Note Issuers must use their reasonable
best efforts to file within 45 days, and cause to become effective within 135
days, of the Issue Date an Exchange Offer Registration Statement (as defined in
such agreement) with respect to an offer to exchange the Discount Notes (the
"Discount Note Exchange Offer") for notes of the Discount Note Issuers with
terms substantially identical to the Discount Notes (the "Exchange Discount
Notes"). In addition, under certain circumstances the Discount Note Issuers may
be required to file a Shelf Registration Statement (as defined in such
agreement). Among other provisions, in the event that (i) the Exchange Offer
Registration Statement or Shelf Registration Statement has not been filed with
the Commission within 45 days after the Issue Date, or (ii) the Exchange Offer
Registration Statement or Shelf Registration Statement is not declared effective
within 135 days after the Issue Date, or (iii) the Discount Note Exchange Offer
is not consummated within 180 days after the Issue Date (each such event
referred to in clauses (i) through (iii) above is a "Discount Note Registration
Default"), the sole remedy available to holders of the Discount Notes will be
immediate assessment of additional amounts (the "Damage Amount") as follows:
equal to 0.50% per annum of the average Accreted Value of the Discount Notes
during the first 90 days when any such default exists and increased by an
additional 0.25% per annum of the average Accreted Value of the Discount Notes
for each subsequent 90-day period during which the Discount Note Registration
Default remains uncured, up to a maximum rate of 2.0% per annum. All Damage
Amounts will be payable to holders of the Discount Notes in cash on each May 15
and November 15, commencing with the first such date occurring after any such
Damage Amount commences to accrue, and continuing until such Discount Note
Registration Default is cured. Damage Amounts will be payable in cash regardless
of whether cash interest is accruing or payable with respect to the Discount
Notes. After the date on which such Discount Note Registration Default is cured,
Damage Amounts will cease to accrue.
The net proceeds from the sale of the Discount Notes were used to redeem
approximately one-half of the existing Preferred Units of Holdings held by its
limited partners.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Issuers on November 12, 1997 to
the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently resold the Old Notes to qualified institutional buyers
in reliance on Rule 144A under the Securities Act. As a condition of the
Purchase Agreement, the Issuers entered into the Exchange Offer Registration
Rights Agreement with the Initial Purchasers pursuant to which the Issuers have
agreed, for the benefit of the holders of the Old Notes, at the Issuers' cost,
(i) to use their reasonable best efforts to file the Exchange Offer Registration
Statement within 45 days after the date of the original issue of the Old Notes
with the Commission with respect to the Exchange Offer for the Exchange Notes;
(ii) use their reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 135 days
after the date of the original issuance of the Old Notes and (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
commence the Exchange Offer and use their reasonable best efforts to issue the
Exchange Notes on or prior to 60 days after the date on which the Exchange Offer
Registration statement was declared effective by the Commission. Upon the
Exchange Offer Registration Statement being declared effective, the Issuers will
offer the Exchange Notes in exchange for surrender of the Old Notes. The Issuers
will keep the Exchange Offer open for not less than 30 days (or longer if
required by applicable law) after the date on which notice of the Exchange Offer
is mailed to the holders of the Old Notes. For each Old Note surrendered to the
Issuers pursuant to the Exchange Offer, the holder of such Old Note will receive
an Exchange Note having a principal amount equal to that of the surrendered Old
Note. Interest on each Old Note will accrue from the last interest payment date
on which interest was paid on the Old Note surrendered in exchange therefor or,
if no interest has been paid on such Old Note, from the date of its original
issue. Interest on each Exchange Note will accrue from the date of its original
issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Issuers believe that the
Exchange Notes will in general be freely tradeable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser of
Old Notes who is an "affiliate" of the Issuers or who intends to participate in
the Exchange Offer for the purpose of distributing the Exchange Notes (i) will
not be able to rely on the interpretation of the staff of the Commission, (ii)
will not be able to tender its Old Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Old Notes, unless
such sale or transfer is made pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Exchange Offer
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the Issuers in the Letter of Transmittal that (i) the
Exchange Notes are to be acquired by the holder or the person receiving such
Exchange Notes, whether or not such person is the holder, in the ordinary course
of business, (ii) the holder or any such other person (other than a
broker-dealer referred to in the next sentence) is not engaging and does not
intend to engage, in distribution of the Exchange Notes, (iii) the holder or any
such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) neither the holder
nor any such other person is an "affiliate" of the Issuers within the meaning of
Rule 405 under the Securities Act, and (v) the holder or any such other person
acknowledges that if such holder or any other person participates in the
Exchange Offer for the purpose of distributing the Exchange Notes it must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on those
no-action letters. As indicated above, each Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Old Notes must
acknowledge that it (i) acquired the Old Notes for its own account as a result
of market-making activities or other trading activities, (ii) has not entered
into any arrangement or understanding with the Issuers or any "affiliate" of the
Issuers (within the meaning of Rule 405 under the Securities Act) to distribute
the Exchange Notes to be received in the Exchange Offer and (iii) will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. For a description of the procedures for resales
by Participating Broker-Dealers, see "Plan of Distribution."
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In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Issuers to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
180 days of the date of the original issuance of the Old Notes, the Issuers will
(i) file the Shelf Registration Statement covering the resale of the Old Notes,
(ii) use their reasonable best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act and (iii) use their reasonable
best efforts to keep effective the Shelf Registration Statement for two years
after its effective date. The Issuers will, in the event of the filing of the
Shelf Registration Statement, provide to each applicable holder of the Old Notes
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit unrestricted
resale of the Old Notes. A holder of the Old Notes that sells such Old Notes
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the Exchange Offer Registration Rights Agreement
which are applicable to such a holder (including certain indemnification
obligations). In addition, each holder of the Old Notes will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Exchange Offer Registration Rights Agreement in
order to have their Old Notes included in the Shelf Registration Statement and
to benefit from the provisions set forth in the following paragraph.
The Exchange Offer Registration Rights Agreement provides that (i) the
Issuers will use their reasonable best efforts to file an Exchange Offer
Registration Statement with the Commission on or prior to 45 days after the date
of the original issue of the Old Notes with the Commission, (ii) the Issuers
will use their reasonable best efforts to have the Exchange Offer Registration
Statement declared effective by the Commission on or prior to 135 days after the
date of the original issue of the Old Notes, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Issuers will
commence the Exchange Offer and use their reasonable best efforts to issue on or
prior to 60 days after the Exchange Offer Effectiveness Date, Exchange Notes in
exchange for all Old Notes tendered prior thereto in the Exchange Offer and (iv)
if obligated to file the Shelf Registration Statement, the Issuers will use
their reasonable best efforts to file the Shelf Registration Statement with the
Commission in a timely fashion. If (a) the Issuers fail to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness, (c) the Issuers fail to consummate the
Exchange Offer within 180 days of the date of the original issuance of the Old
Notes, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the period specified in the Exchange Offer Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), the sole remedy available to holders of the Old Notes will be the
immediate assessment of Additional Interest as follows: the per annum interest
rate on the Old Notes will increase by .50% and the per annum interest rate will
increase by an additional .25% for each subsequent 90-day period during which
the Registration Default remains uncured, up to a maximum additional interest
rate of 2% per annum in excess of 9 5/8% per annum. All Additional Interest will
be payable to holders of the Old Notes in cash on each May 15 and November 15,
commencing with the first such date occurring after any such Additional Interest
commences to accrue, until such Registration Default is cured. After the date on
which such Registration Default is cured, the interest rate on the Old Notes
will revert to 9 5/8% per annum.
Holders of Old Notes will be required to make certain representations to
the Issuers (as described in the Exchange Offer Registration Rights Agreement)
in order to participate in the Exchange Offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time periods
set forth in the Exchange Offer Registration Rights Agreement in order to have
their Old Notes included in the Shelf Registration Statement and benefit from
the provisions regarding Additional Interest set forth above.
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The summary herein of certain provisions of the Exchange Offer Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by, all the provisions of the Exchange Offer
Registration Rights Agreement, a copy of which is filed as an exhibit to the
Exchange Offer Registration Statement of which this Prospectus is a part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have
been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will generally not be entitled to certain rights under the Exchange Offer
Registration Rights Agreement, which rights generally will be satisfied when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, the Delaware Limited Liability Company
Act or the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the applicable requirements of
the Exchange Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof (such
notice if given orally, to be confirmed in writing) to the Exchange Agent. The
Exchange Agent will act as agent for the tendering holders for the purpose of
receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
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In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice (such notice if given orally,
to be confirmed in writing) and will issue a press release or other public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice (such notice if
given orally, to be confirmed in writing) of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on May 15, 1998 to persons who are registered holders of the
Exchange Notes on May 1, 1998. Interest on the Old Notes accepted for exchange
will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 15 and
November 15 commencing on May 15, 1998.
PROCEDURES FOR TENDERING
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal or transmit an
Agent's Message in connection with a book-entry transfer, and mail or otherwise
deliver such Letter of Transmittal or such facsimile or Agent's Message,
together with the Old Notes and any other required documents, to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. To be
tendered effectively, the Old Notes, Letter of Transmittal or Agent's Message
and other required documents must be completed and received by the Exchange
Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m.,
New York City time, on the Expiration Date. Delivery of the Old Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
("ATOP"); (ii) to be bound by the terms of the Letter of Transmittal; and (iii)
that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal or Agent's Message, each holder will
make to the Company the representations set forth above in the third paragraph
under the heading "--Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY
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SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, unless an Agent's Message is received by the Exchange Agent
in compliance with ATOP, an appropriate Letter of Transmittal properly completed
and duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company
may not waive any condition to the Exchange Offer unless such condition is
legally waiveable. In the event such a waiver by the Company gives rise to the
legal requirement to do so, the Company will hold the Exchange Offer open for at
least five business days thereafter. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
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defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Issuers shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Issuers, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tender of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate
number(s) of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) (or,
in the case of a book-entry transfer, an Agent's Message) together with
the certificate(s) representing the Old Notes (or a confirmation of
book-entry transfer of such Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility), and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) the certificate(s) representing all tendered Old Notes in proper form
for transfer (or a confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at the Book Entry Transfer
Facility), together with a Letter of Transmittal (of facsimile thereof),
properly completed and duly executed, with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Notes register the transfer of such Old Notes
into the name of the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no
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Exchange Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may
be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Notes for, any Old Notes, and
may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer, or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the
Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see
"-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn.
EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
By Registered or Certified Mail
or Overnight Courier:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention: Corporate Trust Operations
By Hand:
Wilmington Trust Company
c/o Harris Trust Co. of New York, as Agent
88 Pine Street, 19th Floor
Wall Street Plaza
New York, New York 10005
Attention: Corporate Trust Operations
By Facsimile:
(For Eligible Institutions Only)
(302) 651-1079
Confirm by Telephone:
(302) 651-8869
Kristin Long
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), in exchange for Old Notes in the ordinary course of business and who is
not participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, will be allowed to resell the Exchange Notes to the public
without further registration under the Securities Act and without delivering to
the purchasers of the Exchange Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
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As contemplated by these no-action letters and the Exchange Offer
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the Company in the Letter of Transmittal that (i) the
Exchange Notes are to be acquired by the holder or the person receiving such
Exchange Notes, whether or not such person is the holder, in the ordinary course
of business, (ii) the holder or any such other person (other than a
broker-dealer referred to in the next sentence) is not engaging and does not
intend to engage, in the distribution of the Exchange Notes, (iii) the holder or
any such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, and (v) the holder or any such other person
acknowledges that if such holder or other person participates in the Exchange
Offer for the purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those
no-action letters. As indicated above, each Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued under an Indenture, dated as of November
12, 1997 among the Issuers and Wilmington Trust Company, as trustee (the
"Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act") as in effect on
the date of the Indenture. The Exchange Notes are subject to all such terms, and
holders of the Exchange Notes are referred to the Indenture and the Trust
Indenture Act for a statement of them. The form and terms of the Exchange Notes
are the same as the form and terms of the Old Notes (which they replace) except
that (i) the Exchange Notes bear a Series B designation, (ii) the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii) the holders of Exchange
Notes will not be entitled to certain rights under the Exchange Offer
Registration Rights Agreement, including the provisions providing for an
increase in the interest rate on the Old Notes in certain circumstances relating
to the timing of the Exchange Offer, which rights will terminate when the
Exchange Offer is consummated. The following is a summary of the material terms
and provisions of the Exchange Notes. This summary does not purport to be a
complete description of the Exchange Notes and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Exchange Notes
and the Indenture (including the definitions contained therein). A copy of the
form of Indenture may be obtained from the Issuers by any holder or prospective
investor upon request. Definitions relating to certain capitalized terms are set
forth under "-- Certain Definitions" and throughout this description.
Capitalized terms that are used but not otherwise defined herein have the
meanings assigned to them in the Indenture. For purposes of this "Description of
the Notes," the term "Company" means TransWestern Publishing Company LLC.
GENERAL
The Notes are limited in aggregate principal amount to $100.0 million. The
Notes will be general unsecured obligations of the Issuers, subordinated in
right of payment to all existing and future Senior Indebtedness of the Issuers,
pari passu in right of payment to all senior subordinated indebtedness of the
Issuers and senior in right of payment to all subordinated indebtedness of the
Issuers. The Notes will be joint and several obligations of the Issuers.
The Notes will be unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by each Restricted Subsidiary which guarantees payment of the Notes
pursuant to the covenant described under "Limitation on Creation of
Subsidiaries" (the "Guarantors").
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MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on November 15, 2007. The Notes will bear interest at
a rate of 9 5/8% per annum from the date of original issuance until maturity.
Interest is payable semiannually in arrears on each May 15 and November 15,
commencing May 15, 1998, to holders of record of the Notes at the close of
business on the immediately preceding May 1 and November 1, respectively. The
interest rate on the Notes is subject to increase, and such Additional Interest
will be payable on the payment dates set forth above, in certain circumstances,
if the Notes (or other securities substantially similar to the Notes) are not
registered with the Commission within the prescribed time periods set forth in
the Exchange Offer Registration Rights Agreement.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Issuers, in whole or in
part, at any time on or after November 15, 2002 at the following redemption
prices (expressed as a percentage of principal amount), together, in each case,
with accrued interest to the redemption date, if redeemed during the
twelve-month period beginning on November 15 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2002.............................................. 104.813%
2003.............................................. 103.208%
2004.............................................. 101.604%
2005 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Issuers, at their option, may redeem in
the aggregate up to 35% of the original principal amount of the Notes at any
time and from time to time prior to November 15, 2000 at a redemption price
equal to 109.625% of the aggregate principal amount so redeemed, together with
accrued interest thereon to the redemption date, out of the Net Proceeds of one
or more Public Equity Offerings; provided, however, that at least $65.0 million
of the principal amount of the Notes remains outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within 90
days following the closing of any such Public Equity Offering.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select, if the Notes are listed on a national securities exchange, in
accordance with the rules of such exchange or, if the Notes are not so listed,
either on a pro rata basis or by lot or in such other manner as it shall deem
fair and equitable the Notes to be redeemed; provided, that if a partial
redemption is made with the proceeds of a Public Equity Offering, selection of
the Notes or portion thereof for redemption will be made by the Trustee on a pro
rata basis, unless such method is prohibited. The Notes will be redeemable in
whole or in part upon not less than 30 nor more than 60 days' prior written
notice, mailed by first class mail to a holder's last address as it shall appear
on the register maintained by the Registrar of the Notes. On and after any
redemption date, interest will cease to accrue on the Notes or portions thereof
called for redemption unless the Issuers shall fail to redeem any such Note.
SUBORDINATION
The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Senior Indebtedness of the Issuers. As of October 31, 1997, after giving pro
forma effect to the Initial Offerings and the Asset Drop-Down, the principal
amount of outstanding Senior Indebtedness of the Issuers, on a consolidated
basis, would have been $85.0 million. In addition, the Issuers would have had
$40.0 million of undrawn commitments available under the Senior Credit Facility.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith, relative to the Issuers or to their
creditors, as such, or to their assets, whether voluntary or involuntary, or any
liquidation, dissolution or other winding-up of the Issuers, whether voluntary
or involuntary and whether or not involving insolvency or
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bankruptcy, or any general assignment for the benefit of creditors or other
marshalling of assets or liabilities of the Issuers (except in connection with
the merger or consolidation of the Issuers or their liquidation or dissolution
following the transfer of substantially all of their assets, upon the terms and
conditions permitted under the circumstances described under "-- Merger,
Consolidation or Sale of Assets") (all of the foregoing referred to herein
individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy
Proceedings"), the holders of Senior Indebtedness of the Issuers will be
entitled to receive payment and satisfaction in full in cash of all amounts due
on or in respect of all Senior Indebtedness of the Issuers before the holders of
the Notes are entitled to receive or retain any payment or distribution of any
kind on account of the Notes. In the event that, notwithstanding the foregoing,
the Trustee or any holder of Notes receives any payment or distribution of
assets of the Issuers of any kind, whether in cash, property or securities,
including, without limitation, by way of set-off or otherwise, in respect of the
Notes before all Senior Indebtedness of the Issuers is paid and satisfied in
full in cash, then such payment or distribution will be held by the recipient in
trust for the benefit of holders of Senior Indebtedness and will be immediately
paid over or delivered to the holders of Senior Indebtedness or their
representative or representatives to the extent necessary to make payment in
full in cash of all Senior Indebtedness remaining unpaid, after giving effect to
any concurrent payment or distribution, or provision therefor, to or for the
holders of Senior Indebtedness. By reason of such subordination, in the event of
liquidation or insolvency, creditors of the Issuers who are holders of Senior
Indebtedness may recover more, ratably, than other creditors of the Issuers, and
creditors of the Issuers who are not holders of Senior Indebtedness or of the
Notes may recover more, ratably, than the holders of the Notes.
No payment or distribution of any assets or securities of the Issuers or
any Restricted Subsidiary of any kind or character (including, without
limitation, cash, property and any payment or distribution which may be payable
or deliverable by reason of the payment of any other Indebtedness of the Issuers
being subordinated to the payment of the Notes by the Issuers) may be made by or
on behalf of the Issuers or any Restricted Subsidiary, including, without
limitation, by way of set-off or otherwise, for or on account of the Notes, or
for or on account of the purchase, redemption or other acquisition of the Notes,
and neither the Trustee nor any holder or owner of any Notes shall take or
receive from the Issuers or any Restricted Subsidiary, directly or indirectly in
any manner, payment in respect of all or any portion of Notes following the
delivery by the representative of the holders of Designated Senior Indebtedness
under or in respect of the Senior Credit Facility, for so long as there shall
exist any Designated Senior Indebtedness under or in respect of the Senior
Credit Facility, and thereafter, the holders of Designated Senior Indebtedness
(in either such case, the "Representative") to the Trustee of written notice of
(i) the occurrence of a Payment Default on Designated Senior Indebtedness or
(ii) the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness and the acceleration of the maturity of Designated Senior
Indebtedness in accordance with its terms, and, in any such event, such
prohibition shall continue until such Payment Default is cured, waived in
writing or ceases to exist or such acceleration has been rescinded or otherwise
cured. At such time as the prohibition set forth in the preceding sentence shall
no longer be in effect, subject to the provisions of the following paragraph,
the Issuers shall resume making any and all required payments in respect of the
Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any assets or securities of the
Issuers of any kind or character (including, without limitation, cash, property
and any payment or distribution which may be payable or deliverable by reason of
the payment of any other Indebtedness of the Issuers being subordinated to the
payment of the Notes by the Issuers) may be made by or on behalf of the Issuers,
including, without limitation, by way of set-off or otherwise, for or on account
of the Notes, or for on account of the purchase, redemption, defeasance or other
acquisition of Notes, and neither the Trustee nor any holder or owner of Notes
shall take or receive from the Issuers or any Restricted Subsidiary, directly or
indirectly in any manner, payment in respect of all or any portion of the Notes
for a period (a "Payment Blockage Period") commencing on the date of receipt by
the Trustee of written notice from the Representative of such Non-Payment Event
of Default unless and until (subject to any blockage of payments that may then
be in effect under the preceding paragraph) the earliest of (x) more than 179
days shall have elapsed since receipt of such written notice by the Trustee, (y)
such Non-Payment Event of Default shall have been cured or waived in writing or
shall have ceased to exist or such
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Designated Senior Indebtedness shall have been paid in full or (z) such Payment
Blockage Period shall have been terminated by written notice to the Issuers or
the Trustee from the Representative, after which, in the case of clause (x), (y)
or (z), the Issuers shall resume making any and all required payments in respect
of the Notes, including any missed payments. Notwithstanding any other provision
of the Indenture, in no event shall a Payment Blockage Period commenced in
accordance with the provisions of the Indenture described in this paragraph
extend beyond 179 days from the date of the receipt by the Trustee of the notice
referred to above (the "Initial Blockage Period"). Any number of additional
Payment Blockage Periods may be commenced during the Initial Blockage Period;
provided, however, that no such additional Payment Blockage Period shall extend
beyond the Initial Blockage Period. After the expiration of the Initial Blockage
Period, no Payment Blockage Period may be commenced until at least 180
consecutive days have elapsed from the last day of the Initial Blockage Period.
Notwithstanding any other provision of the Indenture, no event of default with
respect to Designated Senior Indebtedness (other than a Payment Default) which
existed or was continuing on the date of the commencement of any Payment
Blockage Period initiated by the Representative shall be, or be made, the basis
for the commencement of a second Payment Blockage Period initiated by the
Representative, whether or not within the Initial Blockage Period, unless such
event of default shall have been cured or waived for a period of not less than
90 consecutive days.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior indefeasible payment and
satisfaction in full in cash of all Senior Indebtedness of the respective
Guarantor, including obligations of such Guarantor with respect to the Senior
Credit Facility (including any guarantee thereof), and will be subject to the
rights of holders of Designated Senior Indebtedness of such Guarantor to
initiate blockage periods, upon terms substantially comparable to the
subordination of the Notes to all Senior Indebtedness of the Issuers.
If the Issuers or any Guarantor fails to make any payment on the Notes or
any Guarantee, as the case may be when due or within any applicable grace
period, whether or not on account of payment blockage provisions, such failure
would constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "Events of
Default."
A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purpose.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Additional Indebtedness
The Issuers will not, and will not permit any Restricted Subsidiary of the
Issuers to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness) unless (a) after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the ratio of the total Indebtedness of the Issuers and their Restricted
Subsidiaries (excluding any Indebtedness owed to a Restricted Subsidiary by any
other Restricted Subsidiary or the Issuers and any Indebtedness owed to the
Issuers by any Restricted Subsidiary) to the Issuers' EBITDA (determined on a
pro forma basis for the last four fiscal quarters of the Issuers and their
consolidated Restricted Subsidiaries for which financial statements are
available at the date of determination) is less than (i) 6.25 to 1 if the
Indebtedness is incurred prior to November 15, 2000 and (ii) 6.0 to 1 if the
Indebtedness is incurred on or after November 15, 2000; provided, however, that
if the Indebtedness which is the subject of a determination under this provision
is Acquired Indebtedness, or Indebtedness incurred in connection with the
simultaneous acquisition of any Person, business, property or assets, then such
ratio shall be determined by giving effect to (on a pro forma basis, as if the
transaction had occurred at the beginning of the four-quarter period) both the
incurrence or assumption of such Acquired Indebtedness or such other
Indebtedness by the Issuers or any Restricted Subsidiary (together with any
other Acquired Indebtedness or other Indebtedness incurred or assumed by the
Issuers and
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Restricted Subsidiaries in connection with acquisitions consummated by the
Issuers during such four-quarter period) and the inclusion in the Issuers'
EBITDA of the EBITDA of the acquired Person, business, property or assets and
any pro forma expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Securities Act as in effect and as applied as of the
Issue Date (together with the EBITDA of, and pro forma expense and cost
reductions relating to, any other Person, business, property or assets acquired
by the Issuers or any Restricted Subsidiary during such four-quarter period),
and (b) no Default or Event of Default shall have occurred and be continuing at
the time or as a consequence of the incurrence of such Indebtedness.
Notwithstanding the foregoing, the Issuers and their Restricted
Subsidiaries may incur Permitted Indebtedness.
Limitation on Restricted Payments
The Issuers will not make, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Issuers could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under "Limitation
on Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 50% of the cumulative Consolidated Net
Income of the Company subsequent to the Issue Date (or minus 100% of any
cumulative deficit in Consolidated Net Income during such period) plus (2)
100% of the aggregate Net Proceeds and the fair market value of securities
or other property received by the Company from the issue or sale, after the
Issue Date, of Capital Stock (other than Disqualified Capital Stock or
Capital Stock of the Company issued to any Subsidiary of the Company) of
the Company or any Indebtedness or other securities of the Company
convertible into or exercisable or exchangeable for Capital Stock (other
than Disqualified Capital Stock) of the Company which have been so
converted or exercised or exchanged, as the case may be, plus (3) without
duplication of any amounts included in clauses (1) and (2) above, 100% of
the aggregate net proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock plus (4) $5,000,000.
For purposes of determining under this clause (c) the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market
value determined, in good faith, by the Board of Directors of the Company.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company or
subordinated Indebtedness by conversion into, or by or in exchange for, shares
of Capital Stock (other than Disqualified Capital Stock), or out of, the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock), (iii) the redemption or retirement of Indebtedness
of the Issuers subordinated to the Notes in exchange for, by conversion into, or
out of the Net Proceeds of a substantially concurrent sale or incurrence of
Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Issuers
that is contractually subordinated in right of payment to the Notes to at least
the same extent as the subordinated Indebtedness being redeemed or retired, (iv)
the retirement of any shares of Disqualified Capital Stock by conversion into,
or by exchange for, shares of Disqualified Capital Stock, or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Disqualified Capital Stock, (v) so long as no
Default or Event of Default shall have occurred and be continuing, at the time
of or immediately after giving effect to such payment, the purchase, redemption
or other acquisition for value of shares of Capital Stock (other than
Disqualified Capital Stock) or options on such shares held by the Issuers' or
their Subsidiaries' officers or
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employees or former officers or employees (or their estates or beneficiaries
under their estates) upon the death, disability, retirement or termination of
employment of such current or former officers or employees pursuant to the terms
of an employee benefit plan or any other agreement pursuant to which such shares
of Capital Stock or options were issued or pursuant to a severance, buy-sale or
right of first refusal agreement with such current or former officer or employee
and payments of principal and interest on the Management Subordinated Notes in
accordance with the terms thereof; provided that the aggregate cash
consideration paid, or distributions or payments made, pursuant to this clause
(v) shall not exceed $2,000,000 in any fiscal year or $10,000,000 in the
aggregate from and after the Issue Date, (vi) payments by the Company to the
Equity Compensation Trust, in an aggregate amount not to exceed $3,100,000, to
be paid up to 12 months after the Issue Date in connection with the
Recapitalization, (vii) the payment of management fees under the management
agreement with THL and its Affiliates and successors and assigns that do not
exceed $500,000 per year and the reimbursement of expenses pursuant thereto,
(viii) distributions to Holdings solely for the purpose of enabling Holdings to
pay its, Capital's or TCC's reasonable operating and administrative expenses
(including professional fees and expenses), the amount of which in any fiscal
year will not exceed 0.2% at the Company's consolidated net revenues for such
fiscal year, (ix) distributions not to exceed $100,000 in the aggregate to
Holdings to make payments as liquidated damages to the holders of the Discount
Notes under the registration rights agreement relating to the Discount Notes,
(x) the distribution of the proceeds of the Offering to Holdings on the Issue
Date to the extent necessary to repay outstanding Indebtedness under the Senior
Subordinated Facility and (xi) the redemption on the Issue Date of approximately
one-half of the outstanding Preferred Units with the proceeds from the sale of
the Discount Notes. Notwithstanding the foregoing, the amount of any payments
made in reliance on clause (v) above shall reduce the amount otherwise available
for Restricted Payments pursuant to subparagraph (c) above.
Not later than the date of making any Restricted Payment, the Issuers shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Issuers' latest available financial
statements, and, to the extent that the absence of a Default or an Event of
Default is condition to the making of such Restricted Payment, that no Default
or Event of Default exists and is continuing and no Default or Event of Default
will occur immediately after given effect to any Restricted Payments.
Limitation on Other Senior Subordinated Debt
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any
Indebtedness (other than the Notes and the Guarantees, as the case may be) that
is both (i) subordinate in right of payment to any Senior Indebtedness of the
Issuers or their Restricted Subsidiaries, as the case may be, and (ii) senior in
right of payment to the Notes and the Guarantees, as the case may be. For
purposes of this covenant, Indebtedness is deemed to be senior in right of
payment to the Notes and the Guarantees, as the case may be, if it is not
explicitly subordinate in right of payment to Senior Indebtedness at least to
the same extent as the Notes and the Guarantees, as the case may be, are
subordinate to Senior Indebtedness.
Limitations on Investments
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, make any Investment other than (i) a Permitted Investment or
(ii) an Investment that is made as a Restricted Payment in compliance with the
"Limitation on Restricted Payments" covenant, after the Issue Date.
Limitations on Liens
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Issuers or any Restricted Subsidiary or any shares of stock
(other than under the Senior Credit Facility) or debt of any Restricted
Subsidiary which owns property or assets, now owned or hereafter acquired,
unless (i) if such Lien secures Indebtedness which is pari passu with the Notes,
then the
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Notes are secured on an equal and ratable basis with the obligations so secured
until such time as such obligation is no longer secured by a Lien or (ii) if
such Lien secures Indebtedness which is subordinated to the Notes, any such Lien
shall be subordinated to the Lien granted to the Holders of the Notes to the
same extent as such subordinated Indebtedness is subordinated to the Notes.
Limitation on Transactions with Affiliates
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (including entities in which the Issuers or any of their Restricted
Subsidiaries owns a minority interest) (an "Affiliate Transaction") or extend,
renew, waive or otherwise modify the terms of any Affiliate Transaction entered
into prior to the Issue Date if such extension, renewal, waiver or other
modification is more disadvantageous to the Holders in any material respect than
the original agreement as in effect on the Issue Date unless (i) such Affiliate
Transaction is between or among the Issuers and/or their Wholly-Owned
Subsidiaries and/or Holdings (so long as Holdings owns at least 99% of the
voting and economic power of the Common Stock of the Company); or (ii) the terms
of such Affiliate Transaction are fair and reasonable to the Issuers or such
Restricted Subsidiary, as the case may be, and the terms of such Affiliate
Transaction are at least as favorable as the terms which could be obtained by
the Issuers or such Restricted Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis between unaffiliated parties. In any
Affiliate Transaction involving an amount or having a value in excess of $1.0
million which is not permitted under clause (i) above, the Issuers must obtain a
resolution of the Board of Directors of the Company certifying that such
Affiliate Transaction complies with clause (ii) above. In any Affiliate
Transaction with a value in excess of $5.0 million which is not permitted under
clause (i) above (other than any sale by the Company of its Capital Stock that
is not Disqualified Capital Stock), the Issuers must obtain a written opinion as
to the fairness of such a transaction from an independent investment banking
firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitation on Restricted
Payments" contained herein, (ii) any transaction pursuant to an agreement,
arrangement or understanding existing on the Issue Date and described elsewhere
in this Prospectus, (iii) any transaction, approved by the Board of Directors of
the Company or Capital II, with an officer or director of the Issuers or of any
Subsidiary in his or her capacity as officer or director entered into in the
ordinary course of business, or (iv) transactions permitted by the Indenture
under the provision "Merger, Consolidation or Sale of Assets."
Limitation on Creation of Subsidiaries
The Issuers will not create or acquire, nor permit any of their Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary that is acquired or created in connection with the acquisition by the
Company of a business primarily engaged in, or an asset primarily utilized in,
providing directory services and/or classified advertising, or (ii) an
Unrestricted Subsidiary; provided, however, that each Restricted Subsidiary
acquired or created pursuant to clause (i) shall at the time it has either
assets or stockholder's equity in excess of $100,000 execute a guarantee in the
form attached to the Indenture and reasonably satisfactory in form and substance
to the Trustee (and with such documentation relating thereto as the Trustee
shall require, including, without limitation, a supplement or amendment to the
Indenture and opinions of counsel as to the enforceability of such guarantee),
pursuant to which such Restricted Subsidiary shall become a Guarantor. As of the
Issue Date, the Company will have no Subsidiaries other than Capital.
Limitation on Certain Asset Sales
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, consummate an Asset Sale unless (i) such Issuer or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such sale or other disposition at least equal to the fair market value thereof
(as determined in good faith by the Company's Board of Directors, and evidenced
by a board resolution); (ii) not less than 75% of the consideration received by
the Issuers or their Subsidiaries, as the case may be, is in the form of cash or
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Temporary Cash Investments other than in the case where the Company is
undertaking a Permitted Asset Swap; and (iii) the Asset Sale Proceeds received
by such Issuer or such Restricted Subsidiary are applied (a) first, to the
extent the Company elects, or is required, to prepay, repay or purchase debt or
to reduce an unused commitment to lend under any then existing Senior
Indebtedness of the Company or any Restricted Subsidiary within 180 days
following the receipt of the Asset Sale Proceeds from any Asset Sale, but only
to the extent that any such repayment shall result in a permanent reduction of
the commitments thereunder in an amount equal to the principal amount so repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds after
application as described above, to the extent the Company or a Restricted
Subsidiary elects, to an investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital Stock or
property of another person) used or useful in businesses similar or ancillary to
the business of the Company or such Restricted Subsidiary as conducted at the
time of such Asset Sale, provided that such investment occurs or the Issuers or
a Restricted Subsidiary enters into contractual commitments to make such
investment, subject only to customary conditions (other than the obtaining of
financing), on or prior to the 181st day following receipt of such Asset Sale
Proceeds (the "Reinvestment Date") and Asset Sale Proceeds contractually
committed are so applied within 270 days following the receipt of such Asset
Sale Proceeds; and (c) third, if on the Reinvestment Date with respect to any
Asset Sale, the Available Asset Sale Proceeds exceed $10.0 million, the Issuers
shall apply an amount equal to such Available Asset Sale Proceeds to an offer to
repurchase the Notes, at a purchase price in cash equal to 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not
fully subscribed, the Company may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Notes and use such portion for general
corporate purposes, and such retained portion will not be considered in the
calculation of "Available Asset Sale Proceeds" with respect to any subsequent
offer to purchase Notes.
If the Issuers are required to make an Excess Proceeds Offer, the Issuers
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Issuers to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the aggregate principal
amount thereof together with accrued and unpaid interest, if any, thereon to the
date of purchase; (2) the purchase date, which shall be no earlier than 30 days
and not later than 60 days from the date such notice is mailed; (3) the
instructions, determined by the Issuers, that each Holder must follow in order
to have such Notes repurchased; and (4) the calculations used in determining the
amount of Available Asset Sale Proceeds to be applied to the repurchase of such
Notes.
Limitation on Preferred Stock of Restricted Subsidiaries
The Issuers will not permit any Restricted Subsidiary to issue any
Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any Person (other than the Company or a Subsidiary) to
hold any such Preferred Stock unless the Company or such Restricted Subsidiary
would be entitled to incur or assume Indebtedness under the first paragraph of
the covenant described under "Limitation on Additional Indebtedness" in an
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
Limitation on Capital Stock of Subsidiaries
The Issuers will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary (other than under the Senior Credit
Facility or under the terms of any Designated Senior Indebtedness) or (ii)
permit any of their Subsidiaries to issue any Capital Stock, other than to the
Issuers or a Wholly-Owned Subsidiary of the Company. The foregoing restrictions
shall not apply to an Asset Sale made in compliance with "Limitation on Certain
Asset Sales" or the issuance of Preferred Stock in compliance with the covenant
described under "Limitation on Preferred Stock of Subsidiaries." In no event
will the Company sell, pledge, hypothecate or otherwise convey or dispose of any
Capital Stock of Capital or will Capital issue any Capital Stock.
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Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Issuers to (a)(i) pay dividends or make any other
distributions to the Issuers or any Restricted Subsidiary of the Issuers (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits or (ii) repay any Indebtedness or any other
obligation owed to the Issuers or any Restricted Subsidiary of the Issuers, (b)
make loans or advances or capital contributions to the Issuers or any of their
Restricted Subsidiaries or (c) transfer any of its properties or assets to the
Issuers or any of their Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (i) encumbrances or restrictions
existing on the Issue Date to the extent and in the manner such encumbrances and
restrictions are in effect on the Issue Date (including without limitation
pursuant to the Senior Credit Facility or under the Discount Notes), (ii) the
Indenture, the Notes and the Guarantees, (iii) applicable law, (iv) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person (including any
Subsidiary of the Person), so acquired, (v) customary non-assignment provisions
in leases or other agreements entered in the ordinary course of business and
consistent with past practices, (vi) Refinancing Indebtedness; provided that
such restrictions are no more restrictive than those contained in the agreements
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, (vii) customary restrictions in security agreements or
mortgages securing Indebtedness of the Issuers or a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements and mortgages or (viii) customary restrictions with respect
to a Restricted Subsidiary of the Issuers pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary.
Limitation on Sale and Lease-Back Transactions
The Issuers will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined, in good faith, by the Board of
Directors of the Company, and (ii) the Issuers could incur the Attributable
Indebtedness in respect of such Sale and Lease-Back Transaction in compliance
with the covenant described under "Limitation on Additional Indebtedness."
Payments for Consent
Neither the Issuers nor any of their Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
Limitation on Conduct of Business of Capital II
Except to the extent permitted under "Merger, Consolidation or Sale of
Assets," Capital II will not hold any operating assets or other properties or
conduct any business other than to serve as an Issuer and co-obligor with
respect to the Notes and will not own any Capital Stock of any other Person.
Certain Consents and Filings
As of December 31, 1997, the Issuers have made, or caused to have been
made, all filings, and have received all required consents of third parties,
relating to the Asset Drop-Down, other than filings and consents the absence of
which, individually or in the aggregate, will not have a material adverse effect
on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, or on the
legality, validity, binding effect or enforceability of the Notes or the
Indenture.
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CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof together with any accrued
and unpaid interest thereon to the Change of Control Payment Date (as
hereinafter defined) (such applicable purchase price being hereinafter referred
to as the "Change of Control Purchase Price") in accordance with the procedures
set forth in this covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each holder of the Notes, at the address appearing in the register maintained by
the registrar of the Notes, a notice stating:
(i) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(ii) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days from the date such
notice is mailed (the "Change of Control Payment Date"));
(iii) that any Note not tendered will remain outstanding and continue
to accrue interest;
(iv) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(v) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day preceding
the Change of Control Payment Date;
(vi) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(vii) that holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
(viii) any other procedures that a holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Issuers. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Issuers shall execute and issue, the Guarantors shall endorse the Guarantee
and the Trustee shall promptly authenticate and mail to such holder, a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered;
provided that each such new Note shall be issued in an original principal amount
in denominations of $1,000 and integral multiples thereof.
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The Indenture will require that if the Senior Credit Facility is in effect,
or any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to holders
described in the preceding paragraph, but in any event within 20 days following
any Change of Control, the Issuers on a joint and several basis covenant to (i)
repay in full all obligations under or in respect of the Senior Credit Facility
or offer to repay in full all obligations under or in respect of the Senior
Credit Facility and repay the obligations under or in respect of the Senior
Credit Facility of each lender who has accepted such offer or (ii) obtain the
requisite consent under the Senior Credit Facility to permit the repurchase of
the Notes as described above. The Issuers must first comply with the covenant
described in the preceding sentence before they shall be required to purchase
Notes in the event of a Change of Control; provided that the Issuers' failure to
comply with the covenant described in the preceding sentence constitutes an
Event of Default described in clause (iii) under "Events of Default" below if
not cured within 60 days after the notice required by such clause. As a result
of the foregoing, a holder of the Notes may not be able to compel the Issuers to
purchase the Notes unless the Issuers are able at the time to refinance all of
the obligations under or in respect of the Senior Credit Facility or obtain
requisite consents under the Senior Credit Facility. Failure by the Issuers to
make a Change of Control Offer when required by the Indenture constitutes a
default under the Indenture and, if not cured within 60 days after notice,
constitutes an Event of Default.
The Indenture will require that (A) if either Issuer or any Subsidiary
thereof has issued any outstanding (i) Indebtedness that is subordinated in
right of payment to the Notes or (ii) Preferred Stock, and such Issuer or
Subsidiary is required to make a change of control offer or to make a
distribution with respect to such subordinated Indebtedness or Preferred Stock
in the event of a change of control, the Issuers shall not consummate any such
offer or distribution with respect to such subordinated Indebtedness or
Preferred Stock until such time as the Issuers shall have paid the Change of
Control Purchase Price in full to the holders of Notes that have accepted the
Issuers' Change of Control Offer and shall otherwise have consummated the Change
of Control Offer made to holders of the Notes and (B) the Issuers will not issue
Indebtedness that is subordinated in right of payment to the Notes or Preferred
Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Notes in the event
of a Change in Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Issuers to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Issuers will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither of the Issuers will, nor will they permit any Guarantor to,
consolidate with, merge with or into, or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction or
a series of related transactions) to, any Person unless (in the case of the
Company or any Guarantor): (i) the Company or such Guarantor, as the case may
be, shall be the continuing Person, or the Person (if other than the Company or
such Guarantor) formed by such consolidation or into which the Company or such
Guarantor, as the case may be, is merged or to which the properties and assets
of the Company or such Guarantor, as the case may be, are transferred shall be a
corporation (or, in the case of the Company, a corporation or a limited
partnership) organized and existing under the laws of the United States or any
State thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company or such
Guarantor, as the case may be, under the Notes and the Indenture, and the
obligations under the Indenture shall remain in full force and effect; provided,
that at any time the Company or its successor is a limited partnership, there
shall be a co-issuer of the Notes that is a corporation; (ii) immediately before
and immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction or series of transactions on a pro forma basis the
Consolidated Net Worth of the Company or the surviving entity as the case may be
is at least equal to the Consolidated Net Worth of the Company immediately
before such transaction or series of transactions;
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and (iv) immediately after giving effect to such transaction on a pro forma
basis the Company or such Person could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the covenant set forth
under "Limitation on Additional Indebtedness." Notwithstanding anything in this
"Merger, Consolidation or Sale of Assets" provision herein to the contrary, but
subject to the "Change of Control Offer" provisions above, (a) any of the
Company, Capital II and TCC may merge with or into, or consolidate with, another
of them and subject only to compliance with clause (i) of the immediately
preceding sentence and (b) the Company may merge into, consolidate with or
transfer all or substantially all of its assets to another entity, which entity
shall have no significant assets (other than an ownership interest in the
Company) and no liabilities immediately prior to such transaction, without
regard to the requirements of clause (iv) of the immediately preceeding
sentence.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Issuers shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
GUARANTEES
The Notes are unconditionally guaranteed on an unsecured senior
subordinated basis by the Guarantors, if any. All payments pursuant to the
Guarantees by the Guarantors will be unconditionally subordinated in right of
payment to the prior indefeasible payment and satisfaction in full in cash of
all Senior Indebtedness of the Guarantor, to the same extent and in the same
manner that all payments pursuant to the Notes are subordinated in right of
payment to the prior payment in full of all Senior Indebtedness of the Issuers.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any Guarantees of Senior Indebtedness)
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under "Limitation on Certain Asset Sales," or the Guarantor
merges with or into or consolidates with, or transfers all or substantially all
of its assets to, the Company or another Guarantor in a transaction in
compliance with "Merger, Consolidation or Sale of Assets," and such Guarantor
has delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent herein provided for relating to such
transaction have been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes whether at maturity, upon acceleration or redemption or otherwise
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(ii) default for 30 days (whether or not such payment is prohibited by
the subordination provisions of the Indenture) in payment of any interest
on the Notes;
(iii) default by either of the Issuers or any Guarantor in the
observance or performance of any other covenant in the Notes or the
Indenture for 60 days after written notice from the Trustee or the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding;
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(iv) default in the payment at final maturity of principal in an
aggregate amount of $5.0 million or more with respect to any Indebtedness
of either Issuer or any Restricted Subsidiary thereof, or the acceleration
of any such Indebtedness aggregating $5.0 million or more which default
shall not be cured, waived or postponed pursuant to an agreement with the
holders of such Indebtedness within 60 days after written notice as
provided in the Indenture, or such acceleration shall not be rescinded or
annulled within 20 days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5.0 million shall be rendered
against either of the Issuers or any Restricted Subsidiary thereof, and
shall not be discharged for any period of 60 consecutive days during which
a stay of enforcement shall not be in effect;
(vi) certain events involving bankruptcy, insolvency or reorganization
of either of the Issuers or any Restricted Subsidiary thereof; and
(vii) any of the Guarantees ceases to be in full force and effect or
any of the Guarantees is declared to be null and void and unenforceable or
any of the Guarantees is found to be invalid or any of the Guarantors
denies in writing its liability under its Guarantee (other than by reason
of release of a Guarantor in accordance with the terms of the Indenture).
The Indenture will provide that the Trustee may withhold notice to the
holders of the Notes of any default (except in payment of principal or premium,
if any, or interest on the Notes) if the Trustee considers it to be in the best
interest of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee by
notice to the Issuers or the holders of not less than 25% in aggregate principal
amount of the Notes then outstanding by written notice to the Issuers and the
Trustee may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued but unpaid interest to the
date of acceleration and such amounts shall become immediately due and payable
or if there are any amounts outstanding under or in respect of the Senior Credit
Facility, such amounts shall become due and payable upon the first to occur of
an acceleration of amounts outstanding under or in respect of the Senior Credit
Facility or five business days after receipt by the Company and the
representative of the holders of Senior Indebtedness under or in respect of the
Senior Credit Facility, of notice of the acceleration of the Notes; provided,
however, that after such acceleration but before a judgment or decree based on
such acceleration is obtained by the Trustee, the holders of a majority in
aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all existing Events of
Default, other than nonpayment of accelerated principal, premium, if any, or
interest that has become due solely because of the acceleration, have been cured
or waived as provided in the Indenture. In case an Event of Default resulting
from certain events of bankruptcy, insolvency or reorganization shall occur, the
principal, premium, if any, and interest amount with respect to all of the Notes
shall be due and payable immediately without any declaration or other act on the
part of the Trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
indemnity satisfactory to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.
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DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Issuers may elect either (a) to defease and
be discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from their obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "Certain Covenants" ("covenant defeasance"), upon the deposit with the
Trustee (or other qualifying trustee), in trust for such purpose of money and/or
U.S. Government Obligations (as defined in the Indenture) which through the
payment of principal and interest in accordance with their terms will provide
money, in an amount sufficient to pay the principal of, premium, if any, and
interest on the Notes, on the scheduled due dates therefor or on a selected date
of redemption in accordance with the terms of the Indenture. Such a trust may
only be established if, among other things, the Issuers have delivered to the
Trustee an Opinion of Counsel (as specified in the Indenture) (i) to the effect
that neither the trust nor the Trustee will be required to register as an
investment company under the Investment Company Act of 1940, as amended, and
(ii) describing either a private ruling concerning the Notes or a published
ruling of the Internal Revenue Service, to the effect that holders of the Notes
or persons in their positions will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, the Issuers, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
adversely affect the rights of any holder. The Indenture contains provisions
permitting the Issuers, the Guarantors and the Trustee, with the consent of
holders of at least a majority in principal amount of the outstanding Notes, to
modify or supplement the Indenture or the Notes, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture or the Notes, (ii) reduce the rate of or
change the time for payment of interest on any Note, (iii) reduce the principal
of or premium on or change the stated maturity of any Note, (iv) make any Note
payable in money other than that stated in the Note or change the place of
payment from New York, New York, (v) change the amount or time of any payment
required by the Notes or reduce the premium payable upon any redemption of
Notes, or change the time before which no such redemption may be made, (vi)
waive a default in the payment of the principal of, interest on, or redemption
payment with respect to any Note, (vii) take any other action otherwise
prohibited by the Indenture to be taken without the consent of each holder
affected thereby or (viii) affect the ranking of the Notes or the Guarantees in
a manner adverse to the Holders.
REPORTS TO HOLDERS
So long as the Issuers are subject to the periodic reporting requirements
of the Exchange Act, they will continue to furnish the information required
thereby to the Commission and to the holders of the Notes. The Indenture will
provide that even if the Company is entitled under the Exchange Act not to
furnish such information to the Commission or to the holders of the Notes, it
will nonetheless continue to furnish such information to the Commission and
holders of the Notes.
COMPLIANCE CERTIFICATE
The Issuers will deliver to the Trustee on or before 120 days after the end
of the Issuers' fiscal year and on or before 50 days after the end of each of
the first, second and third fiscal quarters in each year an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default and its status.
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THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. The Trustee is also acting as trustee under the indenture relating
to the Discount Notes.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange the Notes in accordance with
the Indenture. The Registrar under such Indenture may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and to
pay any taxes and fees required by law or permitted by the Indentures. The
Registrar is not required to transfer or exchange any Note selected for
redemption. Also, the Registrar is not required to transfer or exchange any Note
for a period of 15 days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee, of such Guarantor at such date
and (y) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities and after giving effect to any collection from any
Subsidiary of such Guarantor in respect of the obligations of such Subsidiary
under the Guarantee), excluding Indebtedness in respect of the Guarantee, as
they become absolute and matured.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction or
series of related transactions having a fair market value in excess of
$1,000,000 of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Issuers, (b) all or substantially all of the assets
of the Issuers or of any Restricted Subsidiary thereof, (c) real property or (d)
all or substantially all of the assets of a division, line of business or
comparable business segment of the Issuers or any Restricted Subsidiary thereof;
provided that Asset Sales shall not include (i) sales, leases, conveyances,
transfers or other dispositions to the Company or to a Restricted Subsidiary or
to any other Person if after giving effect to such sale, lease, conveyance,
transfer or other disposition such other Person becomes a Restricted Subsidiary;
or (ii) the contribution of any assets to a joint venture, partnership or other
Person (which may be a Subsidiary) to the extent such contribution constitutes a
Permitted Investment (other than by operation of clause (iv) of the definition
thereof).
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"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Issuers or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes (including taxes required to be
distributed under the partnership agreement of the Company) measured by or
resulting from such Asset Sale, (b) payment of all brokerage commissions,
underwriting and other fees and expenses related to such Asset Sale, (c)
provision for minority interest holders in any Restricted Subsidiary as a result
of such Asset Sale and (d) deduction of appropriate amounts to be provided by
the Issuers or a Restricted Subsidiary as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of in such
Asset Sale and retained by the Issuers or a Restricted Subsidiary after such
Asset Sale, including, without limitation, severance, healthcare, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other non-cash consideration received by the Issuers or any Restricted
Subsidiary from such Asset Sale or other disposition upon the liquidation or
conversion of such notes or noncash consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by the Board of Directors of
the Company) and (ii) the present value of the total obligations (discounted at
a rate of 10%, compounded annually) of the lessee for rental payments during the
remaining term of the lease included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b), and that have not been the basis
for an Excess Proceeds Offer in accordance with clause (iii)(c), of the first
paragraph of "Certain Covenants -- Limitation on Certain Asset Sales."
"Board of Directors" means (i) in the case of a Person that is a limited
partnership, the board of directors of its corporate general partner or any
committee authorized to act therefor (or, if the general partner is itself a
limited partnership, the board of directors of such general partner's corporate
general partner or any committee authorized to act therefor), (ii) in the case
of a Person that is a corporation, the board of directors of such Person or any
committee authorized to act therefor and (iii) in the case of any other Person,
the board of directors, management committee or similar governing body or any
authorized committee thereof responsible for the management of the business and
affairs of such Person.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into or exercisable for any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
A "Change of Control" means the occurrence of one or more of the following
events: (i) any Person (including a Person's Affiliates and associates), other
than a Permitted Holder, becomes the beneficial owner (directly or indirectly)
(as defined under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of 50% or more of the total voting or economic power of
the Common Stock of the Company, (ii) any Person (including a Person's
Affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner (directly or indirectly) of more than 33 1/3% of the total
voting power of the Common Stock of the Company, and the Permitted Holders
beneficially own (directly or indirectly), in the aggregate, a lesser percentage
of the total voting power of the Common Stock of the Company, as the case may
be, than such other Person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board
of Directors of the Company, (iii) the admission of any Person as a general
partner of Holdings after which TCC, together with one or more Permitted
Holders, do not have the sole power, directly or indirectly, to take all of the
actions they are entitled or required, to take
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under the partnership agreement of Holdings as in effect on the Issue Date, (iv)
there shall be consummated any consolidation or merger of either Issuer in which
such Issuer is not the continuing or surviving corporation or pursuant to which
the Common Stock of such Issuer would be converted into cash, securities or
other property, other than a merger or consolidation of such Issuer in which the
beneficial owners of the Common Stock of such Issuer outstanding immediately
prior to the consolidation or merger hold, directly or indirectly, at least a
majority of the Common Stock of the surviving corporation immediately after such
consolidation or merger, or (v) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors of TCC (together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of TCC has
been approved by a majority of the directors then still in office who either
were directors at the beginning of such period or whose election or
recommendation for election was previously so approved) cease to constitute a
majority of the Board of Directors of TCC.
"CIBC Merchant Fund" means the CIBC WG Argosy Merchant Fund 2, L.L.C.
"CIVC" means Continental Illinois Venture Corporation.
"Commodity Hedge Agreement" shall mean any option, hedge or other similar
agreement or arrangement designed to protect against fluctuations in commodity
or materials prices.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including, but not limited to, Redeemable Dividends, whether paid or accrued,
on Preferred Stock of Subsidiaries, imputed interest included in Capitalized
Lease Obligations, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, the net
costs associated with hedging obligations, amortization of other financing fees
and expenses, the interest portion of any deferred payment obligation,
amortization of discount or premium, if any, and all other non-cash interest
expense (other than interest amortized to cost of sales)) plus, without
duplication, all net capitalized interest for such period and all interest
incurred or paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person, plus the amount
of all dividends or distributions paid on Disqualified Stock (other than
dividends paid or payable in shares of Capital Stock of the Company), less the
amortization of deferred financing costs.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP, plus,
in the case of the Company, payments by the Company to the Equity Compensation
Trust for the benefit of the beneficiaries thereof, minus Permitted Tax
Distributions (to the extent such Permitted Tax Distributions are made);
provided, however, that (a) the Net Income of any Person (the "other Person") in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other Person to
be consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions (other than pursuant to the Notes or the Indenture) shall be
excluded to the extent of such restriction or limitation, (c)(i) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (ii) any net gain (but not loss)
resulting from an Asset Sale by the Person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded and
(d) extraordinary, unusual and non-recurring gains and losses (including any
related tax effects on the Issuers) shall be excluded.
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"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholder's equity of such Person less the amount of such
stockholder's equity attributable to Disqualified Capital Stock of such Person
and its Subsidiaries, as determined in accordance with GAAP.
"Default" means any condition or event that is, or with the passing of time
or giving of any notice expressly required under the Indenture (or both), would
be, an Event of Default.
"Designated Senior Indebtedness" as to the Company or any Guarantor, as the
case may be, means any Senior Indebtedness (a) under the Senior Credit Facility,
or (b)(i) which at the time of determination exceeds $25.0 million in aggregate
principal amount (or accreted value in the case of Indebtedness issued at a
discount) outstanding or available under a committed facility, (ii) which is
specifically designated in the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness" by such Person and (iii) as to which the
Trustee has been given written notice of such designation.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness; provided that Capital Stock of the Company that is held by a
current or former employee of the Company subject to a put option and/or a call
option with the Company triggered by the termination of such employee's
employment with the Company and/or the Company's performance shall not be deemed
to be Disqualified Capital Stock solely by virtue of such call option and/or put
option. Without limitation of the foregoing, Disqualified Capital Stock shall be
deemed to include (i) any Preferred Stock of a Restricted Subsidiary of the
Company and (ii) any Preferred Stock of the Company, with respect to either of
which, under the terms of such Preferred Stock, by agreement or otherwise, such
Restricted Subsidiary or the Company is obligated to pay current dividends or
distributions in cash (other than Permitted Tax Distributions) during the period
prior to the maturity date of the Notes; provided, however, that Preferred Stock
of the Company or any Restricted Subsidiary thereof that is issued with the
benefit of provisions requiring a change of control offer to be made for such
Preferred Stock in the event of a change of control of the Company or such
Restricted Subsidiary, which provisions have substantially the same effect as
the provisions of the Indenture described under "Change of Control," shall not
be deemed to be Disqualified Capital Stock solely by virtue of such provisions.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, plus (vii) without duplication, Permitted Tax
Distributions, plus (viii) cash payments of expenses arising in connection with
the Recapitalization, minus (b) all non-cash items increasing Consolidated Net
Income for such period, all for such Person and its Subsidiaries determined in
accordance with GAAP, except that with respect to the Issuers each of the
foregoing items shall be determined on a consolidated basis with respect to the
Issuers and their Restricted Subsidiaries only; provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment (other than in a Subsidiary which under GAAP is
consolidated) of such Person shall be included only (x) if cash income has been
received by such Person with respect to such Investment or (y) if the cash
income derived from such Investment is attributable to Temporary Cash
Investments.
"Equity Compensation Trust" means the Company's Equity Compensation Trust
for the benefit of certain of its employees, established pursuant to the Equity
Compensation Trust Agreement, dated as of November 4, 1993, as amended by an
agreement dated as of October 1, 1997 between the Company and the
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trustees thereof, and any successor trust with terms substantially similar
thereto (with an additional requirement of continued employment status).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"First Union" means First Union Corporation.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"Guarantee" means, as the context may require, individually, a guarantee,
or collectively, any and all guarantees, of the Obligations of the Company with
respect to the Notes by each Guarantor, if any, pursuant to the terms of the
Indenture.
"Guarantor" means each Restricted Subsidiary of the Issuers that hereafter
becomes a Guarantor pursuant to the Indenture, and "Guarantors" mean such
entities, collectively.
"Guarantor Senior Indebtedness" means the principal of and premium, if any,
and interest (including, without limitation, interest accruing or that would
have accrued but for the filing of a bankruptcy, reorganization or other
insolvency proceeding whether or not such interest constitutes an allowable
claim in such proceeding) on, and any and all other fees, expense reimbursement
obligations, indemnities and other amounts due pursuant to the terms of all
agreements, documents and instruments providing for, creating, securing or
evidencing or otherwise entered into in connection with, (a) any Guarantor's
direct incurrence of any Indebtedness or its guarantee of all Indebtedness of
the Company or any Restricted Subsidiaries, in each case owed to lenders under
the Senior Credit Facility, (b) all obligations of such Guarantor with respect
to any Interest Rate Agreement, (c) all obligations of such Guarantor to
reimburse any bank or other person in respect of amounts paid under letters of
credit, acceptances or other similar instruments, (d) all other Indebtedness of
such Guarantor which does not provide that it is to rank pari passu with or
subordinate to the Guarantees and (e) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Guarantor Senior Indebtedness described above. Notwithstanding anything to the
contrary in the foregoing, Guarantor Senior Indebtedness will not include (i)
Indebtedness of such Guarantor to any of its Subsidiaries, (ii) Indebtedness
represented by the Guarantees, (iii) any Indebtedness which by the express terms
of the agreement or instrument creating, evidencing or governing the same is
junior or subordinate in right of payment to any item of Guarantor Senior
Indebtedness, (iv) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business or (v)
Indebtedness incurred in violation of this Indenture.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurrable" and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables or liabilities arising from advance payments or
customer deposits for goods and services sold by the Company in the ordinary
course of business, and other accrued liabilities arising in the ordinary course
of business) if and to the extent any of the foregoing indebtedness would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the
property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed (provided,
however, that if such obligation or obligations shall not have been
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assumed, the amount of such indebtedness shall be deemed to be the lesser of the
principal amount of the obligation or the fair market value of the pledged
property or assets), (iii) guarantees of items of other Persons which would be
included within this definition for such other Persons (whether or not such
items would appear upon the balance sheet of the guarantor), (iv) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (provided that in the case of
any such letters of credit, the items for which such letters of credit provide
credit support are those of other Persons which would be included within this
definition for such other Persons), (v) in the case of the Issuers, Disqualified
Capital Stock of the Issuers or any Restricted Subsidiary thereof, and (vi)
obligations of any such Person under any Interest Rate Agreement applicable to
any of the foregoing (if and to the extent such Interest Rate Agreement
obligations would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP). The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise to the
obligation, provided (i) that the amount outstanding at any time of any
Indebtedness issued with original issue discount is the principal amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) that Indebtedness shall not include any liability for federal, state,
local or other taxes. Notwithstanding any other provision of the foregoing
definition, any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business shall not be deemed to
be "Indebtedness" of the Company or any Restricted Subsidiary for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Individual Investors" means the Management Investors and the former
Chairman of Holdings.
"Interest Rate Agreement" shall mean any interest or foreign currency rate
swap, cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Issuers in connection
with an acquisition of assets which is otherwise permitted by the terms of the
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means the date the Notes are first issued by the Issuers and
authenticated by the Trustee under the Indenture.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement (other than advance payments or customer deposits for goods and
services sold by the Company in the ordinary course of business), security
interest, lien, charge, easement, encumbrance, preference, priority, or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including without limitation, any
Capitalized Lease Obligation, conditional sales, or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Management Subordinated Notes" means notes issued to current or former
employees of the Company in accordance with the terms of the Executive
Agreements between the Company and such current or former employees in existence
on the Issue Date or pursuant to agreements between Holdings, TCC or the Company
and then current or former employees with substantially similar terms regarding
such issuance entered into after the Issue Date, which notes are expressly
subordinated as to payment of principal, premium, if any, and interest to the
Notes.
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"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by an
Issuer, the aggregate net proceeds received by such Issuer, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the Board of Directors of such Issuer,
at the time of receipt) and (b) in the case of any exchange, exercise,
conversion or surrender of outstanding securities of any kind for or into shares
of Capital Stock of the Company which is not Disqualified Capital Stock, the net
book value of such outstanding securities on the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holder to the Company upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on account of
fractional shares and less all expenses incurred by the Company in connection
therewith).
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture and delivered to the Trustee.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Permitted Asset Swap" means any transfer of properties or assets by the
Company or any of its Subsidiaries in which 90% of the consideration received by
the transferor consists of properties or assets (other than cash) that will be
used in the business of the transferor; provided that (i) the aggregate fair
market value (as determined in good faith by the Board of Directors of the
Company) of the property or assets being transferred by the Company or such
Subsidiary is not greater than the aggregate fair market value (as determined in
good faith by the Board of Directors) of the property or assets received by the
Company or such Subsidiary in such exchange and (ii) the aggregate fair market
value (as determined in good faith by the Board of Directors) of all property or
assets transferred by the Company and any of its Subsidiaries (A) in connection
with any single transfer or series of related transfers shall not exceed $2.0
million and (B) in connection with all such transfers following the Issue Date
shall not exceed $5.0 million in the aggregate.
"Permitted Holders" means, collectively, (i) Holdings and TCC, (ii) THL,
CIVC, CIBC Merchant Fund, First Union and any Affiliate of (including any equity
fund advised by) any of the foregoing (other than any portfolio company with
operating assets) and (iii) the Individual Investors, each of the spouses,
children (adoptive or biological) or other lineal descendants of the Individual
Investors, the probate estate of any such individual and any trust, so long as
one or more of the foregoing individuals retains substantially all of the
controlling or beneficial interest thereunder.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Restricted Subsidiary (A)
arising under or in connection with the Senior Credit Facility in an amount
not to exceed $125.0 million, which amount shall be reduced by any
mandatory prepayments actually made thereunder required as a result of any
Asset Sale or similar sale of assets (to the extent, in the case of
payments of revolving credit indebtedness, that the corresponding
commitments have been permanently reduced) and any scheduled payments
actually made thereunder or (B) that constitutes Acquisition Debt (as
defined in the Senior Credit Facility) under the Senior Credit Facility to
the extent such Indebtedness permanently reduces the aggregate commitments
available under the Senior Credit Facility;
(ii) Indebtedness under the Notes and the Guarantees;
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(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
(iv) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(v) Interest Rate Agreements;
(vi) Refinancing Indebtedness;
(vii) Indebtedness under Commodity Hedge Agreements entered into in
the ordinary course of business consistent with reasonable business
requirements and not for speculation;
(viii) Indebtedness consisting of guarantees made in the ordinary
course of business by the Company or its Subsidiaries of obligations of the
Issuers or any of their Subsidiaries, which obligations are otherwise
permitted under the Indenture;
(ix) contingent obligations of the Company or its Subsidiaries in
respect of customary indemnification and purchase price adjustment
obligations incurred in connection with an Asset Sale; provided that the
maximum assumable liability in respect of all such obligations shall at no
time exceed the gross proceeds actually received by the Company and its
Subsidiaries in connection with such Asset Sale;
(x) Purchase Money Indebtedness and Capitalized Lease Obligations of
the Company and its Subsidiaries incurred to acquire property in the
ordinary course of business and any refinancings, renewals or replacements
of any such Purchase Money Indebtedness or Capitalized Lease Obligation
(subject to the limitations on the principal amount thereof set forth in
this clause (x)), the principal amount of which Purchase Money Indebtedness
and Capitalized Lease Obligations shall not in the aggregate at any one
time outstanding exceed 5% of the Company's consolidated total assets
stated in accordance with GAAP as of the end of the last preceding fiscal
quarter for which financial statements are available;
(xi) the Management Subordinated Notes; and
(xii) additional Indebtedness of the Company or any of its
Subsidiaries (other than Indebtedness specified in clauses (i) through (xi)
above) not to exceed $5.0 million in the aggregate at any one time
outstanding.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company, (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof or (c) such business or assets are owned by
the Company or a Restricted Subsidiary;
(iv) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to either or both of the Issuers or a Restricted
Subsidiary solely as partial consideration for the consummation of an Asset
Sale that is otherwise permitted under the covenant described under
"Limitation on Sale of Assets";
(v) Investments consisting of (a) purchases and acquisitions of
inventory, supplies, materials and equipment, or (b) licenses or leases of
intellectual property and other assets, in each case in the ordinary course
of business;
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(vi) Investments consisting of (a) loans and advances to employees for
reasonable travel, relocation and business expenses in the ordinary course
of business not to exceed $1.0 million in the aggregate at any one time
outstanding, (b) loans to employees of the Company for the sole purpose of
purchasing equity of the Company, (c) extensions of trade credit in the
ordinary course of business, and (d) prepaid expenses incurred in the
ordinary course of business;
(vii) without duplication, Investments consisting of Indebtedness
permitted pursuant to clause (iv) under the definition of Permitted
Indebtedness;
(viii) Investments existing on the date of the Indenture;
(ix) Investments of the Company under Interest Rate Agreements;
(x) Investments under Commodity Hedge Agreements entered into in the
ordinary course of business consistent with reasonable business
requirements and not for speculation;
(xi) Investments consisting of endorsements for collection or deposit
in the ordinary course of business; and
(xii) Investments (other than Investments specified in clauses (i)
through (xi) above) in an aggregate amount, as valued at the time each such
Investment is made, not exceeding $5.0 million for all such Investments
from and after the Issue Date; provided that the amount available for
Investments to be made pursuant to this clause (xii) shall be increased
from time to time to the extent any return on capital is received by the
Company or a Restricted Subsidiary on an Investment previously made in
reliance on this clause (xii).
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness; provided that any such Lien does not
extend to or cover any Property, shares or debt other than the Property, shares
or debt securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Issuers or any of their Restricted Subsidiaries, (iv)
Liens securing industrial revenue bonds, (v) Liens to secure Purchase Money
Indebtedness and Capitalized Lease Obligations that are permitted under clause
(x) of the definition of "Permitted Indebtedness"; provided that (a) with
respect to any Purchase Money Indebtedness, any such Lien is created solely for
the purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including sales and excise taxes, installation
and delivery charges and other direct costs of, and other direct expenses paid
or charged in connection with, such purchase or construction) of such Property,
(b) with respect to any Purchase Money Indebtedness, the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such costs, and (c)
such Lien does not extend to or cover any Property other than the item of
Property that is the subject of such Purchase Money Indebtedness or Capitalized
Lease Obligation, as the case may be, and any improvements on such item, (vi)
statutory liens or landlords', carriers', warehouseman's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which do not secure any Indebtedness and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor, (vii)
Liens for taxes, assessments or governmental charges that are being contested in
good faith by appropriate proceedings, (viii) Liens securing Senior Indebtedness
or Guarantor Senior Indebtedness, (ix) Liens existing on the Issue Date; (x) any
extensions, substitutions, replacements or renewals of the foregoing, (xi) Liens
incurred in the ordinary course of business in connection with worker's
compensation, unemployment insurance or other forms of government insurance or
benefits, or to secure the performance of letters of credit, bids, tenders,
statutory obligations, surety and appeal bonds, leases, government contracts and
other similar obligations (other than obligations for borrowed money) entered
into in the ordinary course of business, (xii) any attachment or judgment Lien
not constituting an Event of Default under the Indenture that is being contested
in good faith by appropriate proceedings and for
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which adequate reserves have been established in accordance with GAAP (if so
required), (xiii) Liens arising from the filing, for notice purposes only, of
financing statements in respect of operating leases, (xiv) Liens arising by
operation of law in favor of depositary banks and collecting banks, incurred in
the ordinary course of business, (xv) Liens consisting of restrictions on the
transfer of securities pursuant to applicable federal and state securities laws,
(xvi) interests of lessors and licensors under leases and licenses to which the
Issuers or any of their Restricted Subsidiaries is a party and (xvii) with
respect to any real property occupied by the Company or any of its Restricted
Subsidiaries, all easements, rights of way, licenses and similar encumbrances on
or defects of title that do not materially impair the use of such property for
its intended purposes.
"Permitted Tax Distributions" means distributions by Holdings or the
Company to their respective partners or members from time to time in an amount
approximately equal to the income tax liability of such partners or members of
Holdings or the Company, as the case may be, resulting from the taxable income
of Holdings or Company, as the case may be, (after taking into account, to the
extent they may reduce such tax liability, all of the prior tax losses of
Holdings or the Company, as the case may be, to the extent such losses have not
previously been deemed to reduce the taxable income of Holdings or the Company,
as the case may be, and thereby reduce distributions for taxes in accordance
herewith); such distribution for taxes shall be based on the approximate highest
combined tax rate that applies to any one of the partners or members of Holdings
or the Company, as the case may be.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means a public offering by the Company, Holdings,
Capital II, Capital or TCC of shares of its Common Stock (however designated and
whether voting or non-voting) and any and all rights, warrants or options to
acquire such Common Stock; provided, however, that in connection with any such
Public Equity Offering the net proceeds of such Public Equity Offering are
contributed to the Company as common equity.
"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance (within 90 days from incurrence) the cost (including the cost of
construction) of an item of Property acquired in the ordinary course of
business, the principal amount of which Indebtedness does not exceed the sum of
(i) 100% of such cost and (ii) reasonable fees and expenses of such Person
incurred in connection therewith.
"Recapitalization" means the transactions described in the Recapitalization
Agreement.
"Recapitalization Agreement" means the Securities Purchase and Redemption
Agreement dated August 27, 1997 by and among Holdings, TCC, TWP Recapitalization
Corp., THL and certain limited partners of Holdings and TCC, as amended as of
September 30, 1997.
"Redeemable Dividend" means, for any dividend or distribution (other than
Permitted Tax Distributions) with regard to Disqualified Capital Stock, the
quotient of the dividend or distribution divided by the difference between one
and the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Disqualified Capital
Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted
Subsidiaries pursuant to the terms of the Indenture, but only to the extent that
(i) the Refinancing Indebtedness is subordinated to the Notes to at least the
same extent as the Indebtedness being refunded, refinanced or extended, if at
all, (ii) the Refinancing Indebtedness is scheduled to mature either
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(a) no earlier than the Indebtedness being refunded, refinanced or extended, or
(b) after the maturity date of the Notes, (iii) the portion, if any, of the
Refinancing Indebtedness that is scheduled to mature on or prior to the maturity
date of the Notes has a weighted average life to maturity at the time such
Refinancing Indebtedness is incurred that is equal to or greater than the
weighted average life to maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to the
maturity date of the Notes, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the sum of (a) the
aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended, (b) the amount of accrued and unpaid interest,
if any, and premiums owed, if any, not in excess of preexisting prepayment
provisions on such Indebtedness being refunded, refinanced or extended and (c)
the amount of customary fees, expenses and costs related to the incurrence of
such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is incurred
by the same Person that initially incurred the Indebtedness being refunded,
refinanced or extended, except that the Company may incur Refinancing
Indebtedness to refund, refinance or extend Indebtedness of any Wholly-Owned
Subsidiary of the Company.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Issuers or any Restricted Subsidiary of the Issuers or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Issuers or any Restricted Subsidiary of the Issuers (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Capital Stock), (y) Permitted Tax
Distributions and (z) in the case of Restricted Subsidiaries of the Company,
dividends or distributions payable to the Company or to a Wholly-Owned
Subsidiary of the Company), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company or any of its
Restricted Subsidiaries (other than Capital Stock owned by the Company or a
Wholly-Owned Subsidiary of the Company, excluding Disqualified Stock), (iii) the
making of any principal payment on, or the purchase, defeasance, repurchase,
redemption or other acquisition or retirement for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, of any
Indebtedness which is subordinated in right of payment to the Notes other than
subordinated Indebtedness acquired in anticipation of satisfying a scheduled
sinking fund obligation, principal installment or final maturity (in each case
due within one year of the date of acquisition), (iv) without limiting the
generality of the foregoing clause (iii), the making of any principal or
interest payment on the Management Subordinated Notes, (v) the making of any
payments to the Equity Compensation Trust, (vi) the making of any Investment or
guarantee of any Investment in any Person other than a Permitted Investment,
(vii) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary
on the basis of the Investment by the Issuers therein and (viii) forgiveness of
any Indebtedness of an Affiliate of the Issuers (other than a Restricted
Subsidiary) to the Issuers or a Restricted Subsidiary. For purposes of
determining the amount expended for Restricted Payments, cash distributed or
invested shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value determined by the Company's Board of
Directors.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Unrestricted Subsidiary or any Person that is to become a Subsidiary as a
Restricted Subsidiary if immediately after giving effect to such action (and
treating any Acquired Indebtedness as having been incurred at the time of such
action), the Issuers could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Additional Indebtedness" covenant.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal Property, which Property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"Securities Act" means the Securities Act of 1933, as amended.
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"Senior Credit Facility" means the Credit Agreement, dated as of October 1,
1997, among the Issuers, the lenders listed therein and Canadian Imperial Bank
of Commerce, as administrative agent, and First Union National Bank, as
documentation agent, as amended and restated as of November 6, 1997, together
with the documents related thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including adding
Subsidiaries of the Issuers as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, expense reimbursement obligations,
indemnities and other amounts due pursuant to the terms of all agreements,
documents and instruments providing for, creating, securing or evidencing or
otherwise entered into in connection with (a) all Indebtedness of the Issuers
owed to lenders under the Senior Credit Facility, (b) all obligations of the
Company with respect to any Interest Rate Agreement, (c) all obligations of the
Company to reimburse any bank or other Person in respect of amounts paid under
letters of credit, acceptances or other similar instruments, (d) all other
Indebtedness of the Company which does not provide that it is to rank pari passu
with or subordinate to the Notes and (e) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Senior Indebtedness described above. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness will not include (i) Indebtedness of the
Company to any of its Subsidiaries, (ii) Indebtedness represented by the Notes,
(iii) any Indebtedness which by the express terms of the agreement or instrument
creating, evidencing or governing the same is junior or subordinate in right of
payment to any item of Senior Indebtedness, (iv) any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business and (v) Indebtedness incurred in violation of the Indenture.
"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
first-named Person or any of its Subsidiaries; or (ii) in the case of a
partnership, limited liability company, joint venture, association or other
business entity, with respect to which such first-named Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise or if in accordance with
GAAP such entity is consolidated with the first-named Person for financial
statement purposes.
"TCC" means TransWestern Communications Company, Inc., a Delaware
corporation and the general partner of the Company.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500.0 million and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"THL" means Thomas H. Lee Equity Fund III, L.P.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company; provided that a Subsidiary organized or acquired after
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in
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compliance with the covenant set forth under "Limitation on Restricted
Payments." The Trustee shall be given prompt notice by the Company of each
resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
"Wholly-Owned Subsidiary" of a specified Person means any Subsidiary (or,
if such specified Person is the Company, a Restricted Subsidiary), all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by such Person.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Global
Note"). The Global Note will be deposited upon issuance with the Trustee, as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant as described below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for Notes
in certificated form except in the limited circumstances described below.
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DTC has advised the Issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of the Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and the Indirect Participants.
DTC has also advised the Issuers that pursuant to procedures established by
it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the exchanging holders with portions of the principal
amount of the Global Note and (ii) ownership of such interests in the Global
Note will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in the Global Note to such persons may be limited
to that extent. Because DTC can act only on behalf of the Participants, which in
turn act on behalf of the Indirect Participants and certain banks, the ability
of a person having beneficial interests in the Global Note to pledge such
interests to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of (and premium, if any) and interest
on the Global Note registered in the name of DTC or its nominee will be payable
to DTC or its nominee in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Issuers and the Trustee will
treat the persons in whose names the Notes, including the Global Note, are
registered as the owners thereof for the
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purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, none of the Issuers or the Trustee nor any agent of
the Issuers or the Trustee has or will have any responsibility or liability for
(i) any aspect or accuracy of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Note, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the Global Note, or
(ii) any other matter relating to the actions and practices of DTC or any of the
Participants or the Indirect Participants.
DTC has advised the Issuers that its current practice, upon receipt of any
payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security as
shown on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of Notes will be governed by standing
instructions and customary practices and will not be the responsibility of DTC,
the Trustee or the Issuers. Neither the Issuers nor the Trustee will be liable
for any delay by DTC or any of the Participants in identifying the beneficial
owners of the Notes, and the Issuers and the Trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee as the
registered owner of the Global Note for all purposes.
Interests in the Global Note will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and the Participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures and will be settled in
same-day funds.
DTC has advised the Issuers that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants to
whose account with DTC interests in the Global Note are credited and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if any of the events described under "-- Exchange of Book Entry Notes
for Certificated Notes" occurs, DTC reserves the right to exchange the Global
Note for Notes in certificated form and to distribute such Notes to its
Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Note among accountholders in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Issuers or the Trustee
nor any agent of the Issuers or the Trustee will have any responsibility for the
performance by DTC or its respective participants, indirect participants or
accountholders of their respective obligations under the rules and procedures
governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
The Global Note is exchangeable for definitive Notes in registered
certificated form if (i) DTC (x) notifies the Issuers that it is unwilling or
unable to continue as depository for the Global Note and the Issuers thereupon
fail to appoint a successor depository or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) the Issuers, at their option, notify the
Trustee in writing that they elect to cause the issuance of the Notes in
certificated form or (iii) there shall have occurred and be continuing a Default
or an Event of Default with respect to the Notes. In all cases, certificated
Notes delivered in exchange for the Global Note or beneficial interests therein
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of DTC (in accordance with its customary procedures).
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is based on the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and
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practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conditions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. The Company recommends that each holder consult such holder's
own tax advisor as to the particular tax consequences of exchanging such
holder's Old Notes for Exchange Notes, including the applicability and effect of
any state, local or foreign tax laws.
In the opinion of Kirkland & Ellis, counsel to the Issuers, the exchange of
Old Notes for Exchange Notes pursuant to the Exchange Offer will not be treated
as an "exchange" for federal income tax purposes because the Exchange Notes will
not be considered to differ materially in kind or extent from the Old Notes.
Rather, the Exchange Notes received by a holder will be treated as a
continuation of the Old Notes in the hands of such holder. As a result, there
will be no federal income tax consequences to holders exchanging Old Notes for
Exchange Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with the resale of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that for a period of 180 days after the Expiration Date, they will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1998 (90 days after the commencement of the Exchange Offer), all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Exchange Notes will
be passed upon for the Issuers by Kirkland & Ellis, Chicago, Illinois (a
partnership which includes professional corporations). Certain
104
<PAGE> 110
partners of Kirkland & Ellis are also partners of KLANS Associates, a
partnership that invested in the Partnership and TCC in connection with the 1993
Acquisition. In the Recapitalization, KLANS Associates received $2.1 million for
the redemption of all of its holdings of Partnership interests and for the sale
of all of its holdings of TCC common stock.
EXPERTS
The financial statements of TransWestern Publishing Company LLC as of April
30, 1996 and 1997 and for each of the three years in the period ended April 30,
1997 included in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
105
<PAGE> 111
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 112
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRANSWESTERN PUBLISHING COMPANY LLC
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets as of April 30, 1996 and 1997 and October 31, 1997 (unaudited)......... F-3
Statements of Operations for each of the three years in the period ended April 30,
1997 and the six months ended October 31, 1996 and 1997 (unaudited)................. F-4
Statements of Changes in Member Deficit for each year in the period ended April 30,
1997 and for the six months ended October 31, 1997 (unaudited)...................... F-5
Statements of Cash Flows for each of the three years in the period ended April 30,
1997 and the six months ended October 31, 1996 and 1997 (unaudited)................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 113
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Member
TransWestern Publishing Company LLC
We have audited the accompanying balance sheets of TransWestern Publishing
Company LLC as of April 30, 1996 and 1997 and the related statements of
operations, changes in member deficit and cash flows for each of the three years
in the period ended April 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TransWestern Publishing
Company LLC at April 30, 1996 and 1997 and the results of its operations and its
cash flows for each of the three years in the period ended April 30, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
June 6, 1997, except for "Organization, Business
Activity and Basis of Presentation" under Note 1,
as to which the date is November 6, 1997
F-2
<PAGE> 114
TRANSWESTERN PUBLISHING COMPANY LLC
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30,
--------------------- OCTOBER 31,
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 1,320 $ 1,254 $ 2,223
Trade receivables (less allowance for doubtful accounts
of $5,314 in 1996 and $7,626 in 1997 ($7,771 at
October 31, 1997 (unaudited))........................ 21,449 23,279 17,230
Deferred directory costs................................ 5,667 6,412 8,417
Other current assets.................................... 765 518 475
-------- -------- ---------
Total current assets...................................... 29,201 31,463 28,345
Property, equipment and leasehold improvements, net....... 2,759 2,840 2,881
Acquired intangibles, net................................. 12,867 12,093 9,281
Other assets, primarily debt issuance costs, net.......... 2,596 1,835 8,246
-------- -------- ---------
$ 47,423 $ 48,231 $ 48,753
======== ======== =========
LIABILITIES AND MEMBER DEFICIT
Current liabilities:
Accounts payable........................................ $ 3,191 $ 3,901 $ 2,925
Salaries and benefits payable........................... 3,757 4,112 2,498
Other accrued liabilities............................... 1,636 1,503 4,753
Amount due General Partner.............................. 754 805 --
Customer deposits....................................... 9,281 10,197 14,752
Current portion, long-term debt......................... 8,494 10,921 2,555
-------- -------- ---------
Total current liabilities................................. 27,113 31,439 27,483
Long-term debt............................................ 75,916 67,514 173,875
Member deficit............................................ (55,606) (50,722) (152,605)
-------- -------- ---------
$ 47,423 $ 48,231 $ 48,753
======== ======== =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 115
TRANSWESTERN PUBLISHING COMPANY LLC
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED APRIL 30, OCTOBER 31,
--------------------------- -----------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues..................................... $69,845 $77,731 $91,414 $38,050 $38,254
Cost of sales.................................... 16,956 18,202 19,500 8,996 9,172
------- ------- ------- ------- -------
Gross profit................................... 52,889 59,529 71,914 29,054 29,082
Operating expenses:
Sales and marketing............................ 27,671 29,919 36,640 15,888 17,114
General and administrative..................... 13,279 14,276 16,821 7,870 7,893
Contributions to equity compensation plan...... 525 796 -- -- 5,543
------- ------- ------- ------- -------
Total operating expenses......................... 41,475 44,991 53,461 23,758 30,550
------- ------- ------- ------- -------
Income (loss) from operations.................... 11,414 14,538 18,453 5,296 (1,468)
Other income (expense), net...................... 470 375 48 18 (107)
Interest expense................................. (4,345) (6,630) (7,816) (4,029) (4,333)
------- ------- ------- ------- -------
(3,875) (6,255) (7,768) (4,011) (4,440)
------- ------- ------- ------- -------
Income (loss) before extraordinary item.......... 7,539 8,283 10,685 1,285 (5,908)
Extraordinary (loss)............................. (392) (1,368) -- -- (1,391)
------- ------- ------- ------- -------
Net income (loss)................................ $ 7,147 $ 6,915 $10,685 $ 1,285 $(7,299)
======= ======= ======= ======= =======
Net income (loss) per Member Unit................ $ 7,147 $ 6,915 $10,685 $ 1,285 $(7,299)
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 116
TRANSWESTERN PUBLISHING COMPANY LLC
STATEMENTS OF CHANGES IN MEMBER DEFICIT
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at April 30, 1994.................................... $ 4,458
Net income................................................. 7,147
Distributions to member.................................... (34,326)
---------
Balance at April 30, 1995.................................... (22,721)
Net income................................................. 6,915
Distributions to member.................................... (39,800)
---------
Balance at April 30, 1996.................................... (55,606)
Net income................................................. 10,685
Distributions to member.................................... (5,801)
---------
Balance at April 30, 1997.................................... (50,722)
Net (loss) (unaudited)..................................... (7,299)
Contributions from member (unaudited)...................... 85,756
Equity transaction costs (unaudited)....................... (3,859)
Distributions to member (unaudited)........................ (176,481)
---------
Balance at October 31, 1997 (unaudited)...................... $(152,605)
=========
</TABLE>
See accompanying notes.
F-5
<PAGE> 117
TRANSWESTERN PUBLISHING COMPANY LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED APRIL 30, OCTOBER 31,
------------------------------ --------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................... $ 7,147 $ 6,915 $ 10,685 $ 1,285 $ (7,299)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Extraordinary item....................... 353 1,368 -- -- 1,391
Depreciation and amortization............ 4,593 4,691 6,399 3,122 3,274
Amortization of deferred debt issuance
costs................................. 488 804 703 371 358
Provision for doubtful accounts.......... 6,429 7,069 8,920 3,653 3,747
Changes in operating assets and
liabilities net of effects from
purchase of directories:
Trade receivables..................... (2,810) (684) (4,142) 1,796 5,903
Write-off of doubtful accounts........ (6,155) (8,231) (7,287) (3,302) (3,878)
Recoveries of doubtful accounts....... 437 660 679 332 277
Deferred directory costs.............. 600 97 (302) (1,316) (2,005)
Other current assets.................. 269 (158) 247 174 42
Accounts payable...................... 967 (96) 710 (734) (976)
Accrued liabilities................... 1,667 1,038 (1,136) (1,838) (660)
Accrued interest, non current......... -- (1,054) 69 (17) 1,516
Customer deposits..................... 623 672 (243) 2,146 4,555
-------- -------- -------- -------- ---------
Net cash provided by operating
activities............................... 14,608 13,091 15,302 5,672 6,245
INVESTING ACTIVITIES
Purchase of property, equipment and
leasehold improvements................... (496) (484) (1,034) (259) (580)
Increase in other assets................... (2,342) (2,631) -- -- (8,182)
Payment for purchase of directories........ -- (5,229) (2,558) (2,558) --
-------- -------- -------- -------- ---------
Net cash used for investing activities..... (2,838) (8,344) (3,592) (2,817) (8,762)
FINANCING ACTIVITIES
Proceeds from long-term debt............... 50,000 87,300 24,000 14,000 187,373
Repayments of long-term debt............... (27,224) (51,861) (29,975) (14,075) (89,303)
Equity transaction costs................... -- -- -- -- (3,859)
Contributions from member.................. -- -- -- -- 85,756
Distributions to member.................... (34,326) (39,800) (5,801) (2,800) (176,481)
-------- -------- -------- -------- ---------
Net cash provided by (used for) financing
activities............................... (11,550) (4,361) (11,776) (2,875) 3,486
-------- -------- -------- -------- ---------
Net increase (decrease) in cash............ 220 386 (66) (20) 969
Cash at beginning of period................ 714 934 1,320 1,320 1,254
-------- -------- -------- -------- ---------
Cash at end of period...................... $ 934 $ 1,320 $ 1,254 $ 1,300 $ 2,223
======== ======== ======== ======== =========
Supplemental disclosure of cash flow
information:
Cash paid for interest..................... $ 3,066 $ 7,223 $ 7,131 $ 3,674 $ 2,459
======== ======== ======== ======== =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 118
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS, INFORMATION SUBSEQUENT TO APRIL 30, 1997
AND
FOR THE SIX MONTH PERIODS ENDED OCTOBER 31, 1996 AND 1997 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Business Activities and Basis of Presentation
TransWestern Publishing Company, L.P. (the "Partnership") was formed in
1993 to acquire the business of TransWestern Publishing from US West Marketing
Resources Group, Inc. TransWestern Publishing was a division of US West prior to
May 1993.
In November 1997, the Partnership changed its name to TransWestern Holdings
L.P. ("Holdings") and formed and contributed substantially all of its assets
(the "Asset Drop-Down") to TransWestern Publishing Company LLC ("TransWestern"
or the "Company"). TransWestern assumed or guaranteed all of the liabilities of
the Partnership. As a result, Holdings' only assets are all of the TransWestern
membership interests and all of Capital's capital stock. All of the operations
that were previously conducted by the Partnership are now being conducted by
TransWestern. Holdings has formed TWP Capital Corp. ("Capital") as a
wholly-owned subsidiary and the Company has formed TWP Capital Corp. II
("Capital II") as a wholly-owned subsidiary. Neither Capital nor Capital II has
any significant assets or operations.
The membership interests of TransWestern consists of a single class of
authorized common units ("the Member Units"). Holdings is the sole initial
member of TransWestern and accordingly, holds all 1,000 of the issued and
outstanding Member Units.
As of April 30, 1997 and prior to the Recapitalization and the formation of
TransWestern Publishing Company LLC, the Partnership's general partner equity
consisted of 9,800 authorized, issued and outstanding units with such units
representing a 1.0% interest in the limited partnership. The Partnership's
limited partner equity consisted of 3,968,236 authorized, issued and outstanding
Class A Common units and 314,290 authorized Class E Incentive units, of which
299,698 were issued and outstanding. The Class E equity units were authorized
performance-based equity units issued principally to senior management. Such
units vest ratably over a five year period and as of April 30, 1997, 20% of
these units had vested. The Class E units become Common units and share in the
allocation of partnership earnings and distributions upon achievement of certain
financial milestones (as defined in the Partnership agreement dated May 13,
1993). As of April 30, 1997, none of the Class E units were eligible to share in
the allocation of earnings or distributions as such milestones had not been
achieved.
As of October 31, 1997, subsequent to the Recapitalization but prior to the
formation of TransWestern Publishing Company LLC and the Asset Drop-Down, the
Partnership's general partner equity consisted of 9,800 authorized, issued and
outstanding units with such units representing a 1.7% interest in the limited
partnership. The Partnership's limited partner equity consisted of 1,270,456
authorized, issued and outstanding Preferred units, 1,270,456 authorized issued
and outstanding Class A Common units and 10,000 authorized, issued and
outstanding Class B Common units. The Preferred units are entitled to a
preferred yield of 12.0% per annum, compounded quarterly, and an amount equal to
the original investment in such Preferred units (net of any prior repayments of
Preferred units) plus any accrued and unpaid preferred yield (collectively the
"Preference Amount") on any liquidation or other distribution by the
Partnership. Partners holding Class A units are entitled to share in any
remaining proceeds of any liquidation or other distribution by the Partnership
pro rata according to the number of Class A units held by such partner. Holders
of Class B units will also be entitled to share in a percentage of any such
distributions, but only if the holders of the Preferred units and the Class A
units have achieved specific levels of return on their investment as set forth
in the Third Amended and Restated Agreement of Limited Partnership (as amended).
The general partner of Holdings is TransWestern Communications Company,
Inc. ("TCC") which held approximately 1.0% of Holdings outstanding partnership
units in the period from formation (1993) through
F-7
<PAGE> 119
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 1997. Upon the closing of the Recapitalization (as defined herein) in
October 1997 (Note 9) TCC held approximately 1.7% of Holdings outstanding
partnership units.
The accompanying financial statements give retroactive effect to the
formation of the Company and the contribution of assets and liabilities by
Holdings as if these events had occurred on the date of the Partnership's
formation. The accompanying financial statements present the historical
financial position and results of operations of TransWestern.
TransWestern publishes and distributes local yellow page directories in
twelve states.
Cash and cash equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of acquisition to be cash
equivalents. The Company evaluates the financial strength of the institutions at
which significant investments are made and believes the related credit risk is
limited to an acceptable level.
Revenue Recognition, Deferred Directory Costs and Customer Deposits
Revenues from the sale of advertising placed in each directory are
recognized upon the distribution of directories in their individual market
areas. Advance payments received for directory advertising are shown as customer
deposits in the accompanying balance sheets. Expenditures directly related to
sales, production, printing and distribution of directories are capitalized as
deferred directory costs and matched against related revenues upon directory
distribution. The Company published and recognized revenue for 106, 118 and 128
directories in fiscal 1995, 1996 and 1997, respectively.
Concentration of Credit Risk
Credit is extended based upon customer collection history and generally a
deposit is required. The Company is not subject to a concentration of credit
risk due to the geographic and economic diversity of its customer base, however
credit losses have represented a cost of doing business due to the nature of the
customer base (predominantly small businesses) and the use of extended credit
terms.
A provision for doubtful accounts based on historical experience is
recorded at the time revenue is recognized for individual directories. The
estimated provision for doubtful accounts as a percentage of net revenues
equaled 9.2%, 9.1% and 9.8% of net revenues in fiscal 1995, 1996 and 1997,
respectively. Actual write-offs are taken against the allowance when management
determines that an account is uncollectible. In general, management makes this
determination when an account has declared bankruptcy, has gone out of business
or fails to renew for the following year's directory.
Fair Value of Financial Instruments
In accordance with requirements of Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments, the
following methods and assumptions were used by the Company in estimating the
fair value disclosures:
Cash and Short-Term Receivables
The carrying amounts approximate fair values because of short maturities of
these instruments.
Long-Lived Assets
Property, equipment and leasehold improvements are carried at cost, less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the assets estimated useful lives
F-8
<PAGE> 120
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
which range from three to seven years. Leasehold improvements are amortized over
the shorter of the assets useful lives or the lease period.
Acquired intangibles are carried at cost which represents the excess of the
purchase price over the fair value of net tangible assets acquired in connection
with acquisitions of regional providers of yellow page directories. Acquired
intangibles consist primarily of customer lists with initial carrying values,
which, in the opinion of management, are equal to fair value on the date of
acquisition. Acquired intangibles are being amortized using the straight-line
method over five years.
Effective May 1, 1996 the Company adopted Statement of Financial Accounting
Standard No. 121, "Accounting for Long-Lived Assets and Long-Lived Assets to be
Disposed Of" which established standards for recording the impairment of
long-lived assets, including property, equipment and leasehold improvements,
intangible assets and goodwill.
In accordance with this Statement, the Company reviews the carrying value
of property, equipment and leasehold improvements for evidence of impairment
through comparison of the undiscounted cash flows generated from those assets to
the related carrying amounts of those assets. The carrying value of acquired
intangibles is evaluated for impairment through comparison of the undiscounted
cash flows derived from publication of acquired directories to the carrying
value of the related intangibles.
Long-Term Debt
Management believes that the carrying value of the Company's long-term debt
materially approximates its fair value as all debt outstanding at April 30, 1997
and October 31, 1997 is variable rate debt which is tied to standard indices
which adjust over relatively short periods (one to six months). These rates are
similar to current rates offered to the Company for debt of similar maturity.
Debt Issuance Costs
Debt issuance costs are being amortized over the term of the related debt
using the weighted-average declining balance method (which approximates the
interest method). Amortization is included in interest expense in the
accompanying statements of income.
Income Taxes
No provision has been made in the accompanying statements of income for
federal and state income taxes, except for the California minimum franchise tax,
as any taxable income or loss of the Partnership prior to the formation of
TransWestern was included in the income tax returns of the Partnership's
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The accompanying financial statements and related notes for the six month
periods ended October 31, 1996 and 1997 are unaudited but include all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair statement of financial position,
results of operations and
F-9
<PAGE> 121
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
cash flows for these interim periods. The results of operations for the six
months ended October 31, 1997 are not necessarily indicative of operating
results to be expected for the full fiscal year.
2. DIRECTORY ACQUISITIONS
During fiscal 1996 and 1997, the Company completed acquisitions of certain
tangible and intangible assets from companies which publish yellow page
directories in California, Massachusetts, New York, Indiana, Kentucky and
Tennessee. These transactions were accounted for as purchases and accordingly
the purchase price was allocated to the tangible and intangible assets acquired
based on their respective fair values at the date of acquisition as follows:
<TABLE>
<CAPTION>
APRIL 30,
-----------------
1996 1997
------ ------
<S> <C> <C>
Deferred directory costs................................... $ 671 $ 443
Customer base.............................................. 6,615 4,620
Other...................................................... 421 56
------ ------
Total assets acquired...................................... $7,707 $5,119
====== ======
</TABLE>
In fiscal 1997, the Company purchased certain tangible and intangible
assets totaling $5,119 (including related liabilities totaling $535) of Alliance
Media, Inc. for cash of $2,558 and recorded other obligations totaling $2,026.
The obligations represent the realized contribution margin contingent upon the
operating results (as defined in the purchase agreement) of certain directories
acquired and certain acquisition related expenses. Management believes the
contingent payments due under the 1997 acquisition agreement are reasonably
assured.
Assuming that the acquisition of Alliance Media, Inc. had occurred on the
first day of the Company's fiscal years ended April 30, 1996 and 1997, pro forma
condensed results of operations would be as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL
30,
-------------------
1996 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Revenues................................................. $82,180 $91,414
Net income............................................... 7,110 9,651
</TABLE>
These results give effect to pro forma adjustments for the amortization of
acquired intangibles.
In fiscal 1996, the Company purchased certain tangible and intangible
assets, totaling $7,707 (including related liabilities totaling $611) of J&J
Marketing Services, Inc. and Golden State Directory Corporation for cash of
$5,229, notes payable totaling $1,010 (Note 4) and other amounts due totaling
$857.
Assuming that the acquisitions of J&J Marketing Services, Inc. and Golden
State Directory Corporation had occurred on the first day of the Company's
fiscal year ended April 30, 1996 pro forma condensed results of operations would
be as follows:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
1996
----------
(UNAUDITED)
<S> <C>
Revenues.......................................................... $ 81,595
Net income........................................................ 7,008
</TABLE>
These results give effect to a pro forma adjustment for the amortization of
acquired intangibles and additional interest expense on related debt.
F-10
<PAGE> 122
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. FINANCIAL STATEMENT DETAILS
Property, Equipment and Leasehold Improvements
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
------------------- -----------
1996 1997 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer and office equipment....................... $ 3,337 $ 4,335 $ 4,794
Furniture and fixtures.............................. 1,340 1,370 1,471
Leasehold improvements.............................. 227 233 254
------- ------- -------
4,904 5,938 6,519
Less accumulated depreciation and amortization...... (2,145) (3,098) (3,638)
------- ------- -------
$ 2,759 $ 2,840 $ 2,881
======= ======= =======
</TABLE>
Acquired Intangibles
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
--------------------- -----------
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Customer base..................................... $ 23,073 $ 27,693 $ 27,587
Covenant not to compete........................... 1,200 -- --
-------- -------- --------
24,273 27,693 27,587
Less accumulated amortization..................... (11,406) (15,600) (18,306)
-------- -------- --------
$ 12,867 $ 12,093 $ 9,281
======== ======== ========
</TABLE>
Other Assets
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
------------------- -----------
1996 1997 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt issuance costs................................. $ 2,883 $ 2,827 $ 8,434
Other............................................... 214 264 271
------- ------- -------
3,097 3,091 8,705
Less accumulated amortization....................... (501) (1,256) (459)
------- ------- -------
$ 2,596 $ 1,835 $ 8,246
======= ======= =======
</TABLE>
F-11
<PAGE> 123
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. FINANCING ARRANGEMENTS
Long-term financing arrangements consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Senior term loan................................................. $76,100 $68,100
Revolving loan................................................... 7,300 9,400
Other notes payable.............................................. 1,010 935
------- -------
84,410 78,435
Less current portion............................................. 8,494 10,921
------- -------
$75,916 $67,514
======= =======
</TABLE>
In November 1995, the Company entered into a $95.0 million credit agreement
with a group of banks in which First Union National Bank of North Carolina is
the administrative agent. Under the terms of this agreement, the Company
borrowed $80.0 million under a senior term note and initially borrowed $5.0
million under a $15.0 million (maximum) revolving credit facility. Proceeds from
the term note and the revolving credit facility were used to repay principal and
interest outstanding under the then existing term note and revolving credit
facilities of $40.5 million, repay principal and accrued interest of $5.8
million on the Junior Subordinated Note (as defined below), make a distribution
to the general and limited partners totaling $36.4 million and $2.3 million for
working capital purposes. In connection with the repayment of the previous term
notes and revolving credit facilities, unamortized debt issue costs of $392 and
$1,368 were written off and recorded in the accompanying 1995 and 1996 income
statements as extraordinary items.
Principal payments on the senior term note are due quarterly through
maturity, April 30, 2002. The revolving credit agreement also expires on April
30, 2002. Borrowings under this agreement rank senior to all other indebtedness
of the Company and are secured by all of the Company's assets.
Annual maturities under the long-term financing arrangements as of April
30, 1997 are as follows:
<TABLE>
<CAPTION>
REVOLVING
SENIOR LOAN AND
TERM LOAN OTHER TOTAL
--------- --------- -------
<S> <C> <C> <C>
1998.................................................. $ 9,986 $ 935 $10,921
1999.................................................. 11,984 -- 11,984
2000.................................................. 15,480 -- 15,480
2001.................................................. 17,977 -- 17,977
2002.................................................. 12,673 9,400 22,073
------- -------- -------
$68,100 $ 10,335 $78,435
======= ======== =======
</TABLE>
The Company may prepay any or all of the outstanding borrowings under the
term or revolving credit notes, in minimum increments of $50, without penalty.
The agreement requires that excess cash flows (as defined) and net cash proceeds
from the sale of assets, issuance of debt or partnership equity (in excess of
prescribed amounts) shall be used to repay term or revolving credit borrowings.
Such mandatory prepayments shall first be applied to the outstanding term note
balance with any excess being applied to the revolving credit note balance.
Under the terms of the agreement, the Company can elect to have the
interest rate on borrowings tied to either of two indices: the administrative
agent's prime rate based on the Alternative Base Rate (ABR) (as defined) plus a
margin of 1.75 percentage points, or the administrative agent's LIBOR base rate
(as defined) plus a margin of 2.75 percentage points. The margin applicable for
ABR and LIBOR loans is subject to
F-12
<PAGE> 124
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
adjustment based on the ratio of the Company's total indebtedness to EBITDA. The
ABR margin ranges from 1.25% to 1.75% and the LIBOR margin ranges from 2.25% to
2.75%.
Interest tied to LIBOR may be based on one, three or six month interest
rate periods. At April 30, 1997, all outstanding term loan borrowings of $68.1
million were tied to a one month LIBOR period and the total interest rate in
effect was 8.4375%. Borrowings under the revolving credit facility at April 30,
1997 consisted of $7.0 million under a one month LIBOR period (total interest
rate of 8.4375%) and $2.4 million under an ABR rate (interest rate of 10.25%).
Interest on loans tied to the ABR is payable quarterly, interest on debt tied to
one month and three month LIBOR periods is payable at the end of the respective
period and interest on six month LIBOR periods is payable at three month
intervals. The Company is also required to pay a quarterly fee of 0.5% of the
average daily available balance outstanding under the revolving credit facility.
Additionally, the Company is also required to pay a annual fee of $75 to the
administrative agent which the Company accrues for ratably over the twelve month
period.
Under the terms of the term loan agreement, the Company is required to have
interest rate protection for at least 50% of the initial balance of the term
loan. In December 1996, the Company entered into interest rate swap agreements
with two banks which are effective through October 30, 1998. Interest rate
coverage under these agreements is tied to the one month LIBOR rate relative to
a fixed "Swap Reset Rate" (equal to 5.375%). Under these agreements, if the one
month LIBOR rate is greater than the "Swap Reset Rate," the Company will receive
an amount equal to the interest rate differential multiplied by the "Notional
Amount" (the "Notional Amount" at April 30, 1997 equaled $61.0 million). The
"Notional Amount" decreases by approximately $3.0 million per quarter through
March 1998.
If the LIBOR rate is less than the "Swap Reset Rate," the Company would owe
the banks an amount calculated in a similar manner. As of April 30, 1997,
amounts paid or received by the Company under the interest rate swap agreements
were not significant.
In addition to the interest rate swap agreements, at April 30, 1997, the
Company has nine months remaining under an interest rate cap contract entered
into in 1996 and to date amounts paid or received by the Company under the
interest rate cap agreement were not significant.
Terms of the credit agreements include certain financial covenants,
including minimum annual EBITDA (earnings before interest, taxes, depreciation
and amortization, as defined), a leverage ratio, an interest coverage ratio, and
a fixed charge coverage ratio. These covenants also limit capital expenditures
and indebtedness of the Company as well as restricting distributions to the
partners. As of April 30, 1997 and October 31, 1997 the Company was in
compliance with these covenants.
In conjunction with the November 1996 refinancing, the Company retired all
indebtedness associated with a $4.5 million 12% Junior Subordinated Note.
In connection with the acquisition of certain assets from other directory
companies in fiscal 1996 (Note 2) the Company issued two 7% notes payable
totaling $1,010, of which $935 remains outstanding at April 30, 1997. The
outstanding balance is due in fiscal 1998.
In connection with a recapitalization transaction (the "Recapitalization")
completed in October 1997, (Note 9) the Company entered into a Senior Credit
Facility and a Senior Subordinated Facility under which the Company may borrow
up to $200 million. A portion of the $182.7 million borrowed under these
facilities in connection with the Recapitalization was used to repay
approximately $75.6 million of existing indebtedness.
5. MEMBER DEFICIT
Prior to the formation of TransWestern, the accumulated deficit of the
Partnership arose from distributions to partners of the Partnership in
accordance with the terms of the Partnership Agreement.
F-13
<PAGE> 125
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1996 and 1997, the Partnership made tax distributions to unit
holders totaling $3,400 and $5,801, respectively. Also, in connection with the
November 1995 refinancing of the Partnership, $36 million was distributed to the
limited and general partners of the Partnership. Other than tax distributions,
the Company is currently restricted under the terms of its senior term loan
agreement from making additional member distributions.
6. BENEFIT PLANS
401(k) and Profit Sharing Plan
Substantially all of the Partnership's employees are covered by a 401(k)
and profit sharing retirement plan. Employees can make contributions to the plan
up to the maximum amount allowed by federal tax code regulations. The
Partnership may match the employee contributions, up to a limitation of 83% of
the first 6% of annual earnings per participant. The Partnership may also make
annual discretionary profit sharing contributions. Contributions to the plan for
the years ended April 30, 1995, 1996 and 1997 were approximately $608, $761 and
$761, respectively.
Equity Compensation Plan
Prior to formation of TransWestern, the Partnership established the
TransWestern Publishing Company, L.P. Equity Compensation Plan (the "Plan"). The
Plan provides select key full-time employees with deferred compensation benefits
for income tax purposes. Special distributions to the Plan are recorded as
expense in the accompanying statements of income when declared by the Board of
Directors, generally following a significant refinancing transaction.
To determine the value of the distributions to the partners and the Plan,
the actual partnership units outstanding are increased by approximately 87,000
Common and Class E equity incentive units as if the Plan held these units.
Distributions to the Plan related to refinancing transactions completed in
fiscal 1995, 1996 and in the six-months ended October 31, 1997 totaled $525,
$796 and $5,543, respectively. Employees receiving units in the Plan are
eligible to receive a ratable per unit share of cash distributions from the
Plan, if and when declared by the Plan Administrators.
Generally, the Plan Administrators intend to distribute to employee unit
holders all assets contributed to the Plan within three years of the date of
contribution. In fiscal 1997, the Plan Administrators paid distributions
totaling $411 and at April 30, 1997 there was no undistributed equity trust
proceeds.
7. LEASE COMMITMENTS
The Partnership leases office facilities in several cities throughout the
United States under operating leases with remaining terms ranging from one to
six years. Total rent expense for the years ended April 30, 1995, 1996 and 1997,
was $1,711, $1,750 and $1,866, respectively. Future minimum lease payments,
under these leases are as follows for fiscal years ending April 30:
<TABLE>
<S> <C>
1998................................................ $1,428
1999................................................ 1,301
2000................................................ 1,002
2001................................................ 827
2002................................................ 558
Thereafter.......................................... 627
------
$5,743
======
</TABLE>
F-14
<PAGE> 126
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTION
Prior to formation of TransWestern, the General Partner advanced $694 and
$4 in fiscal 1996 and 1997, respectively, to the Partnership for working capital
purposes. The Partnership accrues interest on these advances at the established
senior term loan rate (see Note 4). As of April 30, 1997, $805, including
accrued interest of $124, was due the General Partner. The amount due to the
General Partner is payable upon demand by the General Partner.
9. SUBSEQUENT EVENTS (UNAUDITED)
In October 1997, the Partnership completed the $312,700 Recapitalization.
In the Recapitalization, new investors including Thomas H. Lee Equity Fund III,
L.P. and its affiliates along with other investors, existing limited partners of
the Partnership and the Partnership's senior managers invested new and
continuing capital of $130,009 in the Partnership and TransWestern
Communications Company, Inc. (which is the general partner of the Partnership).
The proceeds of the equity investment together with approximately $182,700 of
senior and senior subordinated debt financing were used (i) for $224,500 of
consideration paid to redeem a portion of the limited partnership interests from
existing limited partners, (ii) to repay $75,600 outstanding under credit
facilities in existence since 1995, (iii) to pay $10,600 of fees and expenses
associated with the Recapitalization and (iv) for $2,000 for general corporate
purposes, including working capital.
The Recapitalization was financed with (i) the $130,009 equity investment,
(ii) borrowings of $107,700 under a $125,000 (maximum) variable interest rate
Senior Credit Facility and (iii) borrowings of $75,000 under a Senior
Subordinated Facility. The assets and liabilities of the Company are stated at
historical cost and were not revalued to fair market value at the date of the
Recapitalization. As a result of the Recapitalization, Thomas H. Lee Equity Fund
III, L.P. and its affiliates will collectively own approximately 59% of the
equity of the Partnership.
In November 1997, the Partnership changed its name to TransWestern Holdings
L.P. and formed and contributed substantially all of its assets to TransWestern.
TransWestern assumed or guaranteed all of the liabilities of the Partnership. As
a result, Holdings' only assets are all of the TransWestern membership interests
and all of Capital's capital stock. All of the operations that were previously
conducted by the Partnership are now being conducted by TransWestern. Holdings
formed Capital as a wholly-owned subsidiary and the Company formed Capital II as
a wholly-owned subsidiary. Neither Capital nor Capital II has any significant
assets or operations.
The Partnership intends to utilize the proceeds of an offering by
TransWestern of $100,000 of unsecured notes to repay the $75,000 Senior
Subordinated Facility and to pay down a portion of the revolving balance
outstanding under the Senior Credit Facility. See "Description of the Notes"
beginning on page 76 of this Prospectus for a description of the terms of the
$100,000 unsecured notes. Subsequent to the Recapitalization, Holdings commenced
an offering of $32,500 initial aggregate principal amount of unsecured senior
discount notes, the net proceeds of which will be used to redeem approximately
$31,300 of preferred units of Holdings.
On February 2, 1998, the Company acquired eight directories from Mast
Advertising and Publishing, Inc. ("Mast") for cash of approximately $7.7 million
and a $265,000 promissory note due in one year. In connection with the
acquisition, the Company also assumed certain liabilities of Mast totaling
approximately $995,000. The acquisition has been accounted for as a purchase and
accordingly the purchase price has been allocated to the tangible and intangible
assets acquired based on their respective fair values at the date of
acquisition, as follows:
Customer List $8,058,000
Deferred directory costs 258,000
Other current and non-current assets 678,000
F-15
<PAGE> 127
============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERS
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... i
Summary.................................... 1
Risk Factors............................... 13
The Issuers................................ 20
The Transactions........................... 21
The Principal Investors.................... 24
Use of Proceeds............................ 25
Capitalization............................. 26
Unaudited Pro Forma Financial Data......... 27
Selected Historical Financial and Other
Data..................................... 34
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 36
Business................................... 45
Management................................. 52
Security Ownership of Certain Beneficial
Owners and Management.................... 57
Certain Transactions....................... 59
Limited Partnership Agreement.............. 63
Limited Liability Company Agreement........ 64
Description of Certain Indebtedness........ 65
The Exchange Offer......................... 68
Description of the Notes................... 76
Certain U.S. Federal Income Tax
Considerations........................... 103
Plan of Distribution....................... 104
Legal Matters.............................. 104
Experts.................................... 105
Index to Financial Statements.............. F-1
</TABLE>
============================================================
============================================================
$100,000,000
TRANSWESTERN PUBLISHING
COMPANY LLC
TWP CAPITAL CORP. II
OFFER TO EXCHANGE THEIR SERIES B
9 5/8% SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF THEIR OUTSTANDING
9 5/8% SENIOR SUBORDINATED
NOTES DUE 2007
-----------------
PROSPECTUS
-----------------
FEBRUARY , 1998
============================================================
<PAGE> 128
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
TransWestern. TransWestern is a limited liability company organized under
the laws of the State of Delaware. Section 18-108 of the Delaware Limited
Liability Company Act(the "Act") provides that, subject to such standards and
restrictions, if any, as are set forth in its limited liability company
agreement, a limited liability company may, and shall have the power to,
indemnify and hold harmless any member or manager or other person from and
against any and all claims and demands whatsoever.
Section 4.2 of TransWestern's Limited Liability Company Agreement ("Section
4.2") provides, among other things, that each person and entity shall be
entitled to be indemnified and held harmless on an incurred basis by
TransWestern (but only after first making a claim for indemnification available
from any other source and only to the extent indemnification is not provided by
that source) to the fullest extent permitted under the Act (including
indemnification for gross negligence and breach of fiduciary duty to the extent
so authorized) as amended from time to time (but, in the case of any such
amendment, only to the extent that such amendment permits TransWestern to
provide broader indemnification rights than such law permitted TransWestern to
provide prior to such amendment) against all losses, liabilities and expenses,
including attorneys' fees and expenses, arising from claims, actions and
proceedings in which such person or entity may be involved, as a party or
otherwise, by reason of his, her or it being or having been the Manager, a
Member or an officer of TransWestern, or by reason of his, her or it serving at
the request of TransWestern as a director, officer, manager, member, partner,
employee or agent of another limited liability company or of a corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan whether or not such person or entity
continues to be such or serve in such capacity at the time any such loss,
liability or expense is paid or incurred.
Section 4.2 also provides that, the rights of indemnification will be in
addition to any rights to which such person or entity may otherwise be entitled
by contract or as a matter of law and shall extend to his, her or its successors
and assigns. In particular, and without limitation of the foregoing, such person
or entity shall be entitled to indemnification by TransWestern against expenses
(as incurred), including attorneys' fees and expenses, incurred by such person
or entity upon the delivery by such person or entity to TransWestern of a
written undertaking (reasonably acceptable to the Manager) to repay all amounts
so advanced if it shall ultimately be determined that such person or entity is
not entitled to be indemnified under Section 4.2. TransWestern may, to the
extent authorized from time to time by the Manager, grant rights to
indemnification and to advancement of expenses to any employee or agent of
TransWestern to the fullest extent of the provisions of Section 4.2 with respect
to the indemnification and advancement of expenses of the Manager, Members and
officers of TransWestern.
TransWestern intends to obtain insurance policies covering all of its
Directors and officers against certain liabilities for actions taken in such
capacities, including liabilities under the Securities Act of 1933.
Capital II. Capital II is incorporated under the laws of the State of
Delaware. Section 145 of the General Corporation Law of the State of Delaware,
inter alia ("Section 145") provides that a Delaware corporation may indemnify
any persons who were, are or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he or she
reasonably believed to be or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his or her conduct was illegal. A Delaware corporation may
indemnify any persons who are, were or are threatened to be made, party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reasons of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such
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<PAGE> 129
person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the corporation's best interests, provided
that no indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or otherwise
in the defense of any action referred to above, the corporation must indemnify
him or her against the expenses which such officer or director has actually and
reasonably incurred.
Capital II's Certificate of Incorporation provides that to the fullest
extent permitted by the General Corporation Law of the State of Delaware as the
same exists or may hereafter be amended, a director of Capital II shall not be
liable to Capital II or its stockholders for monetary damages for a breach of
fiduciary duty as a director.
Article V of the By-laws of Capital II ("Article V") provides, among other
things, that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a director
or officer, of the corporation or is or was serving at the request of Capital II
as a director, officer, employee, fiduciary, or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, shall be indemnified
and held harmless by Capital II to the fullest extent which it is empowered to
do so by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits Capital II to provide broader
indemnification rights than said law permitted the corporation to provide prior
to such amendment) against all expense, liability and loss (including attorneys'
fees actually and reasonably incurred by such person in connection with such
proceeding) and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, Capital II 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 of Capital II.
Article V also provides that persons who are not covered by the foregoing
provisions of Article V and who are or were employees or agents of Capital II,
or who are or were serving at the request of Capital II as employees or agents
of another corporation, partnership, joint venture, trust or other enterprise,
may be indemnified to the extent authorized at any time or from time to time by
the board of directors.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him or her in any
such capacity, arising out of his or her status as such, whether or not the
corporation would otherwise have the power to indemnify him or her under Section
145.
Article V further provides that Capital II may purchase and maintain
insurance on its behalf and on behalf of any person who is or was a director,
officer, employee, fiduciary or agent of Capital II or was serving at the
request of Capital II as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not Capital II would have the power to indemnify such
person against such liability under Article V.
All of Capital II's directors and officers will be covered by insurance
policies intended to be obtained by Capital II against certain liabilities for
actions taken in such capacities, including liabilities under the Securities Act
of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Index to Exhibits.
(b) Financial Statement Schedules.
II-2
<PAGE> 130
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or not
material, or the information called for thereby is otherwise included in
the financial statements and therefore has been omitted.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(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 the 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.
(4) The undersigned registrants hereby undertake as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuers undertake that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other Items of the applicable form.
(5) The registrants undertake that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for
purposes 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrants pursuant to the provisions described
under Item 20 or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred or
paid by a director, officer or controlling person of the registrants 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 registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate
II-3
<PAGE> 131
jurisdiction the question whether such indemnification by them is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) 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 registrants
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.
(7) 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.
(8) The undersigned registrants hereby undertake to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(9) The undersigned registrants hereby undertake to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was
not the subject of and included in the registration statement when it
became effective.
II-4
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TransWestern
Publishing Company LLC has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in City of San Diego, State of California, on the 19th day of
February 1998.
<TABLE>
<S> <C>
TRANSWESTERN PUBLISHING COMPANY LLC
By: /s/ LAURENCE H. BLOCH
-------------------------------------
Name: Laurence H. Bloch
Title: Chairman and Secretary
</TABLE>
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement and Power of Attorney has been
signed below by the following persons in the capacities indicated on the 19th
day of February 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- -------------------------------------------- --------------------------------------------
<C> <S>
* President, Chief Executive Officer and
- -------------------------------------------- Director of TCC (Principal Executive
Ricardo Puente Officer)
* Chairman, Secretary and Director of TCC
- --------------------------------------------
Laurence H. Bloch
* Vice President, Chief Financial Officer and
- -------------------------------------------- Assistant Secretary (Principal Financial and
Joan M. Fiorito Accounting Officer)
* Director of TCC
- --------------------------------------------
C. Hunter Boll
* Director of TCC
- --------------------------------------------
Terrence M. Mullen
* Director of TCC
- --------------------------------------------
Christopher J. Perry
* Director of TCC
- --------------------------------------------
Scott A. Schoen
* Director of TCC
- --------------------------------------------
Marcus D. Wedner
</TABLE>
* The undersigned, by signing her name hereto, does sign and execute this
Amendment No. 2 to the Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
<TABLE>
<C> <S>
/s/ JOAN M. FIORITO
- --------------------------------------------
Joan M. Fiorito, Attorney in Fact
</TABLE>
- ------------------
** TCC is the Manager of TransWestern Publishing Company LLC.
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<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TWP Capital
Corp. II has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in City
of San Diego, State of California, on the 19th day of February, 1998.
<TABLE>
<S> <C>
TWP CAPITAL CORP. II
By: /s/ LAURENCE H. BLOCH
------------------------------------------
Name: Laurence H. Bloch
Title: President and Secretary
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the 19th day of February 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- ------------------------------------- ------------------------------------------------
<C> <S>
/s/ LAURENCE H. BLOCH President, Secretary and Director
- ------------------------------------- (Principal Executive Officer)
Laurence H. Bloch
/s/ JOAN M. FIORITO Vice President and Assistant Secretary
- ------------------------------------- (Principal Financial and Accounting Officer)
Joan M. Fiorito
</TABLE>
II-6
<PAGE> 134
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
2.1 Contribution and Assumption Agreement, dated November 6, 1997, by and among Holdings
and TransWestern.*
2.2 Assignment and Assumption Agreement, dated November 6, 1997, by and among Holdings
and TransWestern.*
2.3 Bill of Sale, dated November 6, 1997 by and among Holdings and TransWestern.*
3.1 Certificate of Formation of TransWestern.*
3.2 Certificate of Incorporation of Capital II.*
3.3 By-Laws of Capital II.*
3.4 Limited Liability Company Agreement of TransWestern Publishing Company LLC.*
3.5 Certificate of Incorporation of TCC.*
3.6 By-Laws of TCC.*
4.1 Indenture, dated as of November 12, 1997, by and between the Company and Wilmington
Trust Company, as Trustee.*
4.2 Form of 9 5/8% Senior Subordinated Notes due 2007.*
4.3 Securities Purchase Agreement, dated as of November 6, 1997, by and among the
Company, Holdings, TCC, and the Initial Purchasers.*
4.4 Registration Rights Agreement, dated as of November 12, 1997, by and among the
Company and the Initial Purchasers.*
5.1 Opinion of Kirkland & Ellis.*
8.1 Opinion of Kirkland & Ellis.
10.1 Employment Agreement, dated as of October 1, 1997, by and between Laurence H. Bloch
and TransWestern.*
10.2 Employment Agreement, dated as of October 1, 1997, by and between Ricardo Puente and
TransWestern.*
10.3 Assumption Agreement and Amended and Restated Credit Agreement, dated as of November
6, 1997, among the Company, the lenders listed therein and Canadian Imperial Bank of
Commerce, as administrative agent, and First Union National Bank, as documentation
agent.+*
10.4 Form of Equity Compensation Plan.*
10.5 Form of Executive Agreement between Holdings (formerly known as TransWestern
Publishing Company, L.P.), TCC and each Management Investor.*
10.6 Securities Purchase Agreement, dated as of November 6, 1997, by and among the
Discount Note Issuers, TransWestern, TCC, and the Initial Purchasers.*
10.7 Indenture, dated as of November 12, 1997 by and between the Discount Note Issuers
and Wilmington Trust Company, as Trustee.*
10.8 Registration Rights Agreement, dated as of November 12, 1997, by and among the
Discount Note Issuers and the Initial Purchasers.*
10.9 Management Agreement, dated as of October 1, 1997, by and between Holdings (formerly
known as TransWestern Publishing Company, L.P.) and Thomas H. Lee Company.*
10.10 Investors Agreement, dated as of October 1, 1997, by and between Holdings (formerly
known as TransWestern Publishing Company, L.P.), TCC and the limited partners of
Holdings.+*
12.1 Statement regarding computation of ratio of earnings to fixed charges.*
21.1 Subsidiaries of Holdings and TransWestern.*
</TABLE>
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1 above).*
24.1 Power of Attorney (included in Part II of the Registration Statement).*
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Tender Instructions.*
</TABLE>
- ---------------
* Previously Filed.
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the Commission.
<PAGE> 1
EXHIBIT 8.1
[KIRKLAND & ELLIS LETTERHEAD]
February 20, 1998
TransWestern Publishing Company LLC
TWP Capital Corp. II
8344 Clairemont Mesa Boulevard
San Diego, CA 92111
In connection with the offer by TransWestern Publishing Company
LLC and TWP Capital Corp. II to exchange (the "Exchange Offer") their 9 5/8%
Series B Senior Subordinated Notes due 2007 (the "Old Notes") for any and all of
their 9 5/8% Series A Senior Subordinated Notes due 2007 (the "New Notes"), you
have requested an opinion concerning the federal income tax consequences to
those holders exchanging Old Notes for New Notes pursuant to the Exchange Offer.
In preparing our opinion, we have examined Amendment No.1 to the
Form S-4 Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Registration
Statement"). In addition, the opinion set forth herein is based on the
applicable provisions of the Internal Revenue Code of 1986, as amended; the
Treasury Regulations promulgated or proposed thereunder; current positions of
the Internal Revenue Service (the "IRS") contained in published revenue rulings,
revenue procedures and announcements; existing judicial decisions; and other
applicable authorities. There can be no assurance that the IRS will not take a
contrary view, and no ruling from the IRS has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
herein.
Based on the foregoing, in our opinion, under the law in effect
on the date hereof, the exchange of Old Notes for New Notes pursuant to the
Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be
<PAGE> 2
TransWestern Publishing Company LLC
TWP Capital Corp. II
February 20, 1998
Page 2
no federal income tax consequences to those holders exchanging Old Notes for New
Notes pursuant to the Exchange Offer.
In conclusion, we should note that, unlike a ruling from the
IRS, opinions of counsel are not binding on the IRS. Hence, no assurance can be
given that the opinion stated in this letter will not be successfully challenged
by the IRS or rejected by a court. We express no opinion concerning any federal
income tax matter other than that discussed herein.
Very Truly Yours,
/s/ Kirkland & Ellis
Kirkland & Ellis
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"and to the
use of our report dated June 6, 1997 except for "Organization, Business Activity
and Basis of Presentation" under Note 1, as to which the date is November 6,
1997, with respect to the financial statements of TransWestern Publishing
Company LLC, included in the Prospectus of TransWestern Publishing Company LLC
that is made a part of Amendment No. 2 to the Registration Statement (Form S-4,
No. 333-42085) of TransWestern Publishing Company LLC for the offer to exchange
Series B 9 5/8% Senior Subordinated Notes due 2007 for any and all outstanding
9 5/8% Senior Subordinated Notes Due 2007 of TransWestern Publishing Company
LLC.
ERNST & YOUNG LLP
San Diego, California
February 20, 1998
