<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER 333-42085
TRANSWESTERN PUBLISHING COMPANY LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0778740
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
------------------------
COMMISSION FILE NUMBER 333-42085-1
TWP CAPITAL CORP. II
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0778739
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
8344 CLAIREMONT MESA BOULEVARD 92111
SAN DIEGO, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(619) 467-2800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether each registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
<TABLE>
<S> <C>
TransWestern Publishing Company LLC [ ] Yes [X] No
TWP Capital Corp. II [ ] Yes [X] No
</TABLE>
As of March 17, 1998, TWP Capital Corp. II has 1,000 shares of Common Stock
outstanding, all of which are owned by TransWestern Publishing Company LLC.
================================================================================
<PAGE> 2
TRANSWESTERN PUBLISHING COMPANY LLC
FORM 10-Q INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Explanatory Note..................................................... 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of January 31, 1998 (unaudited) and April
30, 1997.................................................... 3
Statements of Operations (unaudited) for the Nine Months
Ended January 31, 1998 and 1997 (unaudited)................. 4
Statements of Cash Flows (unaudited) for the Nine Months
Ended January 31, 1998 and 1997 (unaudited)................. 5
Notes to Financial Statements............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 16
Item 2. Changes in Securities....................................... 16
Item 3. Defaults upon Senior Securities............................. 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 16
Item 6. Exhibits and Reports on Form 8-K............................ 16
</TABLE>
EXPLANATORY NOTE
This integrated Form 10-Q is filed pursuant to the Securities Exchange Act
of 1934, as amended, for each of TransWestern Publishing Company LLC, a Delaware
limited liability company ("TransWestern") and TWP Capital Corp. II, a Delaware
corporation, ("Capital II"), a wholly-owned subsidiary of TransWestern.
TransWestern is a wholly-owned subsidiary of TransWestern Holdings L.P., a
Delaware limited partnership, Capital II was formed solely to act as a co-issuer
(and as a joint and several obligor) with TransWestern of $100,000,000 aggregate
principal amount of 9 5/8% Senior Subordinated Notes due 2007. Capital II does
not hold any assets or other properties or conduct any business. No separate
financial information for Capital has been provided herein because management
believes such information would not be meaningful because Capital II has no
financial or other data to report in response to the requirements of Form 10-Q
and thus, there is no separate information regarding Capital II to report
herein.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSWESTERN PUBLISHING COMPANY LLC
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1998 1997
----------- ---------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 9,840 $ 1,254
Trade receivable, (less allowance for doubtful accounts of
$7,626 in 1997 and $8,192 at January 31, 1998)......... 17,594 23,279
Deferred directory costs.................................. 9,217 6,412
Other current assets...................................... 1,253 518
--------- --------
Total current assets........................................ 37,905 31,463
Property, equipment and leasehold improvements, net......... 2,805 2,840
Acquired intangibles, net................................... 15,976 12,093
Other assets, primarily debt issuance costs, net............ 8,947 1,835
--------- --------
Total assets................................................ $ 65,633 $ 48,231
========= ========
LIABILITIES AND MEMBER DEFICIT
Current liabilities:
Accounts payable.......................................... $ 3,014 $ 3,901
Salaries and benefits payable............................. 2,837 4,112
Accrued acquisition costs................................. 8,175 986
Accrued Equity Compensation Plan Contribution............. 2,840 --
Accrued interest.......................................... 2,586 69
Other accrued liabilities................................. 531 448
Amount due general partner................................ -- 805
Customer deposits......................................... 15,366 10,197
Current portion, long-term debt........................... 2,821 10,921
--------- --------
Total current liabilities................................... 38,169 31,439
Long-term debt:
Senior Credit Facility.................................... 83,475 67,514
9 5/8% Senior Subordinated Notes.......................... 100,000 --
Member deficit.............................................. (156,012) (50,722)
--------- --------
Total liabilities and member deficit........................ $ 65,633 $ 48,231
========= ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
TRANSWESTERN PUBLISHING COMPANY LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------ -------------------
1998 1997 1998 1997
------- ------- -------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues....................................... $21,954 $23,503 $ 60,208 $61,553
Cost of revenues................................... 4,506 4,774 13,679 13,770
------- ------- -------- -------
Gross profit....................................... 17,448 18,729 46,530 47,783
Operating expenses:
Sales and marketing.............................. 8,980 9,167 26,094 25,056
General and administrative....................... 4,035 4,284 11,928 12,154
Contribution to Equity Compensation Plan......... -- -- 5,543 --
------- ------- -------- -------
Total operating expenses........................... 13,015 13,451 43,565 37,210
------- ------- -------- -------
Income from operations............................. 4,433 5,277 2,965 10,573
Other income (expense), net........................ 119 15 13 33
Interest expense, net.............................. (4,561) (1,951) (8,894) (5,979)
------- ------- -------- -------
(4,441) (1,935) (8,881) (5,947)
------- ------- -------- -------
Income (loss) before extraordinary item............ (8) 3,342 (5,916) 4,626
Extraordinary loss................................. (3,400) -- (4,791) --
------- ------- -------- -------
Net income (loss).................................. $(3,408) $ 3,342 $(10,707) $ 4,626
======= ======= ======== =======
Net income (loss) per Member unit.................. $(3,408) $ 3,342 $(10,707) $ 4,626
======= ======= ======== =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
TRANSWESTERN PUBLISHING COMPANY LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JANUARY 31,
---------------------
1998 1997
--------- --------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (10,707) $ 4,626
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Extraordinary item........................................ 4,791 --
Depreciation and amortization............................. 4,940 4,723
Amortization of deferred debt issuance costs.............. 652 533
Provision for doubtful accounts........................... 5,601 5,988
Changes in operating assets and liabilities, net of
effects of purchase of directories:
Trade receivables...................................... 5,119 (320)
Write-off of doubtful accounts......................... (5,417) (5,332)
Recoveries of doubtful accounts........................ 382 507
Deferred directory costs............................... (2,547) (1,892)
Other current assets................................... (416) 160
Accounts payable....................................... (887) (302)
Accrued liabilities.................................... (36) (1,349)
Accrued interest, non current.......................... 2,517 --
Customer deposits...................................... 4,608 2,143
--------- --------
Net cash provided by operating activities................... 8,600 9,486
INVESTING ACTIVITIES
Purchase of property, equipment and leasehold
improvements.............................................. (794) (316)
Increase in other assets.................................... (12,232) --
Payment for purchase of directories......................... -- (2,558)
--------- --------
Net cash used for investing activities...................... (13,026) (2,874)
FINANCING ACTIVITIES
Borrowings under long-term debt agreements:
Senior Term Loan.......................................... 85,000 --
Revolving Credit Facility................................. 34,173 19,800
9 5/8% Senior Subordinated Notes.......................... 100,000 --
Senior Subordinated Facility.............................. 75,000 --
Repayments of long-term debt:
Revolving Credit Facility................................. (38,478) (16,075)
Senior Subordinated Facility.............................. (75,000) --
Senior Term Loan.......................................... (73,100) (6,000)
Equity transaction costs.................................... (3,858) --
Contributions from member................................... 85,756 --
Distributions to member..................................... (176,481) (4,201)
--------- --------
Net cash provided by (used for) financing activities........ 13,012 (6,476)
--------- --------
Net increase in cash........................................ 8,586 136
Cash at beginning of period................................. 1,254 1,320
--------- --------
Cash at end of period....................................... $ 9,840 $ 1,456
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 5,781 $ 5,510
========= ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
1. BASIS OF PRESENTATION, ORGANIZATION AND BUSINESS ACTIVITIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine-month periods ended January 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending April 30, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's Registration
Statement on Form S-4 (SEC File No. 333-42085), which became effective on March
3, 1998.
In November 1997, TransWestern Publishing Company, L.P. (the "Partnership")
changed its name to TransWestern Holdings L.P. ("Holdings") and formed and
contributed substantially all of its assets 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 consist
of TransWestern's Member Units (as defined) and all of Capital's (as defined)
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 consist of a single class of
authorized common units (the "Member Units"). Holdings is the sole member of
TransWestern and accordingly, holds all 1,000 of the issued and outstanding
Member Units.
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 of the Partnership (1993) through September
1997. Upon the consummation of the Recapitalization (as defined) in October
1997, 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
thirteen states.
2. RECAPITALIZATION TRANSACTION
In October 1997, the Partnership completed a $312,700 Recapitalization
Transaction (the "Recapitalization"). In the Recapitalization, new investors
including Thomas H. Lee Equity Fund III, L.P. and its affiliates and other
investors, the existing limited partners of the Partnership and the
Partnership's senior managers invested new and continuing capital of $130,009 in
the Partnership and TCC. 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 of which $174,300 was used 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) borrowings of $107,700 under a
$125,000 (maximum) variable interest rate Senior Credit Facility (the "Senior
Credit Facility") and (ii) borrowings of $75,000
6
<PAGE> 7
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
2. RECAPITALIZATION TRANSACTION (CONTINUED)
under a Senior Subordinated Financing Facility (the "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 collectively own approximately 59% of the equity of
the Partnership.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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. 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
advertising for the following year's directory.
4. FINANCIAL STATEMENT DETAILS
Property, Equipment and Leasehold Improvements (in thousands)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1997 1998
--------- -----------
(UNAUDITED)
<S> <C> <C>
Computer and office equipment......................... $ 4,335 $ 5,001
Furniture and fixtures................................ 1,370 1,471
Leasehold improvements................................ 233 260
------- -------
5,938 6,732
Less accumulated depreciation and amortization........ (3,098) (3,927)
------- -------
$ 2,840 $ 2,805
======= =======
</TABLE>
Acquired Intangibles (in thousands)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1997 1998
--------- -----------
(UNAUDITED)
<S> <C> <C>
Customer Base........................................ $ 27,693 $ 35,645
Less accumulated amortization........................ (15,600) (19,669)
-------- --------
$ 12,093 $ 15,976
======== ========
</TABLE>
7
<PAGE> 8
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
4. FINANCIAL STATEMENT DETAILS (CONTINUED)
Other Assets (in thousands)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1997 1998
--------- -----------
(UNAUDITED)
<S> <C> <C>
Debt issuance costs................................... $ 2,827 $ 8,804
Other................................................. 264 629
------- -------
3,091 9,433
Less accumulated amortization......................... (1,256) (486)
------- -------
$ 1,835 $ 8,947
======= =======
</TABLE>
5. FINANCING ARRANGEMENTS
Long-term financing arrangements consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1997 1998
--------- -----------
(UNAUDITED)
<S> <C> <C>
9 5/8% Senior Subordinated Notes...................... $ -- $100,000
Senior Credit Facility:
Senior Term Loan.................................... 68,100 80,000
Revolving loan...................................... 9,400 5,600
Other notes payable................................... 935 696
------- --------
78,435 186,296
Less current portion.................................. 10,921 2,821
------- --------
Senior Term Loan...................................... $67,514 $183,475
======= ========
</TABLE>
Fees. In connection with the Recapitalization, the Company incurred loan
fees of $10.6 million, $3.3 million for the Senior Credit Facility, $3.4 million
for the Senior Subordinated Facility, and $3.9 million for transaction costs. Of
the $10.6 million, $7.2 million was capitalized as other assets in the
accompanying balance sheet at January 31, 1998. The $3.4 million was
subsequently written-off as an extraordinary item (see discussion below).
Capitalized Loan Fees are amortized over the term of the related debt using the
weighted-average beginning balance method (which approximates the interest
method).
SENIOR CREDIT FACILITY
In connection with the Recapitalization, the Company entered into the
Senior Credit Facility with Canadian Imperial Bank of Commerce ("CIBC"), First
Union National Bank ("First Union") and other lenders, pursuant to which the
Company may borrow up to $125.0 million consisting of a revolving credit
facility of up to $40.0 million (the "Revolving Credit Facility") and Senior
Term Loan in an aggregate principal amount of $85.0 million (the "Senior Term
Loan").
8
<PAGE> 9
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
5. FINANCING ARRANGEMENTS (CONTINUED)
Repayment. Commitments under the Revolving Credit Facility will be reduced
on a quarterly basis commencing on January 1, 2000 and the Senior Term Loan will
be amortized on a quarterly basis commencing, January 1, 1998 each in accordance
with the following schedule:
<TABLE>
<CAPTION>
SENIOR REVOLVING
DATE TERM LOAN CREDIT FACILITY
---- --------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998................................................ 2$,125... $ --
1999................................................ 2,125 --
2000................................................ 2,125 6,000
2001................................................ 2,125 6,000
2002................................................ 2,125 6,000
2003................................................ 27,625 22,000
2004................................................ 46,750 --
------- -------
Total..................................... $85,000 $40,000
======= =======
</TABLE>
Security; Guaranty. The Revolving Credit Facility and the Senior Term Loan
are 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 (if any) will be required to guarantee the Revolving Credit Facility and
the Senior Term Loan.
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.
SENIOR SUBORDINATED FACILITY
In connection with the Recapitalization, the Company also entered into the
Senior Subordinated Facility with CIBC and First Union. The Company initially
borrowed $75.0 million under this agreement in October 1997 and capitalized
associated loan fees of $3.4 million. Upon the issuance of the $100 million of
9 5/8% Senior Subordinated Notes in November 1997, (see discussion below), the
Company exercised its permitted redemption rights under this agreement and
prepaid the $75.0 million principal balance outstanding under the agreement and
the agreement was terminated. In connection with the redemption, the capitalized
loan fees of $3.4 million were written off as an extraordinary expense and is
included in the results of operations for the Company in the three and nine
month periods ended January 31, 1998.
9 5/8% SENIOR SUBORDINATED NOTES
On November 12, 1997, the Company issued $100.0 million of 9 5/8% Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes") to various
investors and used a portion of the proceeds from the Senior Subordinated Notes
to repay existing indebtedness under the Senior Subordinated Facility.
Interest on the Senior Subordinated Notes is payable in cash semiannually
on each May 15 and November 15, commencing May 15, 1998. The Senior Subordinated
Notes mature on November 15, 2007.
9
<PAGE> 10
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS)
5. FINANCING ARRANGEMENTS (CONTINUED)
Repayment. The Company, will pay interest on the principal amount of the
Senior Subordinated Notes semiannually on May 15 and November 15 of each year
commencing on May 15, 1998, at the rate of 9 5/8% per annum. Interest is
computed on the basis of a 360-day year of twelve 30-day months. Interest on the
Senior Subordinated Notes will accrue from the most recent date to which
interest is paid or, if no interest is paid, from the date of the original
issuance of the Senior Subordinated Notes. The Company will pay interest on
overdue principal (including post-petition interest in a proceeding under any
Bankruptcy Law), and overdue interest, to the extent lawful, at the rate
specified in the Senior Subordinated Notes.
Covenants. The Senior Subordinated Indenture contains covenants restricting
the ability of the Company and its subsidiaries to, among other things, (i)
incur additional indebtedness; (ii) prepay, redeem or repurchase debt; (iii)
make loans and investments; (iv) incur liens and engage in sale lease-back
transactions; (v) transact with affiliates; (vi) engage in mergers, acquisitions
and asset sales; (vii) make optional payments on or modify the terms of
subordinated debt; (viii) restrict preferred and capital stock of subsidiaries
and (ix) declare dividends or redeem or repurchase capital stock.
6. DIRECTORY ACQUISITIONS
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 $1,095,000. The acquisition has been accounted for as an asset
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:
<TABLE>
<S> <C>
Customer List............................................... $8,058,000
Deferred directory costs.................................... 258,000
Other current and non-current assets........................ 778,000
</TABLE>
Assuming that the acquisition of Mast Advertising & Publishing, Inc. had
occurred on the first day of the Company's nine month period ended January 31,
1998 and fiscal year ended April 30, 1997, the unaudited pro forma results of
operations would be as follows:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1998 1997
----------- ---------
(UNAUDITED)
<S> <C> <C>
Net revenues........................................... $ 63,727 $95,882
Net income (loss)...................................... (10,832) 10,517
</TABLE>
The above pro forma results give effect to pro forma adjustments for the
amortization of acquired intangibles.
7. SUBSEQUENT EVENT
On March 3, 1998, the Company commenced an exchange offer to exchange $100
million of aggregate principal amount outstanding of the 9 5/8% Senior
Subordinated Notes (the "Old Notes") for $100 million of aggregate principal of
Series B 9 5/8% Senior Subordinated Notes due 2007 (the "Exchange Notes"). 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
and (ii) the Exchange Notes have been registered under the Securities Act of
1933 as amended and therefore, will not bear legends restricting the transfer
thereof. The Exchange Notes evidence the same debt as the Old Notes (which they
replace). The Exchange offer expires on April 3, 1998 unless extended by the
Company.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 Publishing Company LLC,
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.
The Company recognizes net revenues from the sale of advertising placed in
each directory when the completed directory is distributed. Costs directly
related to sales, production, printing and distribution of each directory are
capitalized 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 increases, 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 previous year which may move recognition of related
revenues 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>
YEAR ENDING APRIL 30, 1998
---------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues............................... $19.2 $19.1 $21.9
EBITDA(a).................................. $ 4.0 $ 3.3 $ 6.2
Bookings(b)................................ $22.7 $27.2 $23.0
Advance payments........................... $11.1 $11.8 $11.0
Total cash receipts(c)..................... $22.6 $24.1 $20.4
</TABLE>
- ---------------
(a) "EBITDA" is defined as income (loss) before extraordinary item plus interest
expense, discretionary contributions to the Company's Equity Compensation
Plan (such contributions represent special distributions to the Company's
Equity Compensation Plan in connection with refinancing transactions) and
depreciation and amortization and is consistent with the definition of
EBITDA in the Senior Subordinated Indenture and in the Senior Credit
Facility. 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.
(b) "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.
(c) Includes both advance payments and collections of accounts receivable.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JANUARY 31, ENDED JANUARY 31,
------------------ --------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net revenues...................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue................................... 20.5 20.3 22.7 22.4
------ ------ -------- --------
Gross profit...................................... 79.5 79.7 77.3 77.6
Sales and marketing............................... 40.9 39.0 43.3 40.7
General and administrative........................ 18.4 18.2 19.8 19.7
Contribution to Equity Compensation Plan.......... 0.0 0.0 9.2 0.0
------ ------ -------- --------
Income from operations............................ 20.2% 22.5% 4.9% 17.2%
====== ====== ======== ========
EBITDA data(a):
Income (loss) before extraordinary item......... $ (8) $3,342 $ (5,916) $ (4,626)
Interest expense................................ 4,561 1,951 8,894 5,979
Contribution to Equity Compensation Plan........ -- -- 5,543 --
Depreciation and amortization................... 1,666 1,601 4,940 4,723
------ ------ -------- --------
EBITDA(a)......................................... $6,219 $6,894 $ 13,461 $ 15,329
====== ====== ======== ========
EBITDA Margin(b).................................. 28.3% 29.3% 22.4% 24.9%
</TABLE>
- ---------------
(a) "EBITDA" is defined as income (loss) before extraordinary item plus interest
expense, discretionary contributions to the Company's Equity Compensation
Plan (such contributions represent special distributions to the Company's
Equity Compensation Plan in connection with refinancing transactions) and
depreciation and amortization and is consistent with the definition of
EBITDA in the Senior Subordinated Indenture and in the Senior Credit
Facility. 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.
(b) "EBITDA Margin" is defined as EBITDA as a percentage of net revenues.
Management believes that EBITDA margin also provides a valuable indication
of the Company's ability to generate cash flows available for debt service.
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY
31, 1997
Net revenue decreased $1.5 million, from $23.5 million for the three months
ended January 31, 1997 to $22.0 million during the same three month period of
fiscal 1998. The Company published 34 directories during both periods of fiscal
1997 and fiscal 1998, 30 of which were the same directories. Revenue for the
same 30 directories increased $1.7 million or 10.1% for the three month period.
Cost of revenues for the three months ended January 31, 1998 decreased
$268,000 to $4.5 million from $4.8 million for the same period in fiscal 1997
primarily due to lower costs for the same 30 directories. Cost of revenues for
the same 30 directories published in both periods decreased $194,000, from 19.6%
of revenue to 16.7% and was attributable to a reduction in printing and
distribution expenses.
Gross profit for the three months ended January 31, 1998 decreased $1.3
million, to $17.4 million from $18.7 million for the same period in fiscal 1997
due primarily to changes in the publication schedule. These timing changes led
to the publication during the three months ended January 31, 1998 of four
directories with
12
<PAGE> 13
lower profit contributions than the four published during the same period in
fiscal 1997, the effect of which was partially offset by an increase in gross
profits of $1.8 million, or 14.7%, for the same 30 directories published in both
periods. Gross margin decreased from 79.7% during the three months ended January
31, 1997 to 79.5% during the same period in fiscal 1998.
Sales and marketing expense decreased $187,000 from $9.2 million for the
three months ended January 31, 1997 to $9.0 million for the same period in
fiscal 1998. This decrease was attributable to the change in the mix of
directories published. Selling costs for the same 30 directories published in
both periods increased $353,000, or 10.8%. The provision for bad debt as a
percentage of net revenues decreased from 9.2% to 8.0% due to the change in the
mix of directories published. Sales and marketing expense as a percentage of net
revenues increased from 39.0% during the three months ended January 31, 1997 to
40.9% during the same period in fiscal 1998 due to an increase in the number of
sales representatives selling advertising for the same 30 books and an increase
in sales management costs.
General and administrative expense decreased $249,000 from $4.3 million in
the three months ended January 31, 1997 to $4.0 million in the same period of
fiscal 1998 as a result of a miscellaneous spending reductions. General and
administrative expense as a percentage of net revenues increased from 18.2% for
the three months ended January 31, 1997 to 18.4% during the same period in
fiscal 1998.
As a result of the above factors, income (loss) from operations decreased
$844,000, from $5.3 million for the three months ended January 31, 1997 to $4.4
million for the same period in fiscal 1998. Income (loss) from operations as a
percentage of net revenues decreased from 22.5% during the three months ended
January 31, 1997 to 20.2% during the same period of fiscal 1998.
Interest expense increased $2.6 million from $2.0 million for the three
months ended January 31, 1997 to $4.6 million in fiscal 1998 due to the higher
debt levels resulting from the Recapitalization.
As a result of the above factors, income (loss) before extraordinary item
decreased $3.3 million from $3.3 million for the three months ended January 31,
1997 to break-even in fiscal 1998.
Extraordinary item charges of $3.4 million in the three month period ended
January 31, 1998 were associated with the Recapitalization and consisted of loan
fees related to the Senior Subordinated Facility. Upon the issuance of the
Senior Subordinated Notes, amounts owed by the Company were repaid and the
Senior Subordinated Facility was terminated and, accordingly, such fees were
written-off.
NINE MONTHS ENDED JANUARY 31, 1998 COMPARED TO NINE MONTHS ENDED JANUARY
31, 1997
The Company's financial results were affected by changes in the publishing
schedule during the first nine 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.
Net revenue decreased $1.3 million, from $61.5 million for the first nine
months of fiscal 1997 to $60.2 million during the first nine months of 1998. The
Company published 91 directories during the first nine months of fiscal 1998 and
83 directories during the first nine months of fiscal 1997. The decrease in net
revenues was due to $5.8 million from publication timing changes resulting in
the publication dates for 11 directories moving into the period and the
publication dates for seven directories moving out of the period and was offset
by $0.6 million of net revenue attributable to four new directories added in the
nine months ended January 31, 1998 and $3.8 million year to year net revenue
growth of the same 76 directories published during both periods.
Same book revenue growth for the 76 directories published in both periods
was 7.3% and the average revenue per account was 5.6% higher in the first nine
months of fiscal 1998 than in the first nine months of fiscal 1997.
Cost of revenues for the first nine months of fiscal 1998 of $13.7 million
decreased by $92,000 from $13.8 million for the same period in fiscal 1997,
primarily due to changes in the mix of publications. Cost of
13
<PAGE> 14
revenues for the same 76 directories published in both periods decreased $0.5
million, from 19.6% of revenue to 17.3% and was attributable to a reduction in
printing and distribution expenses.
Gross profit for the nine months ended January 31, 1998 decreased $1.3
million, to $46.5 million from $47.8 million for the same period in fiscal 1997
due primarily to changes in the publication schedule. These timing changes led
to the publication during the first nine 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 profits of $4.1 million, or 10.5%, for the same 76 directories
published in both periods. Gross margin decreased from 77.6% during the first
nine months of fiscal 1997 to 77.3% during the same period in fiscal 1998.
Sales and marketing expense increased $1.0 million from $25.1 million for
the first nine months of fiscal 1997 to $26.1 million for the same period in
fiscal 1998. This increase was attributable to increased selling costs of $1.1
million for the same 76 directories published in both periods and $0.4 million
for the four new directories partially offset by reduced bad debt of $261,000
and $301,000 attributable to directory timing changes. The provision for bad
debt as a percentage of net revenues decreased from 8.9% to 8.7% due to the
change in the mix of directories published. Sales and marketing expense as a
percentage of net revenues increased from 40.7% during the first nine months of
fiscal 1997 to 43.3% during the same period in fiscal 1998 due to an increase in
the number of sales representatives selling advertising for the same 76 books,
an increase in sales management costs and higher start-up selling costs for the
four new directories.
General and administrative expense increased $226,000 from $11.9 million in
the first nine months of fiscal 1997 to $12.1 million in the same period of
fiscal 1998 as a result of reductions in overall miscellaneous expense. General
and administrative expense as a percentage of net revenues remained flat at
19.8% for both periods.
The contribution to the equity compensation plan of $5.5 million made in
the first nine months of fiscal 1998 was in connection with the
Recapitalization. There were no contributions to the equity compensation plan
made in the first nine months of fiscal 1997.
As a result of the above factors, income (loss) from operations decreased
$7.6 million, from $10.6 million for the first nine months of fiscal 1997 to
$3.0 million for the same period in fiscal 1998. Income (loss) from operations
as a percentage of net revenues decreased from 17.2% during the first nine
months of fiscal 1997 to 4.9% during the same period of fiscal 1998.
Interest expense increased $2.9 million from $6.0 million for the first
nine months of fiscal 1997 to $8.9 million in the same period of fiscal 1998 due
to the higher debt levels resulting from the Recapitalization.
Income (loss) before extraordinary item decreased $10.5 million from $4.6
million for the first nine months of fiscal 1997 to ($5.9) million in fiscal
1998.
Extraordinary item charges of $4.8 million in the nine month period ended
January 31, 1998 were recorded in connection with the Recapitalization and
consisted of $1.4 million of unamortized debt issuance costs related to the
repayment of debt prior to maturity and $3.4 million of unamortized loan fees
associated with the Senior Subordinated Facility.
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $8.6 million in
the nine months ended January 31, 1998 as compared to approximately $9.5 million
in the same period in 1997. The $1.0 million decline in operating cash flow
resulted from the $15.3 million decrease in operating results partially offset
by a combination of sources totaling $14.4 million. The primary sources of cash
were a reduction of receivables and an increase in customer deposits totaling
$7.9 million, non-cash charges related to the Recapitalization totaling $4.8
million and a $2.5 million increase in accrued interest. Receivables were
favorably impacted by higher customer advance payments and improvements in
collections of customer accounts. Write-offs of $1.4 million in unamortized debt
issuance costs related to repayment of debt prior to maturity and $3.4 million
in Senior Subordinated Facility fees related to the Recapitalization accounted
for the $4.8 million extraordi-
14
<PAGE> 15
nary items. The change in accrued interest is primarily due to the
Recapitalization which caused substantial changes in the amount and timing of
interest payments. Publication timing changes and a change in the mix of
directories published resulted in a reduced provision for doubtful accounts
which was partially offset by higher depreciation and amortization expense
related to acquisitions and amortization of deferred debt issuance costs
resulting from the Recapitalization.
Net cash used by investing activities was approximately $13.0 million in
the nine months ended January 31, 1998 as compared to approximately $2.9 million
in the same period in 1997. This $10.2 million increase in use of funds was
primarily the result of debt issuance costs related to the Recapitalization
partially offset by reductions in cash paid for directory acquisitions compared
to 1997.
Net cash provided used for financing activities was approximately $13.0
million in the first nine months of fiscal 1998 as compared to approximately
$6.5 million in the same period in 1997. This $19.5 million increase was
primarily the result of net proceeds from the Recapitalization.
The Company's principal sources of funds following the Recapitalization are
anticipated to be cash flows from operating activities and borrowings under the
Revolving Credit Facility. The Company believes that these sources of funds will
provide it with sufficient liquidity and capital resources to meet current and
future financial obligations, including the payment of debt principal and
interest on the Senior Subordinated 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 Senior Subordinated Notes and to repay, extend or refinance the
Senior Credit Facility will be subject to future economic conditions and to
financial, business 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. As of January 31, 1998 the
Company's total indebtedness was $186.3 million. The indebtedness consisted of
$80.0 million on the Senior Term Loan, $5.6 million on the Revolving Credit
Facility, $100.0 million of the 9 5/8% Senior Subordinated Notes and $0.7
million of Seller Notes related to directory acquisitions.
As of January 31, 1998 the Company had cash and cash equivalents totaling
approximately $9.8 million and an available balance on the Revolving Credit
Facility of $34.4 million. In February 1998, the Company purchased certain
tangible and intangible assets of Mast Advertising & Publishing, Inc. for cash
due at funding of $7,734. The acquisition funding occurred on February 2, 1998
and was funded solely from the cash on-hand as of January 31, 1998.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(A) Exhibit Index
2.1 Asset Purchase Agreement with Mast Advertising and
Publishing, Inc. dated January 30, 1998+
27.1 Financial Data Schedule
(B) No reports on Form 8-K were filed during, the nine months ending
January 31, 1998
</TABLE>
- ---------------
+ 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.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on March 17, 1998 on their
behalf by the undersigned thereunto duly authorized.
TRANSWESTERN PUBLISHING COMPANY LLC
----------------------------------------
(Registrant)
By: /s/ Joan M. Fiorito
-------------------------------------
Name: Joan M. Fiorito
Title: Vice President, Chief
Financial Officer
(Principal Financial and
Accounting Officer)
TWP CAPITAL CORP. II
-------------------------------------
(Registrant)
By: /s/ Joan M. Fiorito
-------------------------------------
Name: Joan M. Fiorito
Title: Vice President, Chief
Financial Officer
(Principal Financial and
Accounting Officer)
17
<PAGE> 1
EXHIBIT 2.1
================================================================================
ASSET PURCHASE AGREEMENT
AMONG
TRANSWESTERN PUBLISHING COMPANY LLC,
A DELAWARE LIMITED LIABILITY COMPANY,
MAST ADVERTISING & PUBLISHING, INC.
A DELAWARE CORPORATION,
AND
ALLIED MANAGEMENT, INC.,
A GEORGIA CORPORATION
DATED
AS OF
JANUARY 30, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 - DEFINITIONS.....................................................................1
ARTICLE 2 - PURCHASE AND SALE................................................................5
2.1 Purchased Assets..............................................................5
(a) Asset Purchase.........................................................5
(b) Excluded Assets........................................................6
(c) Limited Assumed Liabilities............................................6
(d) Excluded Liabilities...................................................7
2.2 Purchase Price................................................................7
2.3 Closing Date Transactions.....................................................8
(a) Closing................................................................8
(b) Deliveries on the Closing Date.........................................8
2.4 Payment of Pre-Paid Costs on the Closing Date.................................8
2.5 Seller Note Adjustment........................................................9
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES..................................................10
3.1 Representations and Warranties of Seller.....................................10
(a) Organization, Qualification and Corporate Power.......................10
(b) Authorization of Transaction..........................................10
(c) Noncontravention......................................................11
(d) Governmental Consent..................................................11
(e) Recent Events.........................................................11
(f) Intellectual Property.................................................12
(g) Contracts and Commitments.............................................13
(h) Financial Statements..................................................13
(i) Accuracy of Information Furnished.....................................14
(j) Customer Contract Receivables; Advance Payments.......................14
(k) Employees and Employee Benefit Plans..................................14
(l) Legal Compliance with Laws............................................14
(m) Litigation; Proceedings...............................................14
(n) Title and Sufficiency of Assets.......................................15
(o) Directory Listings....................................................15
(p) Brokers' Fees.........................................................15
(q) Tax Matters...........................................................15
(r) Leases................................................................17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
(s) Customers and Suppliers...............................................18
(t) Disclosure............................................................18
(u) Closing Date..........................................................18
3.2 Representations and Warranties of TransWestern...............................18
(a) Organization..........................................................18
(b) Authorization of Transaction..........................................19
(c) Noncontravention......................................................19
(d) Governmental Consent..................................................19
(e) Brokers' Fees.........................................................19
(f) Closing Date..........................................................19
ARTICLE 4 - COVENANTS.......................................................................20
4.1 Pre-Closing Covenants........................................................20
(a) Affirmative Covenants Concerning the Business.........................20
(b) Negative Covenants Concerning the Business............................21
(c) Exclusivity...........................................................21
(d) General Obligation to Close...........................................22
4.2 Other Covenants..............................................................22
(a) Full Access...........................................................22
(b) Notice of Developments................................................22
(c) Employee Matters......................................................22
4.3 TransWestern's Post-Closing Collection Obligation............................23
(a) ......................................................................23
(b) ......................................................................24
4.4 Payment of Certain Direct Costs..............................................24
ARTICLE 5 - CONDITIONS.....................................................................24
5.1 Conditions To Closing........................................................24
(a) Conditions to Closing Obligations of TransWestern.....................24
(b) Conditions to Closing Obligations of Seller...........................26
ARTICLE 6 - TERMINATION.....................................................................27
6.1 Termination..................................................................27
6.2 Effect of Termination........................................................27
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 7 - ADDITIONAL AGREEMENTS...........................................................28
7.1 Post-Closing Assistance......................................................28
7.2 Confidentiality..............................................................28
(a) Information Concerning the Parties....................................28
(b) Notice of Compulsory Disclosure.......................................28
(c) Non-Competition.......................................................29
7.3 Indemnification..............................................................30
7.4 Arbitration..................................................................32
7.5 Miscellaneous................................................................34
(a) Representations and Warranties........................................34
(b) Press Releases and Announcements; Notice to Customers.................34
(c) Further Transfers and Assurance.......................................34
(d) Name and Logos of Parties.............................................34
(e) No Third Party Beneficiaries..........................................35
(f) Entire Agreement......................................................35
(g) Succession and Assignment.............................................35
(h) Counterparts..........................................................35
(i) Headings..............................................................35
(j) Notices...............................................................35
(k) Governing Law.........................................................36
(l) Amendments and Waivers................................................36
(m) Severability..........................................................36
(n) Expenses..............................................................36
(o) Taxes; Recording Charges..............................................37
(p) Construction..........................................................37
(q) Incorporation of Exhibits and Schedules...............................37
(r) Number and Gender.....................................................37
</TABLE>
- iii -
<PAGE> 5
EXHIBITS
Exhibit A Form of Seller Note
Exhibit B Form of Bill of Sale
Exhibit C Net Collection Methodology
Exhibit D Form of Opinion of Seller's and Stockholders' Counsel
Exhibit E Pro Forma
SCHEDULES Section Reference
-----------------
Contracts Schedule 2.1(a)(vi)
Additional Purchased Assets Schedule 2.1(a)(vii)
Assumed Lease Schedule 2.1(a)(viii)
Assumed Liability Schedule 2.1(c)(iii)
Qualifications Schedule 3.1(a)
Recent Events Schedule 3.1(e)
Intellectual Property Schedule 3.1(f)
Financial Statements Schedule 3.1(h)
Litigation Schedule 3.1(m)
Taxes Schedule 3.1(q)
Employee Schedule 7.5(e)
- iv -
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and
entered into as of January 30, 1998, by and among TransWestern Publishing
Company LLC, a Delaware limited liability company ("TransWestern"), Mast
Advertising & Publishing, Inc., a Delaware corporation ("Seller"), and Allied
Management, Inc., a Georgia corporation and the sole shareholder of Seller
("Shareholder"). TransWestern, Seller and Shareholder are sometimes referred to
individually as a "Party" and collectively as the "Parties."
Each of Seller and TransWestern is in the business of printing,
publishing and distributing telephone directory "yellow pages." Subject to the
terms and conditions set forth herein, TransWestern desires to acquire from
Seller and Seller desires to sell to TransWestern certain of its businesses,
assets and properties relating to the Monroe Directory, the Hancock Directory,
the Seneca Directory, the Portage Directory, the Lorain Directory, the Geauga
Directory, the Columbia Directory and the Upper Cumberland Directory (each as
defined below and sometimes referred to herein collectively as the
"Directories"; each, a "Directory").
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties hereby agree as follows:
ARTICLE 1 - DEFINITIONS
"Advance Payment" means a customer payment made with respect to
any Customer Contract associated with any edition of any Directory prior to
publication of such edition.
"Coastal Note" means the promissory note, dated December 9, 1997,
in the original principal amount of $270,000, payable to Seller by Coastal
Directories, L.L.C., together with all right, title and interest of Seller
arising under the Security Agreement, dated as of December 9,1997, between
Seller and Coastal.
"Code" means the Internal Revenue Code of 1986, as amended, and
all rules and regulations promulgated thereunder.
"Collected Accounts Receivable" means, with respect to any
edition of any Directory, all cash amounts collected by any Party with respect
to any Customer Contract after the date of the publication of such edition.
"Columbia Directory" means the telephone directory owned by
Seller as of the date hereof which covers the following counties of Tennessee:
Lawrence, Giles, Maury, Lewis and Marshall.
- 1 -
<PAGE> 7
"Customer Contract" means any written contract or agreement
(other than trade contracts) between Seller and any of its customers (or under
which Seller has rights) which has been entered into and signed by the parties
thereto in connection with the publication of the Directories and corresponding
provision of Directory Services.
"Direct Costs" means, collectively, (i) sales commissions,
salaries, benefits, payroll taxes associated with any Directory and related
travel expenses for account executives only to the extent associated with any
Directory, (ii) all sales support costs, including sales manager costs, office
rent and utilities and all other support costs included in Seller's actual job
cost reports, (iii) license fees for white pages, and (iv) third party paper,
printing, production and shipping costs and (v) distribution costs.
"Directory Services" means the printing and publishing of
advertisements in any Directory.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all rules and regulations promulgated thereunder.
"FTC" means Farmers Telephone Cooperative, Inc., the majority
shareholder of Shareholder.
"Future Edition Customer Contract" means any Customer Contract
associated with any Future Edition.
"Future Editions" means, collectively, any edition of any of the
Directories which is published after the Closing Date, other than the 1998
Monroe Directory.
"GAAP" means United States generally accepted accounting
principles applied in a manner consistent with the Latest Balance sheet (as
defined in Section 3.1(h)).
"Geauga Directory" means the telephone directory as owned and
published by Seller on the date hereof which covers Geauga County, Ohio. "1998
Geauga Directory," for example, means the edition of such Directory published in
January, 1998.
"Hancock Directory" means the telephone directory as owned by
Seller on the date hereof which covers Hancock County, Ohio. "1997 Hancock
Directory," for example, means the edition of such Directory published in July,
1997.
"Intellectual Property" means all (i) patents, patent
applications, patent disclosures, and improvements thereto, (ii) trademarks,
service marks, trade dress, logos, trade names, and corpo rate names and
registrations and applications for registration thereof, (iii) copyrights and
registra tions and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data and documentation, (vi) trade secrets and confidential business
information (including ideas, formulas, compositions, inventions (whether patent
able or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production
- 2 -
<PAGE> 8
processes and techniques, research and development information, software
products in development, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial (excluding employee benefit
plans), marketing, and business data, pricing and cost information, business and
marketing plans, and customer and supplier lists and information), and (vii)
copies and tangible embodiments thereof (in whatever form or medium).
"Liability" or "Liabilities" means any liability (whether known
or unknown, whether asserted or not asserted, whether absolute or contingent,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for taxes.
"Lorain Directory" means the telephone directory as owned by
Seller on the date hereof which covers Lorain County, Ohio. "1997 Lorain
Directory," for example, means the edition of such Directory published in May,
1997.
"Loss" means any loss, Liability, damage or expense, whether or
not arising out of third party claims (including, without limitation, interest,
penalties, reasonable attorneys' fees and expenses and all amounts paid in
investigation, defense or settlement of any of the foregoing).
"Mast Principal" means Douglas Lackey.
"Material Adverse Effect" means any change, event or occurrence
which has a material adverse effect upon the assets, business, operations,
prospects or condition (financial or otherwise) of any Directory or the
Directories considered as a whole or Seller and the Directories considered as a
whole.
"Monroe Directory" means the telephone directory as owned by
Seller on the date hereof which covers Monroe County, Michigan. "1998 Monroe
Directory," for example, means the edition of such Directory published in
February, 1998.
"Ordinary Course of Business" means the ordinary course of
business of Seller consistent with past custom and practice of Seller (including
with respect to quantity and frequency) during the twelve-month period prior to
the date hereof.
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization, a governmental entity or any
department, agency or political subdivision thereof or any other entity.
"Portage Directory" means the telephone directory as owned by
Seller on the date hereof which covers Portage County, Ohio. "1997 Portage
Directory," for example, means the edition of such Directory published in
November, 1997.
"Pre-Paid Direct Costs" means any Direct Costs associated with
any Future Editions which are paid by Seller as of the Closing Date and which
are evidenced by a receipt in the amounts set forth on the Pro Forma attached
hereto.
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"Prior Editions" means, collectively, the 1998 Monroe Directory
and all editions of any Directory which have a publication date prior to the
Closing Date.
"Pro Forma" means the pro forma statement of Direct Costs
(separately identifying the Pre-Paid Direct Costs and other Direct Costs)
delivered by Seller to TransWestern on the Closing Date and attached hereto as
Exhibit E.
"Realized Net Collections" means, with respect to the Target
Editions, the result of the following: (i) the Collected Accounts Receivable
associated with such Directory (but excluding National (as that word is used in
the "yellow page" directory business) account collections and cash discounts and
consistent with Exhibit C); plus (ii) the Advance Payments paid associated with
such Directory.
"Security Interest" means any mortgage, pledge, security
interest, encumbrance, lien or charge, of any kind (including, without
limitation, any conditional sale or other title retention agreement or lease in
the nature thereof, any sale of receivables with recourse against Seller, any
Affiliate of Seller or any filing or agreement to file a financing statement as
debtor under the Uniform Commercial Code or any similar statute other than to
reflect ownership by a third party of property leased to Seller under a lease
which is not in the nature of a conditional sale or title retention agreement,
or any subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
"Sales/Use Tax Liability" means any state sales and use Tax
Liability for periods (or portions thereof) ending on or prior to the Closing
Date relating to or arising in connection with Seller's or Shareholder's
business or operations.
"Seller Directories" means collectively, the telephone
directories owned or published by the Seller or Shareholder other than the
Directories.
"Seneca Directory" means the telephone directory as owned by
Seller on the date hereof which covers the following counties in Ohio: Seneca
County and Wyandot County. "1997 Seneca Directory,"for example, means the
edition of such Directory published in August, 1997.
"Target Editions" means, collectively, the 1997 Hancock
Directory, the 1997 Lorain Directory, the 1997 Seneca Directory, the 1998 Monroe
Directory, the 1997 Portage Directory and the 1998 Geauga Directory; each, a
"Target Edition".
"Tax" or "Taxes" means any federal, state, local, or foreign
income, gross receipts, license, payroll, employment, excise, communications,
severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Sec. 59A), customs duties, capital stock, franchise,
profits, withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transaction, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
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"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
"Upper Cumberland Directory" means the telephone directory as
owned by Seller on the date hereof that covers the following counties in
Tennessee: Putnam County, Cumberland County, and White County.
ARTICLE 2 - PURCHASE AND SALE
2.1 Purchased Assets.
(a) Asset Purchase. On the terms and subject to the conditions
set forth in this Agreement, at the closing of the transactions
contemplated herein (the "Closing"), TransWestern agrees to purchase
from Seller, and Seller agrees to (and Shareholder agrees to cause
Seller to) sell, transfer, convey and deliver to TransWestern, free and
clear of any Security Interest, all of Seller's right, title and
interest in and to the following assets (collectively, the "Purchased
Assets"):
(i) customer files and records and data contained therein
(including, without limitation, customer lists, customer
correspondence and customer telephone numbers) relating to any
edition of any Directory, together with copies of all Customer
Contracts;
(ii) all Future Edition Customer Contracts;
(iii) Intellectual Property, goodwill associated
therewith, licenses and sublicenses granted and obtained with
respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to protection of interests
therein under the laws of all jurisdictions, in each case
associated with, relating to or used by Seller or Shareholder in
connection with the ownership, operation or publication of any
Directories;
(iv) all Advance Payments associated with Future Edition
Customer Contracts and all accounts, notes and other receivables
arising in connection with any Future Editions;
(v) all Pre-Paid Direct Costs;
(vi) agreements, contracts, purchase orders, contractual
rights and other similar arrangements identified as "Other
Assumed Contracts" on the attached "Contracts Schedule";
(vii) certain tangible assets set forth on the attached
"Additional Purchased Assets Schedule" and identified by
TransWestern to Seller after the Closing with an
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aggregate book value not to exceed $50,000 (based on the book
values assigned to such assets on the Additional Purchased Assets
Schedule);
(viii) the leases set forth on the attached "Assumed
Leases Schedule";
(ix) all claims, refunds, rights of recovery, rights of
set off and rights of recoupment of any kind relating to any
Future Editions;
(x) all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances and similar rights
obtained from governments and govern mental agencies associated
with, relating to or arising as a result of the ownership or
operation of the Directories;
(xi) rights to receive mail, telephone calls and other
communications addressed to or directed at Seller or Shareholder
(including mail, telephone calls and other communications from
customers (including, without limitation, any customer inquiries
regarding the terms or provision of Directory Services pursuant
to any Customer Contract), suppliers, distributors, agents and
others) and payments relating to the Purchased Assets;
(xii) ad-copy, drawings, specifications, advertising and
promotional materials, studies, reports and other printed or
written materials relating to, associated with or used by Seller
or Shareholder in connection with the ownership or publication of
any Directories;
(xiii) the Coastal Note; and
(xiv) all other assets, rights, properties and interests
of every kind and nature, whether tangible or intangible, and
wherever located and possessed and owned by Seller or Shareholder
as of the Closing Date to the extent such assets directly relate
to the ownership of any Directories or the advertising,
publication or printing of any Future Editions consistent with
the intent of the Parties as expressed in this Agreement.
(b) Excluded Assets. The Purchased Assets shall not include any
assets, properties, rights or interests of Seller other than those items
set forth in Section 2.1(a). Any such other assets, properties, rights
or interests are referred to collectively as the "Excluded Assets."
(c) Limited Assumed Liabilities. From and after the Closing Date,
TransWestern will not assume or in any way be responsible for any
Liabilities of Seller or Shareholder or any other Liabilities whatsoever
arising out of or relating to the condition or operation of the
Directories at any time as of or prior to the Closing Date or, except as
set forth in the following sentence, any other Liabilities. Subject to
the terms and satisfaction of the conditions in this Agreement, from and
after the Closing Date, TransWestern will assume
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and agree to pay, defend, discharge and perform as and when due only the
following specific Liabilities of Seller that relate exclusively to the
Directories (the "Assumed Liabilities"):
(i) Liabilities accruing on or after the Closing Date
pursuant to the contracts and leases which are set forth on the
attached "Contracts Schedule" or the "Assumed Lease Schedule,"
but only to the extent such contracts or leases are actually
assigned to TransWestern (excluding any Liability relating to or
arising out of such contracts and leases as a result of (A) any
breach of such contracts or leases occurring on or prior to the
Closing Date, (B) any violation of law, breach of warranty, tort
or infringement occurring on or prior to the Closing Date, (C)
event or condition occurring or existing prior to the Closing
Date or (D) with respect to the foregoing items (A), (B) and (C),
any related charge, complaint, action, suit, proceeding, hearing,
investigation, claim or demand); it being understood that with
respect to the leases identified on the Assumed Leases Schedule,
if and when such leases have been assigned to TransWestern,
TransWestern will reimburse Seller for any lease payments made by
Seller with respect to any period in which TransWestern occupies
the space underlying such leases.
(ii) Current Liabilities arising in the Ordinary Course of
Business and classified as such on the Latest Balance Sheet or
incurred after the date of the Latest Balance Sheet (as defined
in Section 3.1(h)) including without limitation such current
Liabilities set forth on the attached Assumed Liability Schedule
to the extent not paid prior to the Closing Date.
(d) Excluded Liabilities. TransWestern shall not assume or be
liable for any Liability of Seller or Shareholder other than the Assumed
Liabilities (such other Liabilities collectively, the "Excluded
Liabilities") regardless of whether such other Liability is disclosed
herein or on any schedule hereto. Without in any way limiting the
generality of the foregoing sentence, Excluded Liabilities specifically
includes any Liability resulting from any error, omission or illegality
arising out of, relating to or in connection with sales into or the
printing or publication of any Prior Editions or any edition of the
Seller Directories or any pre-closing sales into or actions, conditions
or events occurring or existing prior to the Closing in connection with
the printing or publication of any Future Edition. Seller and
Shareholder each acknowledge that Seller is retaining the Excluded
Liabilities and that Seller and Shareholder, severally, shall have full
responsibility to pay, discharge and perform any Excluded Liabilities
promptly when due.
2.2 Purchase Price.
(a) The total purchase price payable by TransWestern to Seller
for the Purchased Assets (the "Purchase Price") shall be the result of:
(i) the assumption by TransWestern of the Assumed
Liabilities; plus
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(ii) $7,296,500 (the "Base Cash Purchase Price"), as may
be adjusted pursuant to Section 2.4 (the "Cash Purchase Price");
plus
(iii) a $265,500 promissory note in form and substance
satisfactory to TransWestern and Seller, as may be adjusted
pursuant to Section 2.5 (the "Seller Note"); plus
(iv) $600,000 in consideration of the assistance of Seller
regarding "yellow pages" production through February 1998.
2.3 Closing Date Transactions.
(a) Closing. Subject to the terms and conditions set forth in
this Agreement, the Closing shall take place via facsimile and wire
transfer of funds on a date mutually acceptable to the parties (the
"Closing Date") which is January 30, 1998.
(b) Deliveries on the Closing Date. On the Closing Date:
(i) TransWestern shall deliver to Seller the Cash Purchase
Price, by wire transfer of immediately available funds to an
account designated by Seller.
(ii) TransWestern shall deliver to Seller the Seller Note.
(iii) TransWestern shall deliver to Seller (A) the various
certificates, instruments and documents referred to in Section
5.1(b) and (B) such other instruments of assumption as Seller may
reasonably request in form reasonably satisfactory to Seller and
consistent with the provisions of this Agreement.
(iv) Seller shall deliver to TransWestern a bill of sale
in the form attached hereto as Exhibit B.
(v) Seller shall deliver to TransWestern (A) the various
certificates, instruments and documents referred to in Section
5.1(a) and (B) all other documents, instruments of sale,
transfer, conveyance and assignment as TransWestern may
reasonably request with respect to the Purchased Assets in form
and substance reasonably satisfactory to TransWestern and
consistent with the provisions of this Agreement.
(vi) Seller shall deliver to TransWestern evidence that
all security interests and other liens or encumbrances of FTC in
any of the Purchased Assets have been released.
2.4 Payment of Pre-Paid Costs on the Closing Date. On the Closing
Date, TransWestern shall acquire the Pre-Paid Costs from the Seller by
offsetting the aggregate amount of the Pre-Paid Costs against the aggregate
amount of the Advance Payments included in the
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Purchased Assets. At least three (3) but no more than five (5) business days
prior to the Closing Date, Seller shall deliver to TransWestern a statement
setting forth Seller's estimate as of the Closing of the aggregate Advance
Payments included in the Purchased Assets and of the Pre-Paid Costs.
TransWestern shall have the opportunity to review such statement and raise
questions or objections regarding the estimates set forth therein and Seller
shall deliver to TransWestern all documentation requested by TransWestern or
used by Seller in calculating such estimates. The Parties shall use their
respective best efforts to agree on the aggregate amount of such Advance
Payments and the amount of Pre-Paid Costs as of the Closing Date, which
agreement is reflected on the Pro Forma set forth as Exhibit E and which shall
be final and binding on the Parties. If the aggregate amount of the Advance
Payments included in the Purchased Assets exceeds the Pre-Paid Direct Costs, the
Base Cash Purchase Price shall be reduced dollar-for-dollar by the amount of
such excess. If the Pre-Paid Direct Costs exceed the aggregate amount of such
Advance Payments, the Base Cash Purchase Price shall be increased
dollar-by-dollar by the amount of such difference.
2.5 Seller Note Adjustment
(a) Not later than ten (10) business days following the end of
the eighteen-month period after the Closing Date (the "Reconciliation
Date"), TransWestern shall in good faith prepare and deliver to Seller a
statement (the "Net Collections Statement") setting forth, as of such
date, its calculation (in accordance with the Net Margin Methodology set
forth in Exhibit C) of the aggregate Realized Net Collections associated
with the Target Editions, together with a statement of Collected
Accounts Receivable and Advance Payments, in each case calculated with
respect to each Target Edition. The Net Collections Statement shall be
based on Seller's and TransWestern's books and records and customer
checks, bank statements and other documentation then available and
provided to TransWestern by Seller and, if applicable, Shareholder at
TransWestern's request. Seller shall review the Net Collections
Statement and raise questions or objections regarding the Net
Collections Statement and the Parties shall use their respective best
efforts to agree on the aggregate Realized Net Collections associated
with the Target Editions as soon as practicable but in any event within
five (5) business days of TransWestern's delivery of the Net Collections
Statement to Seller.
(b) In the event that Seller disputes TransWestern's calculation
of the Realized Net Collections as set forth on the Net Collections
Statement, or any of the components thereof, and TransWestern and Seller
are unable to resolve any such disputed matters regarding the Net
Collections Statement within twenty (20) business days after the
delivery of the Net Collections Statement to Seller, TransWestern and
Seller shall refer all remaining disputes concerning the Net Collections
Statement to a certified public accounting firm mutually agreed to by
the Parties which has no prior relationship with either Seller,
Shareholder or TransWestern (the "Independent Accounting Firm"). The
Parties shall instruct the Independent Accounting Firm to promptly (and
in any event within twenty (20) business days after submission of the
disputes to the Independent Accounting Firm) resolve such disputed
matters; provided, however, that Seller and TransWestern are unable to
agree upon an Independent Accounting Firm within five (5) days, Seller
and TransWestern shall, within five (5) days thereafter select one of
the "Big Six" accounting firms by lot (after Seller
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and TransWestern each exclude one such accounting firm). TransWestern
and Seller will make available to the Independent Accounting Firm at
reasonable times and upon reasonable notice during the pendency of any
dispute under this clause (b) the work papers and back-up materials used
in preparing the Net Collections Statement and the books and records of
Seller and shall have the right to meet with the Independent Accounting
Firm during this period and to present their respective positions. The
resolution of disputes by the Independent Accounting Firm and its
determination of the aggregate Realized Net Collections associated with
the Target Editions will be set forth in writing and will be conclusive
and binding upon the Parties.
(c) The Independent Accounting Firm will determine the allocation
of its costs and expenses in determining the Realized Net Collections
based upon the percentage which the portion of the contested amount not
awarded to each Party bears to the amount actually contested by such
Party. For example, if the Seller claims the Realized Net Collections is
$1,000 greater than the amount determined by TransWestern and its
accountants, and TransWestern contests only $500 of the amount claimed
by the Seller, and if the Independent Accounting Firm ultimately
resolves the dispute by awarding the Seller $300 of the $500 contested,
then the costs and expenses of arbitration will be allocated 60% (i.e.,
300 / 500) to TransWestern and 40% (i.e., 200 / 500) to Seller.
(d) Immediately after the Realized Net Collections has been
determined pursuant to this Section 2.5,
(i) if the Realized Net Collections exceeds $3,252,783
(such excess, the "Excess Margin Amount"), then the principal
amount of the Seller Note shall be increased automatically by an
amount equal to the product of (x) 3 multiplied by (y) the Excess
Margin Amount; and
(ii) if the Realized Net Collections is less than
$3,252,783 (such difference, the "Deficient Collections Amount"),
then the principal amount of the Seller Note shall be reduced
automatically by an amount equal to the product of (x) 3
multiplied by (y) the Deficient Collections Amount. In no event
shall TransWestern have recourse against the Seller for the
portion (if any) of the Deficient Collections Amount which
exceeds the principal amount of the Seller Note.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Seller. As a material
inducement to TransWestern to enter into this Agreement and to consummate the
transactions contemplated hereby, Seller and Shareholder hereby jointly and
severally represent and warrant to TransWestern that:
(a) Organization, Qualification and Corporate Power. Seller is a
corporation duly organized, validly existing, and in good standing under
the laws of the State of Delaware. Shareholder is a corporation duly
organized, validly existing and in good standing under the
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laws of the State of Georgia. Each of Seller and Shareholder is
qualified to conduct business in each of the jurisdictions indicated on
the attached "Qualifications Schedule" which jurisdictions represent all
of the jurisdictions in which the conduct of its business or its
ownership of property require it to be so qualified.
(b) Authorization of Transaction. Seller has full requisite
corporate power and authority and all material licenses, permits and
authorization necessary to own and operate the Directories, provide
Directory Services and carry on its telephone directory business as now
conducted and as proposed to be conducted, to execute and deliver this
Agreement and the other agreements contemplated hereby to which it is a
party and to perform its obliga tions hereunder and thereunder. Without
limiting the generality of the foregoing, each of Seller has obtained
all consents and approvals from Shareholder and its board of directors
that are necessary for Seller to, and Shareholder to cause Seller to,
consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Shareholder and Seller. Each of this
Agreement and each of the other agreements contemplated hereby to which
Seller or any Shareholder is a party constitutes the valid and legally
binding obligations of such Person, enforceable against such Person in
accordance with its respective terms and conditions.
(c) Noncontravention. Neither the execution and the delivery of
this Agreement and the other agreements contemplated hereby, nor the
consummation of the transactions contemplated hereby or thereby will
violate, conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any authorization,
consent, approval, execution or other action by or notice to any third
party under, Seller's certificate of incorporation or bylaws,
Shareholder's articles of incorporation or bylaws or any contract,
lease, sublease, license, sublicense, franchise, permit, indenture,
agreement, instrument of indebtedness, Lien, or other arrangement by
which Seller or Shareholder is bound or affected or to which any of the
Purchased Assets is subject, or any law, statute, rule, regulation,
order, judgment, decree, stipulation, injunction, charge or other
restriction, to which Seller or Shareholder is subject or to which any
of the Purchases Assets is subject.
(d) Governmental Consent. To the knowledge of Seller and
Shareholder, neither Seller nor Shareholder is required to give any
notice to, make any material declaration to or registration or filing
with, or to obtain any permit, license, consent, accreditation,
exemption, approval or authorization from, any governmental or
regulatory authority in connection with the execution, delivery or
performance of this Agreement or the consummation of any of the
transactions contemplated hereby.
(e) Recent Events. Except as described in the attached Recent
Events Schedule, since June 30, 1997, Seller has not experienced any
change that has had a Material Adverse Effect. Without limiting the
generality of the foregoing, since such date:
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(i) Seller has not sold, leased, transferred or assigned
any of the Purchased Assets and Shareholder has not authorized
the sale, lease, transfer or assignment of any of the Purchased
Assets, except pursuant to this Agreement;
(ii) Seller has not entered into any agreement, contract,
lease or license with respect to the Directories (or any series
of related agreements, contracts, leases or licenses) other than
in the Ordinary Course of Business;
(iii) no party (including, without limitation, Seller and
Shareholder) has, accelerated, terminated, modified or canceled
any contract, lease, sublease, license or sublicense (or series
of related contracts, leases, subleases, licenses and
sublicenses) involving more than $10,000 to which Seller is a
party or by which Seller is bound and no party intends to take
such action;
(iv) Seller has not delayed or postponed the payment of
accounts payable relating to or affecting the Directories or the
operation of the Directories or other Liabilities associated with
the operation of the Directories outside the Ordinary Course of
Business;
(v) there has not been any other material occurrence,
event, incident, action, failure to act or other transaction
outside the Ordinary Course of Business;
(vi) Seller has not increased or decreased billing rates
under its Customer Contracts and Seller has not agreed to payment
terms under any Customer Contract other than in the Ordinary
Course of Business;
(vii) neither Seller nor Shareholder has disclosed any
information required to be kept confidential pursuant to Section
7.2 hereof to any Person other than TransWestern and
TransWestern's agents, attorneys and accountants;
(viii) Seller has not suffered any extraordinary loss,
damage, destruction or casualty loss or waived any rights to any
Purchased Asset or any other asset which, if it existed and was
held by Seller on the Closing Date, would constitute a Purchased
Asset, whether or not covered by insurance and whether or not in
the Ordinary Course of Business;
(ix) neither Seller nor Shareholder has received any
indication that any customer or supplier will cease, reduce or
adversely affect the rate of business done with Seller with
respect to the Directories or in connection with the publication
of the Directories;
(x) Seller has not entered into any other transaction
relating to or affecting the Directories, other than in the
Ordinary Course of Business; and
(xi) Seller has not committed to any of the foregoing.
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(f) Intellectual Property. The attached "Intellectual Property
Schedule" contains a complete and accurate list of all Intellectual
Property owned or used by Seller in connection with its ownership and
publication of the Directories owned and such Intellectual Property
comprises all proprietary or other intellectual property rights
necessary for operation and publication of the Directories as currently
operated and published. The Intellectual Property Schedule identifies
each license, agreement, or other permission which Seller has granted to
any third party with respect to any of its Intellectual Property
(together with any exceptions). With respect to each item of
Intellectual Property that Seller or Shareholder owns in connection with
the operation of the Directories: (i) the identified owner possesses all
right, title, and interest in and to the item subject to the security
interest of FTC (the "SI-FTC") that will be satisfied at Closing; (ii)
the item is not subject to any outstanding judgment, order, decree,
stipulation, injunction, or charge; and (iii) no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand is
pending or, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item. Seller or Shareholder (as
the case may be) has taken all necessary or desirable action to protect
each item of Intellectual Property that it owns or uses.
(g) Contracts and Commitments. Except as set forth on the
attached "Contracts Schedule," neither Seller nor Shareholder is a party
to any Customer Contract or any other written or oral contract or
commitment that relates to the provision of Directory Services in
connection with any Directories or any of the Purchased Assets
(including, without limitation, any contract with a third party or
parties relating to the purchase or sale by Seller or Shareholder of
services or products relating to any Directories), or any other
agreement material to the publication of any Directories, whether or not
entered into in the Ordinary Course of Business. Seller has delivered or
otherwise made available to TransWestern a correct and complete copy of
the standard forms of Customer Contract used in connection with any
Directories and each written agreement (including all amendments
thereto) identified on the Contracts Schedule. The Contracts Schedule
identifies all contracts (other than Customer Contracts) associated with
the Prior Editions and, to the extent available, the Future Editions,
and identifies all Other Assumed Contracts. Seller has delivered to
TransWestern a true and complete list of all Customer Contracts
associated with the Directories. With respect to each written agreement
so identified: (A) the written agreement is legal, valid, binding,
enforceable, and will continue to be in full force and effect after the
consummation of the transactions contemplated hereby; (B) the written
agreement will continue to be legal, valid, binding, and enforceable and
in full force and effect on identical terms immediately after the
Closing Date; and (C) neither Seller nor Shareholder nor any other party
is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default by Seller or
Shareholder or permit termination, modification, or acceleration (in
each case, other than by Seller), under the written agreement. Neither
Seller nor Shareholder has waived or modified any limitation on
liability or similar provision in any Customer Contract.
(h) Financial Statements. The attached "Financial Statements
Schedule" contains the following financial statements (the "Financial
Statements"):
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(i) the audited consolidated and consolidating balance
sheets of Seller as of June 30, 1995, June 30, 1996, and June 30,
1997 (the "Most Recent Fiscal Year End"), and the related
statements of income, changes in stockholders' equity and cash
flow for the twelve-month period then ended; and
(ii) the unaudited balance sheet of Seller as of December
31, 1997 (the "Latest Balance Sheet") and the related statements
of income, changes in stockholders' equity and cash flow for the
six-month period then ended.
Each of the foregoing Financial Statements (including in all cases the
notes thereto, if any) is accurate and complete in all material
respects, is consistent with the books and records of Seller (which, in
turn, are accurate and complete in all material respects) and presents
fairly the financial condition and results of operations of Seller in
accordance with GAAP throughout the periods covered thereby.
(i) Accuracy of Information Furnished. No representation or
warranty of Seller or of Shareholder contained in this Agreement or in
any document delivered to TransWestern by Seller or Shareholder in
connection with the transactions contemplated hereby (including, without
limitation, any Customer Contract, customer list, or other records or
data compiled in connection with the Directories) contains or will
contain as of the date such representation and warranty is made or other
document has been, is or will be furnished, any untrue statement of a
material fact or omitted, omits, or will omit to state as of the date
such representation or warranty is made or such document is or will be
furnished, any material fact which is necessary not to make the
statement contained herein or therein not misleading.
(j) Customer Contract Receivables; Advance Payments. The
receivables associated with Customer Contracts reflected on the books
and records of Seller as of the Closing Date are bona fide receivables
recorded in the Ordinary Course of Business. The Advance Payments
associated with Customer Contracts reflected on the books and records of
Seller as of the Closing Date are bona fide Advance Payments recorded in
the Ordinary Course of Business. Such books and records of Seller
identify receivables associated with the Prior Editions and the Future
Editions, respectively.
(k) Employees and Employee Benefit Plans. To each of Seller's and
Shareholder's knowledge, no employee of Seller has any plans to
terminate employment with Seller prior to the Closing. None of the
Purchased Assets is subject to any lien under ERISA or the Code; and
Seller has no liability or potential liability under Title IV of ERISA.
No employee of Seller is owed any sales commissions or bonus payments in
connection with any Prior Edition other than the 1998 Monroe Directory.
(l) Legal Compliance with Laws. Seller is in compliance with and
has not violated any applicable law, rule or regulation of any federal,
state, local or foreign government or agency thereof with respect to any
of the Directories and no notice, claim, charge, complaint, action,
suit, proceeding, investigation or hearing has been received by Seller
or filed, commenced or, threatened in writing against Seller alleging
any such
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violation. Seller has complied (and is in compliance) with permits,
licenses and other authorizations required for publication of the
Directories and the provision of Directory Services. There are no
permits, filings, notices, licenses, consents, authorizations,
accreditation, waivers and approvals of, to or with any governmental or
third party entity which are (or required to be) used by Seller or
required for ownership of the Purchased Assets or the publication and
operation of the Directories (as presently operated and published by
Seller).
(m) Litigation; Proceedings. Except as set forth in the attached
"Litigation Schedule," there are no actions, suits, proceedings,
hearings, orders, investigations, charges, complaints or claims against
or affecting Seller, Shareholder or the Directories (or, to the
knowledge of Seller, pending or threatened against or affecting the
officers, directors, employees or stockholders of Seller), or to which
Seller, Shareholder or the Directories may be bound or affected, at law
or in equity, or before or by any federal, state, municipal, foreign or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there is no basis for any of
the foregoing; neither Seller nor Shareholder is subject to any
judgment, order or decree of any court or governmental agency; neither
Seller nor Shareholder has received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to
its business and neither Seller nor Shareholder is engaged in any legal
action to recover monies due it or for damages sustained by it.
(n) Title and Sufficiency of Assets. Seller owns good and
marketable title, free and clear of all Liens, to all real property and
all personal and intangible personal property and assets used by Seller,
located on Seller's premises or shown on the Latest Balance Sheet,
except for Lien for current Taxes not yet due and payable, SI-FTC and
Liens and other restrictions which do not impair the current use,
occupancy value or marketability of title. At the Closing, Seller will
convey good and marketable title to all of its real property and all of
its personal property and assets included within the Purchased Assets,
free and clear of all Liens (other than Liens and other restrictions
which do not impair the current use, occupancy value or marketability of
title and for current Taxes not yet due and payable for which adequate
reserves have been properly recorded). The Purchased Assets so conveyed
will include all of those assets (real, personal, tangible and
intangible) used in connection with the ownership and operation of the
Directories during the twelve months prior to the Closing Date (other
than inventory or raw materials used, sold or consumed in the Ordinary
Course of Business and worn out or obsolete fixed assets disposed of in
the Ordinary Course of Business, other than office space and office
equipment leased by Seller in the Ordinary Course of Business and other
than as otherwise agreed by the Parties) and will enable TransWestern to
own and operate Directories in the same manner as operated by and
conducted by Seller prior to and as of the Closing Date.
(o) Directory Listings. Each of the directory listings associated
with the Directories has been published in the Ordinary Course of
Business and in accordance with customary practices currently prevailing
in the telephone directory industry for companies of a size comparable
to Seller. No such listing has been published in violation of any
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applicable law, code or regulation. Seller has provided TransWestern
with copies of all invoices (or other evidence reasonably satisfactory
to TransWestern) relating to the purchase by Seller of the white page
listings and yellow page listings used or to be used in connection with
the printing and publication of any Directory.
(p) Brokers' Fees. Neither Seller nor Shareholder has any
Liability to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement or which
TransWestern or any other party could become liable or obligated.
(q) Tax Matters.
(i) Seller timely filed all Tax Returns required to be
filed by it, each such Tax Return has been prepared in
compliance with all applicable laws and regulations, and all
such Tax Returns are true and accurate in all respects. Except
as set forth in the attached "Taxes Schedule," all Taxes due and
payable by Seller (whether or not shown on any Tax Return) have
been paid.
(ii) Except as set forth in the Taxes Schedule:
(A) with respect to each taxable period of Seller
either such taxable period has been audited by the
relevant taxing authority or the time for assessing or
collecting income Tax with respect to each such taxable
period has closed and such taxable period is not subject
to review by any relevant taxing authority;
(B) no deficiency or proposed adjustment which has
not been settled or otherwise resolved for any amount of
Tax has been proposed, asserted or assessed by any taxing
authority against Seller;
(C) Seller has not consented to extend the time in
which any Tax may be assessed or collected by any taxing
authority;
(D) Seller has not requested or been granted an
extension of the time for filing any Tax Return to a date
later than the Closing Date;
(E) there is no action, suit, taxing authority
proceeding or audit now in progress, pending or threatened
against or with respect to Seller with respect to any Tax;
(F) Seller has not been a member of an Affiliated
Group or filed or been included in a combined,
consolidated or unitary income Tax Return (other than
consolidated Tax Return filed by Seller and Shareholder);
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(G) Seller is not a party to or bound by any Tax
allocation or Tax sharing agreement and Seller has no
current or potential contractual obligation to indemnify
any other Person with respect to Taxes;
(H) Seller does not reasonably expect any taxing
authority to claim or assess any additional Taxes for any
period;
(I) the Assumed Liabilities do not include any
obligation to make any payment that will be non-deductible
under Section 280G of the Code (or any corresponding
provision of state, local or foreign Tax law);
(J) no claim has ever been made by a taxing
authority in a jurisdiction where Seller does not pay Tax
or file Tax Returns that Seller is or may be subject to
Taxes assessed by such jurisdiction;
(K) Seller has withheld and paid all Taxes required
to have been withheld and paid in connection with amounts
paid or owing to any employee, creditor, independent
contractor or other third party;
(L) Seller has not been a United States real
property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified
in Code Section 897(c)(1)(A)(ii).
(iii) The Taxes Schedule contains a list of states,
territories and jurisdictions (whether foreign or domestic) in
which Seller is required to file Tax Returns.
(iv) Seller's unpaid Taxes (1) did not, as of the Latest
Balance Sheet, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of
Latest Balance Sheet (rather than in any notes thereto) and (2)
do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and
practice of the division in filing its Tax Returns.
(r) Leases.
(i) The Assumed Lease Schedule lists all real property
leased or subleased to Seller. Seller has delivered to TransWestern
correct and complete copies of the leases and subleases listed in the
Assumed Lease Schedule (collectively, the "Assumed Leases")). Each of
the Leases is legal, valid, binding, enforceable and in full force and
effect. Neither Seller nor any other party to such leases is, in breach
or default of such lease and no event has occurred which, with notice or
lapse of time, would constitute such a breach or default or permit
terminations, modification or accelerations under the Assumed Leases.
Neither Seller nor any party to the Assumed Leases has repudiated any
provision thereof and there are no disputes, oral agreements, or
forbearance programs in effect as to the Assumed Lease. The
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Assumed Leases have not been modified in any respect, except to the
extent that such modifications are disclosed by the documents delivered
to TransWestern, and Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the Assumed
Leases.
(ii) All buildings and all components of all buildings,
structures and other improvements included within the Real Property (the
"Improvements"), are in good condition and repair and adequate to
operate such facilities as currently used. To the knowledge of Seller
and Shareholder, all utilities and other similar systems serving the
Real Property are installed and operating and are sufficient to enable
the Real Property to continue to be used and operated in the manner
currently being used and operated, and to the knowledge of Seller and
Shareholder, any so-call hook-up fees or other associated charges have
been fully paid. Each Improvement has direct access to a public street
adjoining the Real Property on which such Improvement is situated over
the driveways and accessways currently being used in connection with the
use and operation of such Improvement.
(s) Customers and Suppliers. Neither Seller nor Shareholder
received any notice that any material customer or supplier intends to
terminate or materially reduce its business with Seller and no material
customer or supplier has terminated or materially reduced its business
with Seller in the last twelve (12) months.
(t) Disclosure. Neither this Section 3.1, the schedules hereto
nor any writing delivered by Seller or Shareholder to TransWestern in
connection with the transactions contemplated hereby contain any untrue
statement of a material fact or omit a material fact by Seller or
Shareholder necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not
misleading. There is no material fact which has not been disclosed to
TransWestern which materially adversely affects or could reasonably be
anticipated to materially adversely affect the Directories. Except for
the representations and warranties contained in this Agreement and in
any schedule, exhibit or other written material delivered in connection
with this Agreement, neither Seller nor Shareholder has made any
representation or warranty in connection with the transactions
contemplated by this Agreement (including, without limitation, any oral
representations or warranties or any representation or warranty
regarding any financial projections heretofore delivered to
TransWestern).
(u) Closing Date. All of the representations and warranties of
Seller and Shareholder contained in this Section 3.1 and elsewhere in
the Agreement and all information delivered in any schedule, attachment
or exhibit hereto or in any certificate delivered by Seller or
Shareholder to TransWestern shall be true and correct on the Closing
Date as though then made, except as affected by the transactions
expressly contemplated by this Agreement and except as expressly
disclosed in writing to TransWestern by Seller or Shareholder prior to
the Closing. Seller and Shareholder may revise or supplement the
disclosure schedules attached hereto, or otherwise amend or modify its
representations and warranties hereunder, at any time at or prior to the
Closing Date to reflect information that came into existence after the
date hereof and would have been required to be disclosed on
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<PAGE> 24
one or more schedules or reflected in such representations or warranties
if such information was in existence on the date hereof; it being
understood, however, that such revisions, supplements, amendments or
modifications, if any, shall not modify the representations and
warranties set forth herein for purposes of determining whether the
condition set forth in Section 5.1 has been satisfied and shall not cure
any default existing as a result of a breach of any of Seller's or
Shareholder's representations or warranties contained in this Agreement.
3.2 Representations and Warranties of TransWestern. As a material
inducement to Seller and Shareholder to execute this Agreement and consummate
the transactions contemplated hereby, TransWestern hereby represents and
warrants to Seller and Shareholder that:
(a) Organization. TransWestern is a limited liability company
duly organized, validly existing and in good standing under the laws of
the State of Delaware. TransWestern is qualified to conduct business in
each other jurisdiction wherein the nature of its business or ownership
of property requires it to be so qualified except where failure to so
qualify would not materially adversely effect the assets, business,
operations or financial condition of TransWestern.
(b) Authorization of Transaction. TransWestern has the power and
authority to execute and deliver this Agreement and the other agreements
contemplated hereby to which it is a party and to perform its
obligations hereunder and thereunder. This Agreement and the other
agreements contemplated hereby to which TransWestern is a party have
been duly executed and delivered by TransWestern and constitute the
valid and legally binding obligations of TransWestern, enforceable
against TransWestern in accordance with their respective terms.
(c) Noncontravention. The consummation of the transactions
contemplated hereby will not (i) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which
TransWestern is subject or any provision of the Operating Agreement of
Limited Liability Company of TransWestern or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage
for borrowed money, instrument of indebtedness, Security Interest, or
other arrangement to which TransWestern or any of its Affiliates is a
party or by which any of them is bound or to which any of their assets
is subject.
(d) Governmental Consent. To the knowledge of TransWestern,
TransWestern is not required to give any notice to, make any material
declaration to or registration or filing with, or to obtain any material
permit, license, consent, accreditation, exemption, approval or
authorization from, any governmental or regulatory authority in
connection with the execution, delivery or performance of this Agreement
or the consummation of any of the transactions contemplated hereby.
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<PAGE> 25
(e) Brokers' Fees. TransWestern has no Liability to pay any fees
or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Seller or
Shareholder could become liable or obligated.
(f) Closing Date. All of the representations and warranties of
TransWestern contained in this Section 3.2 and elsewhere in this
Agreement and all information delivered in any schedule, attachment or
exhibit hereto or in any certificate delivered by TransWestern shall be
true and correct on the Closing Date as though then made and except as
expressly disclosed in writing to the Seller by TransWestern prior to
the Closing. TransWestern may supplement this Agreement with disclosure
schedules, or otherwise amend or modify its representations and
warranties hereunder, at any time at or prior to the Closing Date to
reflect information that came into existence after the date hereof and
would have been required to be disclosed on one or more schedules or
reflected in such representations or warranties if such information was
in existence on the date hereof; it being understood, however, that such
revisions, supplements, amendments or modifications, if any, shall not
modify the representations and warranties set forth herein for purposes
of determining whether the condition set forth in Section 5.2 has been
satisfied and shall not cure any default existing as a result of a
breach of any of TransWestern's representations or warranties contained
in this Agreement.
ARTICLE 4 - COVENANTS
4.1 Pre-Closing Covenants.
(a) Affirmative Covenants Concerning the Business. At all times
prior to the Closing Date, Seller and Shareholder each covenant and
agree that it will:
(i) conduct Seller's telephone directory business and
operations only in the Ordinary Course of Business and use its
reasonable best efforts consistent with past practice to preserve
intact Seller's business organization and keep available
satisfactory relationships with suppliers, customers and others
having business relationships with it;
(ii) maintain Seller's cash management practices
(including, without limitation, the collection of receivables and
the payment of payables) and Seller's policies, practices and
procedures with respect to collection of trade receivable
(including, without limitation, receivables associated with
Customer Contracts, establishment of reserves for uncollectible
accounts, accrual of accounts receivable, inventory control,
prepayment of expenses, payment of trade accounts payable,
accrual of other expenses, deferral of revenue, and acceptance of
Advance Payments or other customer deposits) in the Ordinary
Course of Business;
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<PAGE> 26
(iii) cause its current insurance policies (to the extent
such policies relate to operation of the Directories) not to be
canceled or terminated or any of the coverage thereunder to
lapse, unless, simultaneously with such termination, cancellation
or lapse, replacement policies providing coverage equal to or
greater than the coverage under the canceled, terminated or
lapsed policies to the extent practicable for market premiums are
in full force and effect;
(iv) use best efforts to retain its present employees and
to maintain its relationships with its agents, distributors,
licensees, suppliers and customers, in each case relating to the
operation of the Directories;
(v) maintain Seller's books, accounts and records in
accordance with GAAP;
(vi) maintain in full force and effect the existence of
Seller's corporate name;
(vii) comply with all legal requirements and contractual
obligations applicable to or binding upon Seller;
(viii) maintain all of Seller's city or county business
licenses; and
(ix) duly and timely file (by the due date or any duly
granted extension thereof) all income Tax reports and returns and
non-income Tax reports and returns required to be filed with
federal, state, county, local, foreign and other Tax authorities,
promptly pay all Taxes indicated by such returns or otherwise
lawfully levied or assessed upon Seller or any of Seller's
properties, unless Seller is contesting such levy or assessment
in good faith and, if appropriate, has established reasonable
reserves therefor, and withhold or collect and pay to the proper
governmental authorities or hold in separate bank accounts for
such payment all Taxes required by law to be so withheld or
collected.
(b) Negative Covenants Concerning the Business. At all times
prior to the Closing Date, Seller and Shareholder each covenants and
agrees that it will not:
(i) forgive, cancel, or waive any rights or any debts or
other material obligations owed to Seller without obtaining
TransWestern's prior written consent;
(ii) merge or consolidate with, or purchase substantially
all of the stock or assets of, or otherwise acquire, any
corporation, partnership, association or other business
organization or entity or division thereof;
(iii) institute any material change in the methods of
purchase, sale, lease or accounting from those used in the
Ordinary Course of Business or in the collection of accounts
receivable (including receivables associated with Customer
Contracts)
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<PAGE> 27
or the payment of accounts payable other than to the extent
consistent with the Ordinary Course of Business;
(iv) mortgage, pledge or subject to any Security Interest
(except those for Taxes not yet due and payable) any of the
Purchased Assets;
(v) sell, assign or transfer any of the Purchased Assets;
(vi) sell, assign or transfer any of Seller's patents or
other Intellectual Property or other intangible assets, or
disclose any proprietary information to any Person;
(vii) terminate or in any way encourage the resignation of
any employee or sales representative for any reason other than
such employee's gross negligence or wilful misconduct;
(viii) pay or commit to pay commissions on Customer
Contracts outside of the Ordinary Course of Business; or
(ix) enter into a binding commitment to do any of the
foregoing.
(c) Exclusivity. Neither Seller nor Shareholder will (and
neither will permit any Affiliate of or Persons acting in concert with
either Seller or Shareholder to) at any time prior to the Closing Date:
(i) solicit, initiate, or encourage the submission of any proposal or
offer from any Person relating to any (A) liquidation, dissolution, or
recapitalization, (B) merger or consolidation or share exchange, (C)
acquisition or purchase of securities or assets, or (D) similar
transaction or business combination involving Seller, Shareholder or the
Directories or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or
participate in, execute, sign, deliver or enter into any agreement
(whether written or oral) relating to, or facilitate in any other manner
any effort or attempt by any person to do or seek any of the foregoing.
Seller or Shareholder (as the case may be) will notify TransWestern
immediately if any Person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing and the terms thereof.
(d) General Obligation to Close. Each of the Parties will
use their respective reasonable best efforts to take all actions and to
do all things necessary or desirable to consummate and make effective
the transactions contemplated by this Agreement (including, without
limitation, satisfaction, but not waiver, of the closing conditions set
forth in Article 5) and to cause the other conditions to TransWestern's
and Seller's obligations hereunder to be satisfied as soon as
practicable but in any event no later than required to permit the
Closing to occur on or prior to February 2, 1998.
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<PAGE> 28
4.2 Other Covenants.
(a) Full Access. At all times prior to the Closing Date, Seller
and Shareholder will permit TransWestern, TransWestern's Affiliates, and
their respective employees, accountants, legal counsel and other
representatives to have full access (at all reasonable times upon
reasonable notice and in a manner so as not to interfere with the normal
business operations of Seller or Shareholder) to their premises,
properties, personnel, books, records, contracts, Tax records, and
documents of or pertaining to Seller and the Directories, as is
reasonably necessary or (in the opinion of TransWestern) desirable to
consummate all of the transactions contemplated herein. All information
given to TransWestern and its representatives shall be subject to the
confidentiality provisions set forth in Section 7.2(a).
(b) Notice of Developments. At all times prior to the Closing
Date, (i) Seller will give prompt written notice to TransWestern of any
development affecting the condition, operation, results of operations,
or future prospects of the Directories, and of any variance from the
representations and warranties contained in Section 3.1 and (ii) each
Party will give prompt written notice to the other of any development
affecting the ability of the notifying Party to consummate the
transactions contemplated by this Agreement. No disclosure by any Party
pursuant to this Section 4.2(b) shall be deemed to amend or supplement
the schedules attached hereto delivered by such Party or to prevent or
cure any misrepre sentation, breach of warranty, or breach of covenant
by such Party.
(c) Employee Matters. Immediately prior to the Closing, Seller
shall terminate the employment of all of the employees identified (the
"Employees") on the attached "Employee Schedule," which schedule shall
be prepared and delivered by Seller to TransWestern at least two (2)
business days prior to the Closing. Immediately after the Closing,
TransWestern will offer employment to the Employees. Nothing in this
Agreement shall obligate TransWestern to offer employment to any
employee of Seller or any other individual other than the Employees; and
nothing in this Agreement shall limit the ability of TransWestern to
terminate the employment of any Employee at any time and for any reason,
including without cause. From and after the Closing Date, Seller shall
retain all Liabilities arising under or in connection with any "employee
benefit plan" (as such term is defined in Section 3(3) of ERISA) or any
other employee benefit plan or arrangement at any time maintained or
contributed to by Seller, including, but not limited to, those
Liabilities arising under Part 6 of Title I of ERISA and Section 4980B
of the Code. Seller shall be additionally responsible for all
Liabilities (i) relating to compensation (including vacation pay and
insurance benefits) of any Employee for periods prior to December 31,
1997 and of any other employee of Seller for any period, (ii) for sales
commissions owed with respect to any Prior Edition in excess of $3,000
and/or (iii) arising as a result of the transactions contemplated by
this Agreement, including, but not limited to, severance compensation
and bonus payments, but not including vacation pay and insurance
benefits owed to the Employees for any period (or portion thereof)
commencing January 1, 1998, in an amount not to exceed the amount set
forth on the Assumed Liability Schedule.
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<PAGE> 29
4.3 TransWestern's Post-Closing Collection Obligation. During the
period commencing on the Closing Date and terminating on December 31, 1999 (the
"TransWestern Collection Period"), in addition to its collection efforts for its
own account with respect to any Future Editions, TransWestern shall bill and
collect (on behalf of Seller) all outstanding trade accounts receivable
(including local, foreign and national advertising accounts) associated with the
Prior Editions or any editions of the Seller Directories that have publication
dates occurring prior to June 30, 1998 (collectively, "Seller Accounts
Receivable"). TransWestern shall apply any payments (including interest (if
any)) collected by it hereunder with respect to Sellers Accounts Receivable
shall be applied to payment of Seller Accounts Receivable on a
customer-by-customer basis until either Seller Accounts Receivable are paid in
full or the TransWestern Collection Period has terminated. During the
TransWestern Collection Period, any payments collected by TransWestern from any
customer with respect to accounts receivable arising out of Future Edition
Customer Contracts shall first be applied to satisfy amounts owed by such
customer under any Seller Accounts Receivable and then shall be for the account
of TransWestern. During the TransWestern Collection Period, TransWestern agrees
to use collection methods consistent with its past custom and collection
practice. TransWestern shall not settle or compromise amounts due under any
Seller Account Receivable without providing Seller with seven (7) days prior
notice of the proposed settlement or compromise, and TransWestern and Seller
shall cooperate and work jointly to reach agreement during such 7-day period
with respect to all adjustments, settlements, and write offs to be taken in
connection with any such settlement or compromise. Seller agrees to respond to
all requests by TransWestern to evaluate any such settlement in a timely manner
(and, in any event, shall respond to such notice by TransWestern within 72 hours
after receipt thereof). TransWestern agrees that, during the TransWestern
Collection Period, it will use all reasonable efforts to adhere to Seller's
adjustment guideline policy, which policy includes taking the following actions
in connection with collecting Seller Accounts Receivable:
(a) Placing reminder calls with respect to all accounts that are
more than 30 days past due.
(b) Delivering collection letters with respect to all delinquent
accounts at least 60 days overdue.
In addition, during the TransWestern Collection Period, TransWestern shall
provide to Seller a monthly cash receipts and adjustments ledger report with
respect to each Seller Account Receivable to be collected by TransWestern, along
with a summary for all such Seller Account Receivable of all such receipts and
adjustments. Further, during the TransWestern Collection Period, Seller and
Shareholder agree to cooperate and work jointly with TransWestern to obtain
payment of Seller Accounts Receivable. During the TransWestern Collection
Period, TransWestern shall deliver aging reports to Seller on a monthly basis
and shall deposit weekly any amounts collected by TransWestern on Seller's
behalf pursuant to this Section 4.3 into a bank account specified by Seller. At
the conclusion of the TransWestern Collection Period, TransWestern shall
terminate any collection efforts with respect to such Seller Accounts
Receivable, and transfer to Seller all documentation and information regarding
such Seller Accounts Receivable and transfer to Seller all accounts,
documentation and information regarding such Seller Accounts Receivable. Prior
to the end of the TransWestern Collection Period, TransWestern may return to
Seller for collection (at Seller's
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request) any Seller Accounts Receivable which remain unpaid for any period
beyond 13 months after the due date on the applicable initial invoice.
4.4 Payment of Certain Direct Costs. After the Closing, upon
receipt by TransWestern of any invoice or other request for payment of Direct
Costs arising in connection with any of the Prior Editions or any edition of the
Seller Directories (any such invoice or request or notice for payment is
referred to as a "Seller Direct Cost Invoice"), TransWestern shall notify Seller
and the Shareholder and shall immediately send a copy of such Seller Direct Cost
Invoice to Seller and the Shareholder. As soon as practicable but in any event
no more than ten (10) business days following delivery to Seller of such Seller
Direct Cost Invoice, Seller shall pay the amount of such Seller Direct Cost
Invoice unless Seller disagrees with the amount of such Seller Direct Cost
Invoice, in which case Seller shall undertake its best efforts to resolve any
such disagreements and satisfy such Seller Direct Cost Invoice as soon as
practicable thereafter.
ARTICLE 5 - CONDITIONS
5.1 Conditions To Closing.
(a) Conditions to Closing Obligations of TransWestern. The
obligation of TransWestern to consummate the transactions contemplated
hereby is subject to satisfaction at or prior to the Closing Date of the
following conditions:
(i) Seller's and Shareholder's representations and
warranties set forth in Section 3.1 shall be true and correct, in
each case at and as of the Closing Date, as though the Closing
Date were substituted for the date hereof throughout such
representations and warranties, except for representations and
warranties that are made by their terms as of a specified date,
which shall be true and correct as of a specified date and except
for changes contemplated by this Agreement.
(ii) Each of Seller and Shareholder shall have performed
and complied with all of their respective covenants and
agreements set forth in this Agreement through the Closing Date.
(iii) All governmental or third party filings, licenses,
consents, authorizations, waivers and approvals (including,
without limitation, any consent or approval that may be required
from TransWestern's lenders) that are required to be made or
obtained for the transfer to TransWestern of the Purchased Assets
will have been duly made and obtained without conditions or
requirements that are materially adverse to TransWestern.
(iv) As of the Closing Date, no suit, action or proceeding
before any court or quasi-judicial or administrative agency shall
be pending or threatened wherein any adverse judgment, decree,
order or injunction would (i) prevent the consummation of the
transactions contemplated by this Agreement, (ii) cause any of
such
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transactions to be rescinded following consummation of the
transactions contemplated by this Agreement, (iii) materially and
adversely affect the right of TransWestern to operate or control
the Directories or (iv) result in a Material Adverse Effect (and
no such judgment, decree, order or injunction shall be in
effect).
(v) Seller shall have delivered to TransWestern a
certificate signed by an officer of Seller to the effect that
each of the conditions specified above in subsections
(a)(i)-(vii), inclusive, are satisfied in all respects.
(vi) The Mast Principal shall have entered into a
non-compete agreement in form and substance satisfactory to
TransWestern.
(vii) TransWestern shall have received from Campbell
Martin & Manley, counsel to Seller and Shareholder, an opinion
with respect to the matters set forth in Exhibit D attached
hereto, addressed to TransWestern and dated as of the Closing
Date; and
(viii) On or prior to the Closing Date, Seller will have
delivered to TransWestern each of the following:
(A) copies of all governmental licenses, consents,
authorizations, accreditations, waivers and approvals and
of all consents, waivers and approvals by third parties
that are required to be obtained pursuant to subsection
(iii) above;
(B) a short-form good standing certificate of each
of Seller and Shareholder issued by the Secretary of State
of the State of Delaware and Georgia, respectively, each
dated as of a date within ten (10) days prior to the
Closing Date;
(C) the certificate of incorporation of Seller,
certified as of a date within ten (10) days prior to the
Closing Date by the Secretary of State of Delaware, the
articles of incorporation of Shareholder, certified as of
a date within ten (10) days prior to the Closing Date by
the Secretary of State of Georgia, and bylaws of each of
Seller and Shareholder certified by its Secretary; and
(D) copies of all of the invoices or other
documentation satisfactory to TransWestern of all direct
sales costs associated with each of the Prior Editions and
the Future Editions, (ii) a copy of the licensing
agreement entered into by Seller for the licensing of
white pages in connection with publication of each of the
Future Editions and the 1998 Monroe Directory, (iii)
copies of printing quotes obtained in connection with
publication of each of the Future Editions and the 1998
Monroe Directory, and (iv) the Pro Forma.
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<PAGE> 32
(b) Conditions to Closing Obligations of Seller. The obligation
of Seller and Shareholder to consummate the transactions contemplated
hereby is subject to satisfaction at or prior to the Closing Date of the
following conditions:
(i) TransWestern's representations and warranties set
forth in Section 3.2 shall be true and correct in all material
respects, in each case at and as of the Closing Date, as though
the Closing Date were substituted for the date hereof throughout
such representations and warranties, except for representations
and warranties that are made by their terms as of a specified
date, which shall be true and correct as of a specified date and
except for changes contemplated by this Agreement;
(ii) TransWestern shall have performed and complied with
all of its covenants and agreements set forth in this Agreement
through the Closing Date;
(iii) All governmental or third party filings, licenses,
consents, authorizations, waivers and approvals that are required
to be made or obtained by TransWestern for the transfer to
TransWestern of the Purchased Assets will have been duly made and
obtained without conditions or requirements that are materially
adverse to Seller;
(iv) TransWestern shall have delivered to Seller a
certificate signed by an officer of TransWestern to the effect
that each of the conditions specified in subsections (b)(i)
through (iii) are satisfied in all respects; and
(v) TransWestern shall have paid the Cash Purchase Price
to Seller and shall have delivered the Seller Note to Seller.
All actions to be taken by any Party in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
other Party. Any Party may waive any condition to such Party's obligation, in
whole or in part, specified in this Section 5.1 if it executes a writing so
stating at or prior to the Closing Date or if the Closing occurs; provided,
however, that consummation of the Closing by a Party prior to the satisfaction
of any closing condition in this Section 5.1 shall not operate as a waiver of
such Party's right to terminate this Agreement under Section 6.1(b) and shall
not operate as a waiver of any indemnification rights such Party may otherwise
have hereunder as a result of any breach of any representation, warranty or
covenant of the other Party contained herein.
ARTICLE 6 - TERMINATION
6.1 Termination. The Parties may terminate this Agreement as
provided below:
(a) TransWestern and Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing.
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<PAGE> 33
(b) TransWestern may terminate this Agreement by giving written
notice to Seller at any time prior to the Closing Date in the event
Seller is in breach of any represen tation, warranty, covenant or
closing condition contained in this Agreement.
(c) Seller may terminate this Agreement by giving written notice
to TransWestern at any time prior to the Closing Date in the event
TransWestern is in breach of any representation, warranty, covenant or
closing condition contained in this Agreement.
(d) TransWestern may terminate this Agreement at any time prior
to the Closing Date if the Closing shall not have occurred on or prior
to the close of business on February 2, 1998 as a result of Seller's
inability to satisfy the conditions set forth in Article 5; provided
that TransWestern is not in material breach of any of its
representations, warranties or covenants contained in this Agreement;
and provided, further, that TransWestern will not be entitled to
terminate this Agreement pursuant to this Section 6.1(d) if
TransWestern's willful or knowing breach of this Agreement has prevented
the consummation of the transactions contemplated hereby.
(e) Seller may terminate this Agreement by giving written notice
to TransWestern at any time prior to the Closing Date if the Closing
shall not have occurred on or before the close of business on February
2, 1998 as a result of TransWestern's inability to satisfy the
conditions set forth in Article 5; provided that Seller is not in
material breach of any of its representations, warranties or covenants
contained in this Agreement; and provided, further, that Seller will not
be entitled to terminate this Agreement pursuant to this Section 6.1(e)
if Seller's willful or knowing breach of this Agreement has prevented
the consummation of the transactions contemplated hereby.
6.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 6.1(a), all obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party, (except for any
Liability of any Party then in breach); provided, however, that Sections 7.2 and
7.4 shall survive such termination.
ARTICLE 7 - ADDITIONAL AGREEMENTS
7.1 Post-Closing Assistance. In case at any time after the
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement and to effect, consummate, confirm or evidence the
consummation of the transactions contemplated hereby (including, without
limitation, with respect to the sales into, printing and publication of each of
the Future Editions and with respect to TransWestern's collection obligations
under Section 4.4), each of the Parties will take such further action
(including, without limitation, the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Section 7.3). During the seven-year
period following the Closing Date, TransWestern shall have reasonable access to
Seller's or, if applicable, Shareholder's books and records (and to
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<PAGE> 34
make copies thereof at TransWestern's expense) for any proper purpose set forth
by TransWestern in a writing delivered to Seller or Shareholder.
7.2 Confidentiality.
(a) Information Concerning the Parties. Regardless of whether the
transactions hereunder are consummated, (i) TransWestern and its
Affiliates shall keep confidential all information regarding Seller's
telephone directory business which is or has been furnished to
TransWestern or its directors, officers, employees, representatives,
advisors or Affiliates by or on behalf of Seller and (ii) Seller shall
keep confidential all information regarding TransWestern's business
which is or has been furnished to Seller, or any of its partners,
directors, officers, employees, representatives, advisers or Affiliates
by or on behalf of TransWestern. In the event the transactions
contemplated by this Agreement are not consummated, the Parties shall
return (or certify the destruction of) all materials in their possession
containing confidential information belonging to another Party and shall
not use any such information for any purpose whatsoever. The foregoing
notwithstanding, none of the provisions in this Section 7.2(a) shall
apply to any information which (x) is already in a Party's possession
(provided that such information is not subject to another
confidentiality agreement with or other legal or fiduciary obligation of
secrecy to the Party to which the information relates (such agreements
and obligations being referred to as "Confidentiality Obligations"));
(y) becomes generally available to the public other than as a result of
any breach of this Section 7.2(a) or a Confidentiality Obligation; or
(z) becomes available to a Party on a non-confidential basis from a
source other than the Party to which the information relates (provided
that such source is not bound by a Confidentiality Obligation with, or
other legal or fiduciary obligation of, secrecy to the Party to which
the information relates).
(b) Notice of Compulsory Disclosure. In the event any Party
hereto is required to disclose any confidential information pursuant to
applicable law, such Party shall promptly notify each other Party in
writing, which notification shall include the nature of the legal
requirement and the extent of the required disclosure, and shall
cooperate with each other Party to preserve the confidentiality of such
information consistent with applicable law.
(c) Non-Competition.
(i) As a material inducement to TransWestern to enter into
and perform its obligations under this Agreement, for a period of
five years following the Closing Date, neither Seller nor
Shareholder or any of their respective successors will, directly
or indirectly, either for itself or for any partnership,
individual, corporation, joint venture or any other entity
participate in any business (including, without limitation, any
division, group or franchise of a larger organization) which
engages in or proposes to engage in the promotion, sale,
distribution, production or printing of telephone directory
"yellow pages" or similar products or related services in any
County where a Directory is published. For purposes of this
Agreement, the term "participate in" shall include, without
limitation, having any direct or indirect interest in any
corporation, partnership, joint venture or other entity, whether
as a sole
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<PAGE> 35
proprietor, owner, shareholder, partner, joint venturer, creditor
or otherwise, or rendering any direct or indirect service or
assistance to any individual corporation, partnership, joint
venture and other business entity (whether as a director,
officer, manager, supervisor, employee, agent, consultant or
otherwise).
(ii) As a material inducement to Seller and Shareholder to
enter into and perform their obligations under this Agreement,
for a period ending on the earlier of (A) the date which is five
years following the Closing Date and (B) the date as of which
Seller no longer owns or publishes the telephone directories,
neither TransWestern nor any of its successors will, directly or
indirectly, either for itself or for any partnership, individual,
corporation, joint venture or any other entity participate in any
business (including, without limitation, any division, group or
franchise of a larger organization) which engages in or proposes
to engage in the promotion, sale, distribution, production or
printing of telephone directory "yellow pages" or similar
products or related services in any area covered or serviced by
the Seller as of the Closing Date. For purposes of this
Agreement, the term "participate in" shall include, without
limitation, having any direct or indirect interest in any
corporation, partnership, joint venture or other entity, whether
as a sole proprietor, owner, shareholder, partner, joint
venturer, creditor or otherwise, or rendering any direct or
indirect service or assistance to any individual corporation,
partnership, joint venture and other business entity (whether as
a director, officer, manager, supervisor, employee, agent,
consultant or otherwise).
(iii) Each of Seller and Shareholder, on the one hand, and
TransWestern, on the other hand, hereto agree that the other
Party would suffer irreparable harm from a breach by such Party
of any of the covenants or agreements contained in Section
7.2(c)(i) and 7.2(c)(ii), as the case may be. In the event of an
alleged or threatened breach by any Party of any of the
provisions of this Section 7.2(c), the other Party or its
successors or assigns may, in addition to all other rights and
remedies existing in its favor, apply to any court of competent
jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the
provisions hereof equal to the length of the violation of this
Section 7.2(c).
(iv) If, at the time of enforcement of this Section
7.2(c), a court shall hold that the duration, scope or area
restrictions stated herein are unreasonable under circumstances
then existing, the Parties agree that the maximum duration, scope
or area reasonable under such circumstances shall be substituted
for the stated duration, scope or area and that the court shall
be allowed to revise the restrictions contained herein to cover
the maximum period, scope and area permitted by law. Each Party
agrees that the restrictions contained in subsection 7.2(c)(i)
and (ii) are reasonable.
(v) Each Party agrees that the covenants made in this
Section 7.2(c) shall be construed as an agreement independent of
any other provision of this Agreement
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<PAGE> 36
and shall survive any order of a court of competent jurisdiction
terminating any other provision of this Agreement.
7.3 Indemnification.
(i) In addition to all rights and remedies available to
TransWestern at law or in equity, Seller and Shareholder shall
jointly and severally indemnify TransWestern, its Affiliates,
members, managers, officers, employees, agents, representatives,
permitted successors and assigns (collectively, the "TransWestern
Indemnities") in respect of, and save and hold each TransWestern
Indemnitee harmless against, and pay on behalf of or reimburse
each TransWestern Indemnitee for, as and when incurred at any
time after the Closing Date or such earlier date when this
Agreement may be terminated pursuant to Article 6, any Loss which
any such TransWestern Indemnitee may suffer, sustain or become
subject to, as a result of, in connection with, relating or
incidental to or by virtue of:
(A) any breach of any representation, warranty,
covenant or agreement made by Seller or Shareholder in
this Agreement or any facts or circumstances constituting
such a breach;
(B) any Excluded Asset;
(C) any Excluded Liability; or
(D) any Sales/Use Tax Liability.
(ii) In addition to all rights and remedies available to
Seller at law or in equity, TransWestern shall indemnify Seller
and its Affiliates, officers, directors, employees, agents,
representatives and permitted successors and assigns
(collectively, "Seller Indemnitees") in respect of, and save and
hold each of them harmless from and against, and pay on behalf of
or reimburse each Seller Indemnitee for, as and when incurred at
any time after the Closing Date or such earlier date when this
Agreement may be terminated pursuant to Article 6, any Loss which
such Seller Indemnitee may suffer, sustain or become subject to,
as the result of, in connection with, relating to or incidental
to or by virtue of the breach by TransWestern of any
representation, warranty, covenant or agreement made by
TransWestern contained in this Agreement.
(iii) If a party hereto seeks indemnification under this
Section 7.3, such party (the "Indemnified Party") shall give
written notice to the other party (the "Indemnifying Party") of
the facts and circumstances giving rise to the claim. In that
regard, if any suit, action, claim, liability or obligation (a
"Proceeding") shall be brought or asserted by any third party
which, if adversely determined, would entitle the Indemnified
Party to indemnity pursuant to this Section 7.3, the Indemnified
Party shall within thirty (30) days notify the Indemnifying Party
of the same in
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<PAGE> 37
writing, specifying in detail the basis of such claim and the
facts pertaining thereto; provided, that the failure to so notify
an Indemnifying Party shall not relieve the Indemnifying Party of
its obligations hereunder except to the extent such failure shall
have harmed the Indemnifying Party. The Indemnifying Party, if it
so elects, shall assume and control the defense of such
Proceeding (and shall consult with the Indemnified Party with
respect thereto), including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of
expenses; provided however, that in the event any Proceeding
shall be brought or asserted by any third party which, if
adversely determined, would not entitle the Indemnified Party to
full Indemnity pursuant to Section 7.3, the Indemnified Party may
elect to participate in a joint defense of such Proceeding (a
"Joint Defense Proceeding") for which the expenses of such joint
defense will be shared equally by such parties and the employment
of counsel shall be reasonably satisfactory to both parties. If
the Indemnifying Party elects to assume and control the defense
of a Proceeding, it will provide notice thereof within thirty
(30) days after the Indemnified Party has given notice of the
matter and if such Proceeding is not a Joint Defense Proceeding,
the Indemnified Party shall have the right to employ counsel
separate from counsel employed by the Indemnifying Party in any
such action and to participate in the defense thereof, but the
fees and expenses of such counsel employed by the Indemnified
Party shall be at the expense of the Indemnified Party unless (i)
the employment thereof has been specifically authorized by the
Indemnifying Party in writing or (ii) the Indemnifying Party has
failed to assume the defense and employ counsel. The Indemnifying
Party shall not be liable for any settlement of any Proceeding,
the defense of which it has elected to assume, which settlement
is effected without the written consent of the Indemnifying
Party; provided that no settlement of a Joint Defense Proceeding
may be effected without the written consent of both parties. If
there shall be a settlement to which the Indemnifying Party
consents or a final judgment for the plaintiff in any Proceeding,
the defense of which the Indemnifying Party has elected to
assume, the Indemnifying Party shall indemnify the Indemnified
Party with respect to the settlement or judgment. If the
Indemnifying Party elects to assume and control the defense or in
the event of a Joint Defense Proceeding, the Indemnified Party
shall take all reasonable efforts necessary to assist the
Indemnifying Party in such defense.
(iv) The Indemnifying Party shall pay the Indemnified
Party in immediately available funds promptly after the
Indemnified Party provides the Indemnifying Party with written
notice of any Loss incurred by the Indemnified Party hereunder
but in any event not later than thirty (30) days after
Indemnifying Party received notice of a Loss.
(v) In addition to any other remedies, TransWestern shall
be entitled to set-off any amounts due or payable by Seller or
Shareholder to TransWestern pursuant to, under or in connection
with this Agreement against any amount (including, without
limitation, in respect of the Seller Note) otherwise due or
payable by TransWestern to Seller or Shareholder under this
Agreement.
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<PAGE> 38
7.4 Arbitration.
(a) The arbitration procedure set forth below shall be the sole
and exclusive method for resolving and remedying claims for money damages
arising out of the provisions of Section 7.3 (the "Disputes"), provided that,
nothing in this Section 7.4 shall prohibit a party hereto from instituting
litigation to enforce any Final Determination or availing itself of the remedies
set forth in Section 7.2(c). The Parties hereby agree and acknowledge that,
except as otherwise provided in this Section 7.4 or in the Commercial
Arbitration Rules of the American Arbitration Association as in effect from time
to time, the arbitration procedures and any Final Determination hereunder shall
be governed by, and shall be enforced pursuant to the Uniform Arbitration Act
and applicable provisions of Georgia law.
(b) In the event that any Party asserts that there exists a
Dispute, such Party shall deliver a written notice to each other Party involved
therein specifying the nature of the asserted Dispute and requesting a meeting
to attempt to resolve the same. If no such resolution is reached within ten
business days after such delivery of such notice, the Party delivering such
notice of Dispute (the "Disputing Person") may, within 45 business days after
delivery of such notice, commence arbitration hereunder by delivering to each
other Party involved therein a notice of arbitration (a "Notice of Arbitration")
and by filing a copy of such Notice of Arbitration with the Atlanta, Georgia
office of the American Arbitration Association. Such Notice of Arbitration shall
specify the matters as to which arbitration is sought, the nature of any
Dispute, the claims of each Party to the arbitration and shall specify the
amount and nature of any damages, if any, sought to be recovered as a result of
any alleged claim, and any other matters required by the Commercial Arbitration
Rules of the American Arbitration Association as in effect from time to time to
be included therein, if any.
(c) Seller and TransWestern each shall select one independent
arbitrator expert in the subject matter of the Dispute (the arbitrators so
selected shall be referred to herein as "Seller's Arbitrator" and
"TransWestern's Arbitrator," respectively). In the event that either Party fails
to select an independent arbitrator as set forth herein within 20 days from
delivery of a Notice of Arbitration, then the matter shall be resolved by the
arbitrator selected by the other Party. Seller's Arbitrator and TransWestern's
Arbitrator shall select a third independent arbitrator expert in the subject
matter of the dispute, and the three arbitrators so selected shall resolve the
matter according to the procedures set forth in this Section 7.4. If Seller's
Arbitrator and TransWestern's Arbitrator are unable to agree on a third
arbitrator within 20 days after their selection, Seller's Arbitrator and
TransWestern's Arbitrator shall each prepare a list of three independent
arbitrators. Seller's Arbitrator and TransWestern's Arbitrator shall each have
the opportunity to designate as objectionable and eliminate one arbitrator from
the other arbitrator's list within 7 days after submission thereof, and the
third arbitrator shall then be selected by lot from the arbitrators remaining on
the lists submitted by Seller's Arbitrator and TransWestern's Arbitrator.
(d) The arbitrator(s) selected pursuant to clause (c) will
determine the allocation of the costs and expenses of arbitration based upon the
percentage which the portion of the contested amount not awarded to each Party
bears to the amount actually contested by such Party. For example, if
TransWestern submits a claim for $1,000, and if Seller contests only $500 of the
amount
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<PAGE> 39
claimed by TransWestern, and if the arbitrator(s) ultimately resolves the
dispute by awarding TransWestern $300 of the $500 contested, then the costs and
expenses of arbitration will be allocated 60% (i.e. 300 / 500) to Seller and 40%
(i.e. 200 / 500) to TransWestern.
(e) The arbitration shall be conducted under the Commercial
Arbitration Rules of the American Arbitration Association as in effect from time
to time, except as otherwise set forth herein or as modified by the agreement of
all of the parties to this Agreement. The arbitrator(s) shall so conduct the
arbitration that a final result, determination, finding, judgment and/or award
(the "Final Determination") is made or rendered as soon as practicable, but in
no event later than 90 business days after the delivery of the Notice of
Arbitration nor later than 10 days following completion of the arbitration. The
Final Determination must be agreed upon and signed by the sole arbitrator or by
at least two of the three arbitrators (as the case may be). The Final
Determination shall be final and binding on all parties and there shall be no
appeal from or reexamination of the Final Determination, except for fraud,
perjury, evident partiality or misconduct by an arbitrator prejudicing the
rights of any Party and to correct manifest clerical errors.
(f) TransWestern and Seller may enforce any Final Determination
in any state or federal court having jurisdiction over the dispute. For the
purpose of any action or proceeding instituted with respect to any Final
Determination, each Party hereto hereby irrevocably submits to the jurisdiction
of such courts, irrevocably consents to the service of process by registered
mail or personal service and hereby irrevocably waives, to the fullest extent
permitted by law, any objection which it may have or hereafter have as to
personal jurisdiction, the laying of the venue of any such action or proceeding
brought in any such court and any claim that any such action or proceeding
brought in such court has been brought in an inconvenient forum.
(g) If any Party shall fail to pay the amount of any damages, if
any, assessed against it within ten (10) days of the delivery to such Party of
such Final Determination, the unpaid amount shall bear interest from the date of
such delivery at the lesser of (i) the prime rate of interest announced by
NationsBank, N.A., in effect from time to time (which rate shall be adjusted on
the effective date of each change in such prime rate) plus 3.00% and (ii) the
maximum rate permitted by applicable usury laws. Interest on any such unpaid
amount shall be compounded semi-annually, computed on the basis of a 360-day
year consisting of twelve 30-day months and shall be payable on demand. In
addition, such Party shall promptly reimburse the other Party for any and all
costs or expenses of any nature or kind whatsoever (including but not limited to
all attorneys' fees) incurred in seeking to collect such damages or to enforce
any Final Determination.
7.5 Miscellaneous.
(a) Representations and Warranties. All of the representations
and warranties made by TransWestern in this Agreement and all of the
representations and warranties made by Seller and Shareholder shall
survive the execution and delivery of this Agreement and consummation of
the transactions contemplated hereby, regardless of any investigation
made by any Party or on its behalf. Neither Party's participation in the
consummation of any transaction pursuant to this Agreement (or any
agreement contemplated hereby) nor any waiver of any condition to such
participation (including any condition that a representation
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<PAGE> 40
or warranty of any other Party be true and correct) will constitute a
waiver by such participating Party of any representation or warranty of
any Party or otherwise affect the survival of any such representation
and warranty which shall continue in full force and effect after the
Closing.
(b) Press Releases and Announcements; Notice to Customers. All
press releases and other public announcements and all announcements to
Seller's customers, suppliers, licensees or employees relating to the
transactions contemplated hereby (including with respect to any
termination of this Agreement pursuant to Article 6) shall be prepared
jointly by Seller and TransWestern. Without in any way limiting the
generality of the foregoing, at the request of TransWestern, Seller
shall promptly notify (in a manner in form and substance mutually
satisfactory to TransWestern and Seller) each of its customers and each
other Person deemed by TransWestern to be an appropriate recipient of
such notice (i) that TransWestern will own and publish all editions of
the Directories as of the Closing Date and (ii) setting forth such other
information as TransWestern may reasonably request to confirm or
evidence the transfer of the Directories to TransWestern. After the
Closing until December 31, 1999, TransWestern shall use billing
statements containing the Seller's name in connection with its
collection obligations under Section 4.3 and to provide notice thereon
of the change in billing address resulting from the transactions
contemplated herein.
(c) Further Transfers and Assurance. Each Party will execute and
deliver such other documents as the other Party may reasonably request
to effect, consummate, confirm or evidence the transfer to such other
Party of the Purchased Assets and any other transactions contemplated
hereby. Without limiting the generality of the foregoing, to the extent
there are any assets necessary or (in the opinion of TransWestern)
advisable to the ownership and publication of the Directories as
presently owned and published by Seller and as proposed to be owned and
published by TransWestern that are not transferred hereunder to
TransWestern, Seller will execute and deliver such further instruments
of conveyance and transfer and take such additional action as may be
required to transfer such assets to TransWestern.
(d) Name and Logos of Parties. The Parties hereby agree that the
cover of the first edition of each Directory to be published after the
Closing shall be designed to reflect the names and logos of each of
TransWestern and Seller and shall be produced in a style and format
reasonably acceptable to TransWestern and Seller.
(e) No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(f) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties
and supersedes any prior understandings, agreements, or representations
by or between the Parties, written or oral, that may have related in any
way to the subject matter hereof (including the letter agreement by
TransWestern to Seller dated December 19, 1997).
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<PAGE> 41
(g) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either
this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Parties hereto.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(i) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(j) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
given (i) when delivered, if personally delivered, (ii) when receipt is
electronically confirmed, if faxed (with hard copy to follow via first
class mail, postage prepaid) or (iii) one day after deposit with a
reputable overnight courier, in each case addressed to the intended
recipient as set forth below:
If to Seller: with a copy (which shall not constitute
notice) to:
Douglas K. Lackey, President
100 Town Center Parkway Campbell Martin & Manley, LLP
P.O. Box 339 990 Hammond Drive
Spring Hill, TN 37174-0339 Suite 800
Telecopy #: (931) 486-1893 Atlanta, GA 30328
Attn: David B. Manley, Esq.
Telecopy #: (770) 396-2171
If to TransWestern: with a copy (which shall not constitute
notice) to:
TransWestern Publishing Company
8328 Clairemont Mesa Blvd. Kirkland & Ellis
San Diego, CA 92111 200 East Randolph Drive
Attn: Joan Fiorito Chicago, IL 60601
Chief Financial Officer Attn: Wendy L. Chronister, Esq.
Telecopy #: (619) 292-4125 Telecopy #: (312) 861-2200
Any Party may change the address and/or telecopier number to
which notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other Party notice in the manner herein set forth.
(K) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF GEORGIA,
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION
OR RULE (WHETHER OF THE STATE OF GEORGIA OR ANY
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<PAGE> 42
OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF GEORGIA.
(l) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed
by each Party. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not,
shall be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(m) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
If the final judgment of a court of competent jurisdiction declares that
any term or provision hereof is invalid or unenforceable, the Parties
agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or
area of the term or provision, to delete specific words or phrases, or
to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
(n) Expenses. Except as otherwise specifically provided herein,
Seller, Shareholder and TransWestern each will bear its own costs and
expenses (including legal and broker fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
(o) Taxes; Recording Charges. All transfer, documentary, sales,
use, stamp, registration, conveyance, income, gains, value added or
other Taxes and fees arising out of the sale of the Purchased Assets or
otherwise incurred in connection with this Agreement or the consummation
of the transactions contemplated hereby and all charges for or in
connection with the recording of all of the documents and instruments
contemplated hereby shall be paid by Shareholder when due and will not
be paid with the assets of Seller. Shareholder will, at his own expense,
file all necessary Tax Returns and other documentation in connection
with the Taxes and fees encompassed in this Section 7.5(p).
(p) Construction. The Parties have jointly participated in the
negotiation and drafting of this Agreement. In the event of an ambiguity
or question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumptions or
burdens of proof shall arise favoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to
any federal, state, local, or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. Nothing in the disclosure
schedules shall be deemed adequate to disclose an exception to a
representation or warranty made herein
- 37 -
<PAGE> 43
unless the disclosure schedules identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. The
Parties intend that each representation, warranty, and covenant
contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in
any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of
the relative levels of specificity) which the Party has not breached
shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty, or covenant.
(q) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(r) Number and Gender. Each defined term used in this Agreement
has a comparable meaning when used in its plural or singular form. Each
gender-specific term used herein has a comparable meaning whether used
in a masculine, feminine or gender-neutral form.
* * * * *
- 38 -
<PAGE> 44
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
TRANSWESTERN PUBLISHING COMPANY LLC
By: TransWestern Communication Inc.,
its Manager
By: /S/ RICARDO PUENTE
___________________________________________
Its: PRESIDENT
___________________________________________
MAST ADVERTISING & PUBLISHING, INC.
/S/ DOUGLAS K. LACKEY
__________________________________________________
Douglas K. Lackey
President and Chief Executive Officer
ALLIED MANAGEMENT, INC.
/S/ DOUGLAS K. LACKEY
__________________________________________________
Douglas K. Lackey
President and Chief Executive Officer
(Signature Page to Asset Purchase Agreement)
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<FISCAL-YEAR-END> APR-30-1998
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