<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1998.
REGISTRATION NO. 333-42117
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRANSWESTERN HOLDINGS L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2741 33-0560667
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
TWP CAPITAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2741 33-0779058
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
8344 CLAIREMONT MESA BOULEVARD
SAN DIEGO, CALIFORNIA 92111
TELEPHONE: (619) 467-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<S> <C>
JOAN M. FIORITO COPY TO:
8344 CLAIREMONT MESA BOULEVARD WILLIAM S. KIRSCH, P.C.
SAN DIEGO, CALIFORNIA 92111 KIRKLAND & ELLIS
TELEPHONE: (619) 467-2800 200 EAST RANDOLPH DRIVE
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, CHICAGO, ILLINOIS 60601
INCLUDING AREA CODE, OF AGENT FOR SERVICE) TELEPHONE: (312) 861-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 2, 1998
PRELIMINARY PROSPECTUS
FEBRUARY , 1998
TRANSWESTERN HOLDINGS L.P.
TWP CAPITAL CORP.
OFFER TO EXCHANGE THEIR SERIES B 11 7/8% SENIOR DISCOUNT NOTES DUE 2008
FOR ANY AND ALL OF THEIR OUTSTANDING
11 7/8% SENIOR DISCOUNT NOTES DUE 2008
THE DISCOUNT NOTE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1998, UNLESS EXTENDED.
TransWestern Holdings L.P., a Delaware limited partnership ("Holdings") and
TWP Capital Corp., a Delaware corporation ("Capital" and, together with
Holdings, the "Discount Note Issuers") hereby offer (the "Discount Note Exchange
Offer"), upon the terms and conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount at maturity of their Series B
11 7/8% Senior Discount Notes due 2008 (the "Exchange Discount Notes"),
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a registration statement of which this Prospectus is a part, for
each $1,000 principal amount at maturity of their outstanding 11 7/8% Senior
Discount Notes due 2008 (the "Old Discount Notes"), of which $57,916,000
aggregate principal amount at maturity is outstanding as of the date hereof. The
form and terms of the Exchange Discount Notes are the same as the form and terms
of the Old Discount Notes except that (i) the Exchange Discount Notes will bear
a Series B designation, (ii) the Exchange Discount Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (iii) holders of the Exchange Discount
Notes will not be entitled to certain rights of holders of Old Discount Notes
under the Registration Rights Agreement (as defined herein). The Exchange
Discount Notes will evidence the same debt as the Old Discount Notes (which they
replace) and will be issued under and be entitled to the benefits of the
Indenture dated as November 12, 1997 (the "Discount Note Indenture") by and
among the Discount Note Issuers and Wilmington Trust Company, as trustee. The
Old Discount Notes were initially issued on November 12, 1997. The Old Discount
Notes and the Exchange Discount Notes are sometimes referred to herein
collectively as the "Discount Notes." See "The Discount Note Exchange Offer" and
"Description of the Discount Notes."
The Old Discount Notes were issued at a substantial discount to their
principal amount at maturity. The offering price of the Old Discount Notes was
$32,500,000 and their principal amount at maturity is $57,916,000. Interest on
the Discount Notes will not accrue or be payable prior to November 15, 2002.
Thereafter, interest on the Discount Notes will accrue on the principal amount
at maturity at the rate of 11 7/8% per annum and will be payable semi-annually
on each May 15 and November 15, commencing May 15, 2003. Interest will be
payable at the option of the Discount Note Issuers at a rate of 13 3/8% per
annum by the issuance of additional Discount Notes (valued at 100% of the face
amount thereof) in lieu of cash interest.
The Discount Notes will be redeemable at the option of the Discount Note
Issuers, in whole or in part, at any time on or after November 15, 2002, at the
redemption prices set forth herein, together with accrued and unpaid interest
thereon, if any, to the redemption date. In addition, the Discount Note Issuers,
at their option, may redeem all, but not less than all, of the aggregate
principal amount of the Discount Notes outstanding at any time prior to November
15, 2002 at a redemption price equal to 111.875% of the Accreted Value (as
defined herein) thereof, out of the Net Proceeds (as defined herein) of one or
more Public Equity Offerings (as defined herein), provided, however, that any
such redemption occurs within 90 days following the closing of any such Public
Equity Offering. See "Description of the Discount Notes -- Optional Redemption."
Upon the occurrence of a Change of Control (as defined herein), each holder of
the Discount Notes will be entitled to require the Discount Note Issuers to
purchase such holder's Discount Notes at a purchase price equal to (i) 101% of
the Accreted Value thereof, if the repurchase date is on or prior to November
15, 2002, or (ii) 101% of the principal amount at maturity thereof, together
with accrued and unpaid interest thereon, if any, to the repurchase date, if
such date is after November 15, 2002. See "Description of the Discount
Notes -- Change of Control Offer."
The Discount Notes will be general senior unsecured obligations of the
Discount Note Issuers and will rank senior in right of payment to any
subordinated indebtedness of the Discount Note Issuers. The Discount Notes will
be effectively subordinated in right of payment to all existing and future
obligations of the Company's (as defined herein) subsidiaries, including
TransWestern (as defined herein). As of October 31, 1997, after giving effect to
the consummation of the Initial Offerings (as defined herein) and the Asset
Drop-Down (as defined herein), such subsidiaries would have had approximately
$185.0 million aggregate principal amount of Indebtedness outstanding. In
addition, such
(Cover continued on following page)
------------------------
SEE "RISK FACTORS" ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD DISCOUNT NOTES IN THE
DISCOUNT NOTE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
(Cover page continued)
subsidiaries would have had $40.0 million of additional borrowing availability
under the Senior Credit Facility (as defined herein). Holdings' pro forma
earnings were insufficient to cover fixed charges by approximately $4.5 million
for the fiscal year ended April 30, 1997 and $10.0 million for the six-month
period ended October 31, 1997. See "Capitalization" and "Description of the
Discount Notes."
The Discount Note Issuers will accept for exchange any and all Old Discount
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time
on , 1998, unless extended by the Discount Note Issuers in their
sole discretion (the "Expiration Date"). Tenders of Old Discount Notes may be
withdrawn at any time prior to 5:00 p.m. on the Expiration Date. The Discount
Note Exchange Offer is subject to certain customary conditions. The Old Discount
Notes were sold by the Discount Note Issuers on November 12, 1997 to CIBC
Oppenheimer and First Union Capital Markets Corp. (the "Initial Purchasers") in
a transaction not registered under the Securities Act in reliance upon an
exemption under the Securities Act (the "Initial Discount Note Offering"). The
Initial Purchasers subsequently placed the Old Discount Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act and
qualified buyers outside the United States in reliance upon Regulation S under
the Securities Act. Accordingly, the Old Discount Notes may not be reoffered,
resold or otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Discount Notes are
being offered hereunder in order to satisfy the obligations of the Discount Note
Issuers under the Registration Rights Agreement entered into by the Discount
Note Issuers and the Initial Purchasers in connection with the Initial Discount
Note Offering. See "The Discount Note Exchange Offer."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Discount Note Issuers believe that the Exchange Discount
Notes issued pursuant to the Discount Note Exchange Offer may be offered for
resale, resold and otherwise transferred by any holder thereof (other than any
such holder that is an "affiliate" of the Discount Note Issuers within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Discount Notes are acquired in the ordinary course
of such holder's business and such holder has no arrangement or understanding
with any person to participate in the distribution of such Exchange Discount
Notes. See "The Discount Note Exchange Offer -- Resale of the Exchange Discount
Notes." Holders of Old Discount Notes wishing to accept the Discount Note
Exchange Offer must represent to the Discount Note Issuers, as required by the
Registration Rights Agreement, that such conditions have been met. Each
broker-dealer (a "Participating Broker-Dealer") that receives Exchange Discount
Notes for its own account pursuant to the Discount Note Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Discount Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with resales
of Exchange Discount Notes received in exchange for Old Discount Notes where
such Old Discount Notes were acquired by such Participating Broker-Dealer as a
result of market-making activities or other trading activities. The Discount
Note Issuers have agreed that, for a period of 180 days after the Expiration
Date, they will make this Prospectus, as it may be required to be amended or
supplemented during such period, available to any Participating Broker-Dealer
for use in connection with any such resale. See "Plan of Distribution."
Holders of Old Discount Notes not tendered and accepted in the Discount
Note Exchange Offer will continue to hold such Old Discount Notes and will be
entitled to all the rights and benefits and will be subject to the limitations
applicable thereto under the Discount Note Indenture and with respect to
transfer under the Securities Act.
The Discount Note Issuers will not receive any proceeds from the Discount
Note Exchange Offer. The Discount Note Issuers have agreed to bear the expenses
of the Discount Note Exchange Offer. No underwriter is being used in connection
with the Discount Note Exchange Offer.
There has not previously been any public market for the Old Discount Notes
or the Exchange Discount Notes. The Discount Note Issuers do not intend to list
the Exchange Discount Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. There can be no assurance that
an active market for the Exchange Discount Notes will develop. See "Risk
Factors -- Absence of a Public Market Could Adversely Affect the Value of
Exchange Discount Notes." Moreover, to the extent
<PAGE> 4
(Cover page continued)
that Old Discount Notes are tendered and accepted in the Discount Note Exchange
Offer, the trading market for untendered and tendered but unaccepted Old
Discount Notes could be adversely affected.
Concurrent with the Initial Discount Note Offering, TransWestern Publishing
Company LLC ("TransWestern"), a subsidiary of Holdings, and TWP Capital Corp. II
("Capital II," and together with TransWestern, the "Company" or the "Issuers"),
sold (the "Initial Offering," and together with the Initial Discount Note
Offering, the "Initial Offerings") $100 million in initial aggregate principal
amount of their 9 5/8% Senior Subordinated Notes due 2007 (the "Old Notes").
Concurrent with this Discount Note Exchange Offer, the Issuers are offering
to exchange (the "Exchange Offer," and together with this Discount Note Exchange
Offer, the "Exchange Offers") $1,000 principal amount at maturity of their
Series B 9 5/8% Senior Subordinated Notes due 2007 (the "Exchange Notes")
registered under the Securities Act pursuant to a registration statement, for
each $1,000 principal amount at maturity of their outstanding Old Notes, of
which $100 million in initial aggregate principal amount is outstanding. The Old
Notes and the Exchange Notes are sometimes referred to herein collectively as
the "Notes." See "The Transactions" and "Description of the Notes."
Pursuant to the Recapitalization, Holdings redeemed a portion of the
limited partnership interests held by the Existing Limited Partners (as defined
herein), including the Management Investors (as defined herein), who as a group
received an aggregate of approximately $38 million in the Recapitalization and
exchanged their remaining limited partnership interests, valued at approximately
$11 million in the Recapitalization, for newly issued Preferred and Class A
Units (as defined herein). Also in connection with the Recapitalization,
Holdings repaid $833,419 in loans made to Holdings by TransWestern
Communications Company, Inc. ("TCC"), its General Partner. The loans were made
by TCC to Holdings for amounts distributed to TCC in connection with the
periodic and special distributions made by Holdings to its partners. Holdings
used approximately $31.3 million of the proceeds of the Initial Discount Note
Offering to redeem approximately one half of the Preferred Units held by its
limited partners. See "Certain Transactions -- Benefits of the Recapitalization
to Certain Existing Security Owners and Management Investors," "-- Payments on
TCC Note" and "-- Redemption of Preferred Units."
THE DISCOUNT NOTE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE
DISCOUNT NOTE ISSUERS ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD
DISCOUNT NOTES IN ANY JURISDICTION IN WHICH THE DISCOUNT NOTE EXCHANGE OFFER OR
THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE
SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DISCOUNT NOTE ISSUERS.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE DISCOUNT
NOTE EXCHANGE OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE
DISCOUNT NOTES, WHETHER OR NOT PARTICIPATING IN THE DISCOUNT NOTE EXCHANGE
OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Exchange Discount Notes will be available initially only in book-entry
form and the Discount Note Issuers expect that the Exchange Discount Notes
issued pursuant to the Discount Note Exchange Offer will be issued in the form
of a Global Note (as defined herein), which will be deposited with, or on behalf
of, The Depository Trust Company ("DTC") and registered in its name or in the
name of Cede & Co., its nominee. Beneficial interests in the Global Note
representing the Exchange Discount Notes will be shown on, and transfers thereof
will be effected through, records maintained by DTC and its participants. After
the initial issuance of the Global Note, Exchange Discount Notes in certificated
form will be issued in exchange for the Global Note only under limited
circumstances as set forth in the Discount Note Indenture. See "Description of
the Discount Notes -- Book Entry; Delivery and Form."
<PAGE> 5
AVAILABLE INFORMATION
The Discount Note Issuers have filed with the Commission a registration
statement on Form S-4 (the "Discount Note Exchange Offer Registration
Statement," which term shall encompass all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act, and the rules and regulations
promulgated thereunder, covering the Discount Note Exchange Offer contemplated
hereby. This Prospectus does not contain all the information set forth in the
Discount Note Exchange Offer Registration Statement. For further information
with respect to the Discount Note Issuers and the Discount Note Exchange Offer,
reference is made to the Discount Note Exchange Offer Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the Discount
Note Exchange Offer Registration Statement, reference is made to the exhibit for
a more complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Discount Note Exchange Offer Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and inspected at the Commission's regional offices at 7 World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, Suite 1400,
500 West Madison Street, Chicago, Illinois 60661. Copies of such materials can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov.
As a result of the filing of the Discount Note Exchange Offer Registration
Statement with the Commission, the Discount Note Issuers will become subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith will be required to
file periodic reports and other information with the Commission. The obligation
of the Discount Note Issuers to file periodic reports and other information with
the Commission will be suspended if the Discount Notes are held of record by
fewer than 300 holders as of the beginning of any fiscal year of the Discount
Note Issuers other than the fiscal year in which the Discount Note Exchange
Offer Registration Statement is declared effective. Holdings has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Discount Notes remain outstanding, it will
furnish to the holders of the Discount Notes and file with the Commission
(unless the Commission will not accept such a filing) (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if Holdings was required to file such
forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by Holdings' certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if Holdings was required to file such reports. Capital will furnish to the
holders of the Discount Notes and file such reports with the Commission only if
it is required to file such reports with the Commission by the rules and
regulations of the Commission. In addition, for so long as any of the Discount
Notes remain outstanding, the Discount Note Issuers have agreed to furnish to
the holders of the Discount Notes or any prospective transferee of any such
holder, upon their request the information required to be delivered by Rule
144A(d)(4) under the Securities Act.
i
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise specified herein, all market and
industry data relating to independent yellow pages directory publishers are
based on information provided by Cowles/Simba Information, an independent market
research firm, as adjusted to reflect the Company's actual performance and
events known to the Company, including recent acquisitions and dispositions of
directories by certain of the publishers listed therein, and all other market
and industry data have been obtained from the Yellow Pages Publishers
Association, an independent trade association. Unless the context otherwise
requires (i) the term "TransWestern business" refers to the historical
operations of the Company and the TransWestern business acquired in 1993 (the
"1993 Acquisition") from US West Marketing Resources Group, Inc., a subsidiary
of US WEST INC. ("US West"), (ii) the term "Holdings" refers to TransWestern
Holdings L.P. (f/k/a TransWestern Publishing Company, L.P.), (iii) the term
"TCC" refers to TransWestern Communications Company, Inc., which is the general
partner of Holdings and the manager of TransWestern Publishing Company LLC, (iv)
the term "Capital" refers to TWP Capital Corp., a wholly-owned subsidiary of
Holdings, (v) the term "Discount Note Issuers" collectively refers to Holdings
and Capital, (vi) the term "TransWestern" refers to TransWestern Publishing
Company LLC, a wholly-owned subsidiary of Holdings, (vii) the term "Capital II"
refers to TWP Capital Corp. II, a wholly-owned subsidiary of TransWestern,
(viii) the term "Company" refers to TransWestern and, where the context
requires, to the historical operations of TransWestern Publishing Company, L.P.
prior to the Asset Drop-Down, (ix) the term "Partnership" refers to TransWestern
Publishing Company, L.P. prior to the Asset Drop-Down, and (x) a single customer
that advertises in more than one directory is counted as a separate "account"
for each directory in which it advertises. The information contained in this
Prospectus does not give effect to the Company's acquisition of eight
directories from Mast Advertising and Publishing, Inc., which was completed on
February 2, 1998. See "-- Recent Developments." All references to fiscal years
in this Prospectus refer to years ended April 30.
THE COMPANY
The Company is one of the largest independent yellow pages directory
publishers in the United States. The Company's 142 directories serve communities
in the 12 states of California, Connecticut, Indiana, Kansas, Kentucky,
Louisiana, Massachusetts, New York, Ohio, Oklahoma, Tennessee and Texas. The
Company's presence in its markets is well-established; more than 70% of its
directories have been in publication for more than 10 years. The Company's
revenues are derived from the sale of advertising to a diversified base of over
93,000 accounts consisting primarily of small to medium-sized local businesses.
Yellow pages are an important advertising medium for local businesses due to
their low advertising cost, widespread distribution, lasting presence, and high
consumer usage.
Since the 1993 Acquisition, the Company's management team has successfully
executed its strategy of growing revenues from existing directories, improving
operating efficiency, accelerating cash flows and starting and acquiring new
directories. Over this period, the Company increased average revenue per account
from $789 to $981 and increased its number of directories from 90 to 142,
driving the Company's net revenues from $54.9 million to $91.4 million and its
net income from $1.4 million to $10.7 million. The Company achieved this growth
without significantly increasing working capital or capital expenditures, while
leveraging its existing cost structure and creating a platform for future
growth. As a result, the Company's EBITDA (as defined herein) increased from
$3.2 million to $25.2 million and its EBITDA margin increased from 5.9% to
27.6%.
INDUSTRY OVERVIEW
The United States yellow pages directory industry generated revenues of
approximately $10.8 billion in 1996, with circulation of approximately 316
million directories. Yellow pages directories are published by both telephone
utilities and, in many markets, independent directory publishers, such as the
Company, which are not affiliated with the telephone service provider. More than
250 independent directory publishers circulated over 77 million directories and
generated an estimated $677 million in revenues during 1996. Between 1991 and
1996, while industry-wide yellow pages advertising revenues grew at a compound
annual rate of 3.5%,
1
<PAGE> 7
advertising revenues of independent directories grew at a compound annual rate
of approximately 6.9%. Concurrent with the overall expansion of the yellow pages
advertising market, independent directory publishers have steadily increased
their market share from 5.5% in 1991 to 6.5% in 1996. This has occurred because
the diverse needs of both consumers and advertisers are often not satisfied by a
single utility directory. Successful independent publishers effectively compete
with telephone utilities by differentiating their product based on geographical
market segmentation, pricing strategy and enhanced product features.
OPERATING STRENGTHS
The Company believes that it benefits from the following operating
strengths:
High Revenue Stability and Account Renewal Rates. The Company's high
revenue renewal and account retention rates (averaging 86% and 76%,
respectively, during the last five fiscal years) have provided considerable
revenue and profit stability and form a strong base of business from which to
grow. For many local businesses, yellow pages directory advertising is their
principal form of advertising and provides an effective means of reaching their
potential customers.
Geographic, Directory, Industry and Account Diversity. The Company's 142
directories serve communities in 12 states across the country. No single
directory accounted for more than 5% of net revenues, and the top five
directories accounted for less than 19% of net revenues in fiscal 1997. The
Company's 93,000 accounts represent a wide variety of businesses and its top
1,000 accounts represented less than 12% of the Company's fiscal 1997 net
revenues. This high level of diversification reduces the Company's exposure to
adverse regional economic conditions and enhances revenue and cash flow
stability.
Favorable Cash Flow Characteristics. The Company's favorable cash flow
characteristics result from its stable revenues, high level of advance payments,
predictable cost structure, low working capital investment and minimal capital
expenditure needs. During fiscal 1997, the Company collected approximately 45%
of its net revenues prior to publication of its directories, up from
approximately 26% in fiscal 1993. In addition to collecting higher levels of
advance payments, the Company shortened customer payment terms and reduced
credit exposure to its smallest customers. Further, the Company's capital
expenditures have averaged less than $750,000 per year over the last five fiscal
years.
Proven, Experienced Management. The Company has a proven senior management
team with extensive experience in the yellow pages business. Collectively,
management owns approximately 9% of Holdings and also participates in a
substantial equity-based incentive program tied to the successful long-term
performance of the Company.
BUSINESS STRATEGY
The Company's strategy is to capitalize on its operating structure,
consisting of a decentralized sales force and centralized production and
administrative operations, in order to grow its position as a leading
independent yellow pages publisher. Specific elements of the Company's business
strategy are as follows:
Grow Revenues from Existing Directories. Management believes there are
opportunities to increase revenues from both existing advertisers and new
accounts. Specific initiatives include (i) cross-selling advertisers into
multiple directories, (ii) encouraging customers to purchase larger
advertisements or advertisements under multiple headings within the same
directory, (iii) introducing new premium advertising features, including color,
at premium prices, and (iv) offering Internet directory listings.
Improve Operating Efficiency. The Company works to continuously improve
its production processes and systems in order to increase its operating
efficiency. Management has created a team-oriented environment focused on
managing costs, streamlining processes and cross-training personnel to adjust to
fluctuations in production levels. These efforts have resulted in increased
capacity and lower production costs.
Accelerate Cash Flows. The Company continues to focus on increasing the
amount of cash it collects from advertisers prior to the publication of each
directory. Increasing advance payments and shortening customer payment terms (i)
reduces the Company's investment in working capital, (ii) decreases collection
and bad debt costs and (iii) permits the Company to finance the introduction of
new directories from internally generated funds. During 1997, the Company
collected approximately 45% of its net revenues prior to
2
<PAGE> 8
publication of its directories, up from approximately 26% in fiscal 1993. In
fiscal 1997, the Company's average accounts receivable turnover was
approximately 167 days. Accounts receivable as a percentage of the Company's
revenues decreases as the Company increases the percentage of its net revenues
that it collects prior to directory publication.
New Directory Growth. The Company's strategy includes growth through new
directory start-ups and selective acquisitions. The Company minimizes start-up
risks by launching new directories in areas contiguous to the Company's existing
markets where it has established sales infrastructure and local recognition and
where existing customers can provide an initial revenue base.
THE TRANSACTIONS
The Initial Discount Note Offering was made in conjunction with the
Partnership's $312.7 million Recapitalization which was consummated in October
1997.
In the Recapitalization, new investors, led by Thomas H. Lee Equity Fund
III, L.P. ("THL") and its affiliates (together, the "THL Parties"), along with
other investors, the Existing Limited Partners (as defined herein), and the
Company's 25 most senior managers (the "Management Investors"), invested new and
continuing capital of $130.0 million in the Partnership and TCC (the "Equity
Investment"). The proceeds of the Equity Investment, together with approximately
$182.7 million of aggregate proceeds from the debt financings described below,
were used (i) for $224.5 million of Recapitalization consideration, including
the redemption of a portion of the limited partnership interests from the
Existing Limited Partners, (ii) to repay $75.6 million under the Partnership's
existing credit facilities (the "Old Credit Facility"), (iii) to pay $10.6
million of fees and expenses and (iv) for $2.0 million for general corporate
purposes, including working capital.
The Recapitalization was financed with (i) the Equity Investment of $130.0
million, (ii) borrowings of approximately $107.7 million under a $125.0 million
senior credit facility (the "Senior Credit Facility") and (iii) borrowings of
$75.0 million under a senior subordinated financing facility (the "Senior
Subordinated Facility"). The above-described purchase and redemption of
partnership units and the borrowings under the Senior Credit Facility and the
Senior Subordinated Facility and the use of proceeds therefrom are collectively
referred to herein as the "Recapitalization."
The following table sets forth the sources and uses of funds in the
Recapitalization (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Senior Credit Facility(a)(b)...................................... $107.7
Senior Subordinated Facility(b)................................... 75.0
Equity Investment(c).............................................. 130.0
------
Total sources............................................. $312.7
======
USES:
Recapitalization consideration(d)................................. $224.5
Repayment of Old Credit Facility(e)............................... 75.6
Fees and expenses................................................. 10.6
Working Capital................................................... 2.0
------
Total uses................................................ $312.7
======
</TABLE>
- ---------------
(a) Includes borrowings of $85.0 million in Term Loans and $22.7 million under
the Revolving Credit Facility (as defined herein). Although the Company had
actually drawn $17.2 million under the Revolving Credit Facility as of
October 1, 1997, this table reflects an amount, $22.7 million, that would
have been borrowed under the Revolving Credit Facility if all estimated fees
and expenses, other debt assumed and the total amount to be paid under the
Equity Compensation Plan (as defined herein) had been paid on that date.
(b) The net proceeds of the Initial Offering were applied to (i) repay the
Senior Subordinated Facility, (ii) reduce the outstanding balance under the
Revolving Credit Facility, (iii) pay fees and expenses related to the
Initial Offering and (iv) for general corporate purposes, including working
capital.
(c) Includes $87.3 million from the New Investors (as defined herein), comprised
of (i) $77.0 million invested by the THL Parties, (ii) $5.0 million invested
by the CIBC Merchant Fund (as defined herein), (iii) $4.5 million invested
by CIVC III (as defined herein) and (iv) $0.8 million from new management
investors. Also includes $42.7 million from continuing investors, comprised
of
3
<PAGE> 9
(i) $25.5 million from CIVC (as defined herein), (ii) $11.2 million from the
Management Investors, (iii) $5.0 million from First Union Capital Partners
Inc. ("FUCP") and (iv) $1.0 million from the Partnership's former Chairman.
(d) Includes $174.4 million for redemption of outstanding partnership units,
$1.4 million for the purchase of TCC common stock, $5.5 million reserved for
payments pursuant to the Equity Compensation Plan, $0.5 million representing
debt assumed and $42.7 million of capital which was reinvested by the
Management Investors and certain other Existing Limited Partners.
(e) The Old Credit Facility was provided by First Union (as defined herein), as
lender and administrative agent, and CIBC Inc., an affiliate of CIBC
Oppenheimer, as lender and documentation agent.
As a result of the Recapitalization, the THL Parties became the holders of
a majority of the equity of the Partnership. The following chart shows the
structure of the Partnership after the Recapitalization (the percentages shown
below reflect the approximate percentage ownership of both Class A and Preferred
Units):
[CHART]
In November 1997, the Partnership formed and contributed substantially all
of its assets to TransWestern, TransWestern assumed or guaranteed all of the
liabilities of the Partnership, and the Partnership changed its name to
TransWestern Holdings L.P. (the "Asset Drop-Down"). As a result of the Asset
Drop-Down, Holdings' only assets are all of the TransWestern membership
interests and all of Capital's capital stock. All of the operations that were
previously conducted by the Partnership are now being conducted by TransWestern.
The following chart shows the structure of the Company after the Asset
Drop-Down:
[CHART]
4
<PAGE> 10
Holdings applied the net proceeds of the Initial Discount Note Offering to
redeem approximately $31.3 million of the Equity Investment. Concurrent with the
Initial Discount Note Offering, TransWestern and Capital II offered $100 million
of their 9 5/8% Old Senior Subordinated Notes due 2007. TransWestern applied the
net proceeds of the Initial Offering to repay the Senior Subordinated Facility
and to reduce its outstanding indebtedness under the Revolving Credit Facility
(as defined herein) established by the Senior Credit Facility. See "The
Transactions." The Recapitalization, together with the Asset Drop-Down and the
Initial Offerings and the use of proceeds therefrom, are collectively referred
to herein as the "Transactions."
After giving effect to the Transactions, the THL Parties collectively own
approximately 59% of the equity of Holdings and the CIVC Parties (as defined
herein), the Management Investors and TCC own approximately 23%, 9% and 1.7% of
the equity of Holdings, respectively. The remainder of the equity of Holdings is
held by other investors. TCC is owned approximately pro rata by all the equity
investors in Holdings. See "The Transactions."
THE PRINCIPAL INVESTORS
The Company's principal equity investor, THL, is party to a management
agreement with Thomas H. Lee Company ("THL Co."), one of the oldest and most
successful private equity investment firms in the United States. Founded in
1974, THL Co. focuses on identifying and acquiring substantial ownership stakes
in middle market growth companies. THL Co. currently manages over $3 billion of
capital and has participated in more than 100 acquisitions and investments.
Continental Illinois Venture Corporation ("CIVC") was the principal
investor in the 1993 Acquisition and continues to be a principal investor in the
Partnership. CIVC is an indirect subsidiary of BankAmerica Corporation, an
international financial services organization.
The Management Investors have all been members of the Company's senior
management since at least 1993 and have extensive experience in the yellow pages
publishing business. See "Management" and "Security Ownership of Certain
Beneficial Owners and Management."
The Company's principal executive offices are located at 8344 Clairemont
Mesa Boulevard, San Diego, California 92111, and its telephone number is (619)
467-2800.
RECENT DEVELOPMENTS
On February 2, 1998, the company acquired eight directories from Mast
Advertising and Publishing, Inc. ("Mast") for approximately $8.2 million. The
purchase price consisted of (i) approximately $7.7 million of cash
(approximately $200,000 of the purchase price was credited back to the Company
for net advance payments for future directories already collected by Mast), (ii)
a $265,000 promissory note due in one year from the Company to Mast (subject to
adjustment based on the actual bad debt experience of the acquired directories)
and (iii) certain assumed liabilities. The cash portion of the purchase price
was funded with borrowings under the Revolving Credit Facility and is subject to
further adjustment based on the actual net costs of the acquired directories.
Six of the acquired directories are located in Northern Ohio and Southern
Michigan and serve the Toledo and Columbus areas, and two of the acquired
directories are contiguous with the Nashville market. The Company retained 2
area sales managers and 22 account executives associated with the acquired
directories. The eight directories generated approximately $4.7 million of net
revenue in 1997.
5
<PAGE> 11
THE INITIAL DISCOUNT NOTE OFFERING
Old Discount Notes............ The Old Discount Notes were sold by the
Discount Note Issuers on November 12, 1997 to
the Initial Purchasers pursuant to a Securities
Purchase Agreement dated November 6, 1997 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Old Discount Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and qualified
buyers outside the United States in reliance
upon Regulation S under the Securities Act.
Registration Rights
Agreement..................... Pursuant to the Purchase Agreement, the
Discount Note Issuers and the Initial
Purchasers entered into a Registration Rights
Agreement dated as of November 12, 1997 (the
"Registration Rights Agreement"), which grants
the holders of the Old Discount Notes certain
exchange and registration rights. The Discount
Note Exchange Offer is intended to satisfy such
exchange and registration rights which
terminate upon the consummation of the Discount
Note Exchange Offer.
THE DISCOUNT NOTE EXCHANGE OFFER
Securities Offered............ $57,916,000 aggregate principal amount at
maturity of Series B 11 7/8% Senior Discount
Notes due 2008 of the Discount Note Issuers.
The Discount Note Exchange
Offer......................... $1,000 principal amount at maturity of Exchange
Discount Notes in exchange for each $1,000
principal amount at maturity of Old Discount
Notes. As of the date hereof, $57,916,000
aggregate principal amount at maturity of Old
Discount Notes are outstanding. The Discount
Note Issuers will issue the Exchange Discount
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, the Discount Note
Issuers believe that Exchange Discount Notes
issued pursuant to the Discount Note Exchange
Offer in exchange for Old Discount Notes may be
offered for resale, resold and otherwise
transferred by any holder thereof (other than
any such holder which is an "affiliate" of the
Discount Note Issuers within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such Exchange Discount Notes are
acquired in the ordinary course of such
holder's business and that such holder does not
intend to participate and has no arrangement or
understanding with any person to participate in
the distribution of such Exchange Discount
Notes. Each holder accepting the Discount Note
Exchange Offer is required to represent to the
Discount Note Issuers in the Letter of
Transmittal (or will be deemed to have made
such representations in the case of a
book-entry transfer) that, among other things
the Exchange Discount Notes will be acquired by
the holder in the ordinary course of business
and the holder does not intend to participate
and has no arrangement or understanding with
any person to participate in the distribution
of such Exchange Discount Notes.
Any Participating Broker-Dealer that acquired
Old Discount Notes for its own account as a
result of market-making activities or other
trading activities may be a statutory
underwriter. Each Participating Broker-Dealer
that receives Exchange Discount Notes for its
6
<PAGE> 12
own account pursuant to the Discount Note
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Discount Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time
to time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange Discount Notes received in exchange
for Old Discount Notes where such Old Discount
Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The
Discount Note Issuers have agreed that, for a
period of 180 days after the Expiration Date,
they will make this Prospectus, as it may be
required to be amended or supplemented during
such period, available to any Participating
Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
Any holder who tenders in the Discount Note
Exchange Offer with the intention to
participate, or for the purpose of
participating, in a distribution of the
Exchange Discount Notes cannot rely on the
position of the staff of the Commission
enunciated in no-action letters and, in the
absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction of the
Exchange Notes. Failure to comply with such
requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Discount Note Issuers.
Expiration Date............... 5:00 p.m., New York City time, on ,
1998 unless the Discount Note Exchange Offer is
extended, in which case the term "Expiration
Date" means the latest date and time to which
the Discount Note Exchange Offer is extended.
Accreted Value and Accrued
Interest on the Exchange
Discount Notes and the Old
Discount Notes.............. No cash interest will accrue or be payable in
respect of the Exchange Discount Notes prior to
November 15, 2002. Thereafter, interest on the
Exchange Discount Notes will accrue on the
principal amount at maturity at the rate of
11 7/8% per annum and will be payable
semi-annually on each May 15 and November 15,
commencing May 15, 2003. Interest will be
payable at the option of the Discount Note
Issuers at a rate of 13 3/8% per annum by the
issuance of additional Discount Notes (valued
at 100% of the face amount thereof) in lieu of
cash interest. The Old Discount Notes will
continue to accrete at the rate of 11 7/8% per
annum to, but excluding, the date of issuance
of the Exchange Discount Notes and will cease
to accrete upon cancellation of the Old
Discount Notes and issuance of the Exchange
Discount Notes. Any Old Discount Notes not
tendered or accepted for exchange will continue
to accrete at the rate of 11 7/8% per annum in
accordance with their terms. The Accreted Value
of Exchange Discount Notes upon issuance will
equal the Accreted Value of the Old Discount
Notes accepted for exchange immediately prior
to issuance of the Exchange Discount Notes.
7
<PAGE> 13
Conditions to the Discount
Note Exchange Offer........... The Discount Note Exchange Offer is subject to
certain customary conditions, which may be
waived by the Discount Note Issuers. See "The
Discount Note Exchange Offer -- Conditions."
Procedures for Tendering Old
Discount Notes................ Each holder of Old Discount Notes wishing to
accept the Discount Note Exchange Offer must
complete, sign and date the accompanying Letter
of Transmittal, or a facsimile thereof or
transmit an Agent's Message (as defined herein)
in connection with a book-entry transfer, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, such
facsimile or such Agent's Message, together
with the Old Discount Notes and any other
required documentation to the Exchange Agent
(as defined herein) at the address set forth
herein by no later than the Expiration Date. By
executing the Letter of Transmittal or
transmitting an Agent's Message, each holder
will represent to the Discount Note Issuers
that, among other things, the Exchange Discount
Notes acquired pursuant to the Discount Note
Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Discount Notes, whether
or not such person is the holder, that neither
the holder nor any such other person (i) has
any arrangement or understanding with any
person to participate in the distribution of
such Exchange Discount Notes, (ii) is engaging
in or intends to engage in the distribution of
such Exchange Notes, or (iii) is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Discount Note Issuers.
See "The Discount Note Exchange
Offer -- Purpose and Effect of the Discount
Note Exchange Offer" and "-- Procedures for
Tendering."
Untendered Old Discount
Notes......................... Following the consummation of the Discount Note
Exchange Offer, holders of Old Discount Notes
eligible to participate but who do not tender
their Old Discount Notes will not have any
further exchange rights and such Old Discount
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Discount
Notes could be adversely affected.
Consequences of Failure to
Exchange...................... The Old Discount Notes that are not exchanged
pursuant to the Discount Note Exchange Offer
will remain restricted securities. Accordingly,
such Old Discount Notes may be resold only (i)
to the Discount Note Issuers, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act
or pursuant to some other exemption under the
Securities Act, (iii) outside the United States
to a foreign person pursuant to the
requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective
registration statement under the Securities
Act. See "The Discount Note Exchange
Offer -- Consequences of Failure to Exchange."
Federal Income Tax
Considerations................ The Discount Note Issuers believe that the
exchange of Old Discount Notes pursuant to the
Discount Note Exchange Offer will not be a
taxable event for federal income tax purposes.
See "Certain U.S. Federal Income Tax
Considerations."
Shelf Registration
Statement..................... If any holder of the Old Discount Notes (other
than any such holder which is an "affiliate" of
the Discount Note Issuers within the meaning of
Rule 405 under the Securities Act) is not
eligible
8
<PAGE> 14
under applicable securities laws to participate
in the Discount Note Exchange Offer, and such
holder has satisfied certain conditions
relating to the provision of information to the
Discount Note Issuers for use therein, the
Discount Note Issuers have agreed to register
the Old Discount Notes on a shelf registration
statement (the "Shelf Registration Statement")
and use their reasonable best efforts to cause
it to be declared effective by the Commission
as promptly as practical on or after the
consummation of the Discount Note Exchange
Offer. The Discount Note Issuers have agreed to
maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Old Discount Notes held by any
such holders.
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Old Discount Notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering its
Old Discount Notes, either make appropriate
arrangements to register ownership of the Old
Discount Notes in such owner's name or obtain a
properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time. The
Discount Note Issuers will keep the Discount
Note Exchange Offer open for not less than
thirty days in order to provide for the
transfer of registered ownership.
Guaranteed Delivery
Procedures.................... Holders of Old Discount Notes who wish to
tender their Old Discount Notes and whose Old
Discount Notes are not immediately available or
who cannot deliver their Old Discount Notes,
the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent (or comply with the
procedures for book-entry transfer) prior to
the Expiration Date must tender their Old
Discount Notes according to the guaranteed
delivery procedures set forth in "The Discount
Note Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Discount
Notes and Delivery of Exchange
Discount Notes................ The Discount Note Issuers will accept for
exchange any and all Old Discount Notes which
are properly tendered in the Discount Note
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Discount Notes issued pursuant to the Discount
Note Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Discount Note Exchange Offer -- Terms of the
Discount Note Exchange Offer."
Use of Proceeds............... There will be no cash proceeds to the Discount
Note Issuers from the exchange pursuant to the
Discount Note Exchange Offer.
Exchange Agent................ Wilmington Trust Company.
THE EXCHANGE DISCOUNT NOTES
General....................... The form and terms of the Exchange Discount
Notes are the same as the form and terms of the
Old Discount Notes (which they
9
<PAGE> 15
replace) except that (i) the Exchange Discount
Notes bear a Series B designation, (ii) the
Exchange Discount Notes have been registered
under the Securities Act and, therefore, will
not bear legends restricting the transfer
thereof, and (iii) the holders of Exchange
Discount Notes will generally not be entitled
to certain rights under the Registration Rights
Agreement, which rights will generally be
satisfied when the Discount Note Exchange Offer
is consummated. See "The Discount Note Exchange
Offer -- Purpose and Effect of the Discount
Note Exchange Offer." The Exchange Discount
Notes will evidence the same debt as the Old
Discount Notes and will be entitled to the
benefits of the Discount Note Indenture. See
"Description of the Discount Notes." The Old
Discount Notes and the Exchange Discount Notes
are referred to herein collectively as the
"Discount Notes."
Maturity Date................. November 15, 2008.
Original Issue Discount....... The Discount Notes were issued at a substantial
discount to their principal amount at maturity.
A holder of Discount Notes will be required to
include the accretion of the original issue
discount as gross income for U.S. federal
income tax purposes prior to the receipt of the
cash payments to which such income is
attributable. See "Certain U.S. Federal Income
Tax Considerations -- U.S. Holders -- Original
Issue Discount on the Discount Notes."
Interest...................... Interest on the Exchange Discount Notes will
not accrue or be payable prior to November 15,
2002. Thereafter, interest on the Exchange
Discount Notes will accrue on the principal
amount at maturity at a rate of 11 7/8% per
annum, and will be payable semiannually in
arrears on each May 15 and November 15,
commencing May 15, 2003. Interest will be
payable at the option of the Company at a rate
of 13 3/8% per annum by the issuance of
additional Discount Notes (valued at 100% of
the face amount thereof) in lieu of cash
interest.
Ranking....................... The Exchange Discount Notes will be, as the Old
Discount Notes (which they replace) are, senior
unsecured obligations of the Discount Note
Issuers and will rank senior in right of
payment to any subordinated indebtedness of the
Discount Note Issuers. The Discount Notes will
be effectively subordinated in right of payment
to all existing and future indebtedness and
other liabilities, including trade payables, of
subsidiaries of the Discount Note Issuers. As
of October 31, 1997, after giving effect to the
consummation of the Initial Offerings and the
Asset Drop-Down, such subsidiaries would have
had approximately $185.0 million aggregate
principal amount of Indebtedness outstanding.
In addition, such subsidiaries would have had
$40.0 million of additional borrowing
availability under the Senior Credit Facility.
Optional Redemption........... The Exchange Discount Notes will be, as the Old
Discount Notes (which they replace) are,
redeemable at the option of the Discount Note
Issuers, in whole or in part, at any time on or
after November 15, 2002, at the redemption
prices set forth herein, together with accrued
and unpaid interest thereon, if any, to the
redemption date. In addition, the Discount Note
Issuers, at their option, may redeem all, but
not less than all, of the principal amount of
the Discount Notes outstanding at any time
prior to November 15, 2002 at a redemption
price equal to 111.875% of the Accreted Value
thereof, out of the Net Proceeds of one or more
Public Equity Offerings, provided, however,
that any such redemption
10
<PAGE> 16
occurs within 90 days following the closing of
any such Public Equity Offering. See
"Description of the Discount Notes -- Optional
Redemption."
Change of Control............. Upon the occurrence of a Change of Control,
each holder of the Discount Notes will be
entitled to require the Discount Note Issuers
to purchase such holder's Discount Notes at a
purchase price equal to (i) 101% of the
Accreted Value thereof, if the repurchase date
is on or prior to November 15, 2002 or (ii)
101% of the principal amount at maturity
thereof, together with accrued and unpaid
interest thereon, if any, to the repurchase
date, if such date is after November 15, 2002.
Certain events involving a Change of Control
may result in an event of default under the
Senior Credit Facility, the Notes or other
indebtedness of the Discount Note Issuers that
may be incurred in the future. Moreover, the
exercise by the holders of the Discount Notes
of their right to require the Discount Note
Issuers to purchase the Discount Notes may
cause an event of default under the Senior
Credit Facility, the Notes or such other
indebtedness, even if the Change of Control
does not. In addition, there can be no
assurance that the Discount Note Issuers will
have the financial resources necessary to
purchase the Discount Notes upon a Change of
Control. See "Risk Factors -- Limitations on
Change of Control; Ability to Purchase Discount
Notes Upon a Change of Control" and
"Description of the Discount Notes -- Change of
Control Offer."
Asset Sale Proceeds........... The Discount Note Issuers will be obligated in
certain instances to make an offer to
repurchase the Discount Notes at a purchase
price equal to (i) 100% of the Accreted Value
thereof, if the repurchase date is on or prior
to November 15, 2002, or (ii) 100% of the
principal amount at maturity thereof, together
with accrued and unpaid interest thereon to the
purchase date, with the net cash proceeds of
certain asset sales. See "Description of the
Discount Notes -- Certain
Covenants -- Limitation on Certain Asset
Sales."
Certain Covenants............. The Discount Notes Indenture contains covenants
for the benefit of the holders of the Discount
Notes that, among other things, restrict the
ability of (a) the Discount Note Issuers and
any of their Restricted Subsidiaries to (i)
incur additional Indebtedness (as defined
herein), (ii) pay dividends and make
distributions, (iii) make certain investments,
(iv) repurchase stock, (v) enter into
transactions with affiliates, (vi) enter into
sale lease-back transactions and (vii) merge or
consolidate the Company; (b) the Discount Note
Issuers to create liens and transfer or sell
assets. These covenants are subject to a number
of important exceptions, including the
allowance of Permitted Tax Distributions (as
defined herein) as a result of Holdings' status
as a limited partnership. See "Description of
the Discount Notes -- Certain Covenants."
RISK FACTORS
Holders of old Discount Notes should carefully consider the specific
matters set forth under "Risk Factors" as well as the other information and data
set forth in this Prospectus before tendering the Old Discount Notes in exchange
for Exchange Discount Notes.
11
<PAGE> 17
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
The following table presents summary historical consolidated financial data
for the five fiscal years ended April 30, 1997. The statement of operations data
for each of the three years in the period ended April 30, 1997 have been derived
from the audited consolidated financial statements of Holdings and the
TransWestern business and the notes thereto appearing elsewhere in this
Prospectus. The statement of operations data for the years ended April 30, 1993
and 1994 are derived from the audited consolidated financial statements of
Holdings and the TransWestern business not appearing in this Prospectus. The
summary historical consolidated financial data for the six months ended October
31, 1996 and October 31, 1997 have been derived from unaudited consolidated
financial statements of Holdings, which in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results for the unaudited interim periods. Results
for the six months ended October 31, 1997 are not necessarily indicative of
results that may be expected for the entire year.
The following summary unaudited pro forma consolidated statement of
operations data give effect to, among other things, the Transactions, as if they
had occurred at the beginning of each period presented. The following summary
unaudited pro forma consolidated balance sheet data give effect to, among other
things, the Initial Offerings and the Asset Drop-Down, as if they had occurred
October 31, 1997. Certain management assumptions and adjustments relating to the
Initial Offerings and the Asset Drop-Down are described in the Notes to
Unaudited Pro Forma Consolidated Financial Data and should be read in
conjunction therewith. The summary unaudited pro forma consolidated financial
data do not purport to be indicative of the actual financial position or results
of operations of Holdings that would have actually been attained had the
Transactions in fact occurred on the date specified, nor are they necessarily
indicative of the results of operations that may be achieved in the future. See
"Unaudited Pro Forma Consolidated Financial Data," "Selected Historical
Consolidated Financial and Other Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements of
Holdings and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, SIX MONTHS ENDED OCTOBER 31,
------------------------------------------------------------------ --------------------------------
PREDECESSOR PRO FORMA PRO FORMA
1993(a) 1994 1995 1996 1997 1997 1996 1997 1997
----------- ------- ------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.......... $54,949 $62,219 $69,845 $77,731 $91,414 $91,414 $38,050 $38,254(b) $38,254 (b)
Gross profit.......... 37,110 43,431 52,889 59,529 71,914 71,914 29,054 29,082 29,082
Income (loss) from
operations.......... 1,844 4,093 11,414 14,538 18,453 13,010 5,296 (1,468) (1,418)
Other income
(expense), net...... 243 344 470 375 48 48 18 (107) (107)
Interest expense...... (342) (2,951) (4,345) (6,630) (7,816) (23,057)(c) (4,029) (4,333) (13,977) (c)
Income (loss) before
extraordinary
item................ $ 1,745 $ 1,486 $ 7,539 $ 8,283 $10,685 $(9,999) $ 1,285 $(5,908) $(15,502)
OTHER DATA:
Depreciation and
amortization........ $ 1,129 $ 4,603 $ 4,593 $ 4,691 $ 6,399 $ 3,699 $ 3,122 $ 3,274 $ 3,274
Capital
expenditures........ 743 769 496 484 1,034 1,034 259 580 580
Cash flows provided by
(used for):
Operating
activities........ 9,022 9,853 14,608 13,091 15,302 (10,173) 5,672 6,245 (6,749)
Investing
activities........ (743) (3,121) (2,838) (8,344) (3,592) (17,074) (2,817) (8,762) (14,062)
Financing
activities........ (8,174) (6,075) (11,550) (4,361) (11,776) 6,390 (2,875) 3,486 13,736
EBITDA(d)............. 3,216 9,040 17,002 20,400 25,200 25,300 8,586 7,568(b) 7,618 (b)
EBITDA margin(e)...... 5.9% 14.5% 24.3% 26.2% 27.6% 27.7% 22.6% 19.8% 19.9 %
Gross margin.......... 67.5% 69.8% 75.7% 76.6% 78.7% 78.7% 76.4% 76.0% 76.0 %
Bookings(f)........... $54,188 $64,269 $70,013 $75,709 $86,859 $86,859 $44,485 $49,926 $49,926
Advance payments as a
% of net
revenues(g)......... 26.2% 31.8% 36.9% 41.0% 45.1% 45.1% 43.6% 46.6% 46.6 %
Number of
accounts(h)......... 69,632 71,832 77,371 84,117 93,157 93,157 37,904 38,025 38,025
Average net revenues
per account(i)...... $ 789 $ 866 $ 903 $ 924 $ 981 $ 981 $ 1,004 $ 1,006 $1,006
Number of
directories......... 90 97 106 118 128 128 49 57 57
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....... $ 4,377
Total assets.......... 55,603
Total debt............ 217,930
Partnership
deficit(j).......... (187,255)
</TABLE>
(See footnotes on following page)
12
<PAGE> 18
NOTES TO SUMMARY HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
(a) Effective May 1, 1993, an investor group and CIVC formed the Partnership to
acquire the TransWestern business from US West. The results of operations of
the predecessor are not directly comparable to the results of operations of
the Company due to (i) the incurrence of interest expense from borrowings to
finance the acquisition and subsequent distributions, and (ii) the effect of
increased depreciation and amortization expense associated with the
acquisition.
(b) For the six months ended October 31, 1997 consolidated net revenues
increased $204,000 and EBITDA decreased $1.0 million as compared to the six
months ended October 31, 1996 primarily due to changes in the publication
schedule which caused a different mix of directories to be published in the
respective six month periods. Consolidated EBITDA for the latest twelve
months ended October 31, 1997 and November 30, 1997 was $24,182 and $25,240,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(c) Non-cash interest expense relating to amortization of debt issuance costs
for pro forma fiscal 1997 and the pro forma six months ended October 31,
1997 was $1,136 and $568, respectively.
(d) "EBITDA" is defined as consolidated income (loss) before extraordinary item
plus consolidated interest expense, non-recurring other expense,
discretionary contributions to the Equity Compensation Plan (as defined
herein) and depreciation and amortization. Non-recurring other expense was
$300 in fiscal 1997 and $326 in the first six months of fiscal 1998.
Contributions to the Equity Compensation Plan were $525 in fiscal 1995, $796
in fiscal 1996 and $5,543 in pro forma fiscal 1997 and for the six months
ended October 31, 1997. EBITDA is not a measure of performance under
generally accepted accounting principles ("GAAP"). EBITDA should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or liquidity.
However, management understands that EBITDA is widely used by certain
investors as one measure to evaluate the financial performance of companies
in the yellow pages directory industry. The Company's definition of EBITDA
may not be comparable to that of other companies. See the tabular
presentation of EBITDA included in "Unaudited Pro Forma Financial
Data -- Unaudited Pro Forma Statement of Operations for the Fiscal Year
Ended April 30, 1997" and "-- Unaudited Pro Forma Statement of Operations
for the Six Months Ended October 31, 1997."
(e) "EBITDA margin" is defined as EBITDA as a percentage of net revenues.
Management believes that EBITDA margin provides a valuable indication of the
Company's ability to generate cash flows available for debt service.
(f) "Bookings" is defined as the daily advertising orders received from accounts
during a given period and generally occur at a steady pace throughout the
year. In fiscal 1997, net revenues included $4,200 from acquired
directories, while bookings does not reflect this adjustment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
(g) "Advance payments as a percentage of net revenues" is defined as, for a
given period, all cash deposits received on advertising orders prior to
revenue recognition as a percentage of net revenues recognized upon
directory distribution.
(h) "Number of accounts" is defined as the total number of advertising accounts
for all directories published during a given period. Customers are counted
as multiple accounts if advertising in more than one directory.
(i) "Average net revenues per account" is defined as net revenues divided by the
number of accounts.
(j) Partnership equity (deficit) represents the value of equity contributions to
Holdings by its partners plus net income of Holdings less partner
distributions for income taxes and distributions related to recapitalization
transactions completed during fiscal 1995 and 1996 and in the six months
ended October 31, 1997. Partnership distributions for income taxes in fiscal
1995, 1996, 1997 and in the six months ended October 31, 1997 totaled
$3,250, $3,400, $5,801 and $2,100, respectively. Partnership distributions
made in connection with recapitalization transactions completed in fiscal
1995 and fiscal 1996 and in the six months ended October 31, 1997 totaled
$31,076, $36,400 and $174,381, respectively.
13
<PAGE> 19
RISK FACTORS
This Prospectus contains certain forward-looking statements, including,
without limitation, statements concerning the Company's operations, economic
performance and financial condition, including in particular statements relating
to the Company's business strategy. Such forward-looking statements are based on
the beliefs of the Company's management as well as on assumptions made by and
information currently available to the Company at the time such statements were
made. When used in this Prospectus, the words "anticipate," "believe,"
"estimate," "expect," "intend" and similar expressions, as they relate to the
Company, are intended to identify forward-looking statements. Prospective
investors should be aware that actual results could differ materially from those
projected by such forward-looking statements as a result of the risk factors set
forth below or other factors. Prospective investors should consider carefully
the following factors as well as the other information and data included in this
Prospectus before tendering Old Discount Notes in exchange for Exchange Discount
Notes. The Discount Note Issuers caution the reader, however, that this list of
factors may not be exhaustive and that these or other factors could have an
adverse effect on the Company's ability to service its indebtedness, including
principal and interest payments on the Discount Notes.
RISKS ASSOCIATED WITH A HIGH LEVEL OF INDEBTEDNESS AND ABILITY TO SERVICE DEBT
Holdings incurred significant debt in connection with the Recapitalization.
As of October 31, 1997, after giving pro forma effect to the Initial Offerings
and the Asset Drop-Down, Holdings would have had outstanding indebtedness of
approximately $217.9 million and partnership deficit of approximately $187.3
million. After giving pro forma effect to the Initial Offerings and the Asset
Drop-Down, Holdings' earnings would have been insufficient to cover fixed
charges by $4.5 million for the fiscal year ended April 30, 1997 and $10.0
million for the six-month period ended October 31, 1997. In addition, the
Discount Notes are effectively subordinated in right of payment to all existing
and future claims of creditors of subsidiaries of Holdings, including the
lenders under the Senior Credit Facility, the holders of the Notes and trade
creditors. After giving pro forma effect to the Initial Offerings and the Asset
Drop-Down, as of October 31, 1997, the subsidiaries of Holdings would have had
approximately $185.0 million aggregate principal amount of indebtedness
outstanding. In addition, such subsidiaries would have had $40.0 million of
additional borrowing availability under the Senior Credit Facility. The lenders
under the Senior Credit Facility have an exclusive security interest in
substantially all of the assets of and membership interests in the Company and
in any assets of Holdings not timely transferred to the Company in the Asset
Drop-Down.
Holdings' leveraged financial position poses substantial consequences to
holders of the Discount Notes, including the risks that (i) a substantial
portion of the Company's cash flow from operations will be dedicated to the
payment of interest on the Notes and the payment of principal and interest under
the Senior Credit Facility and other indebtedness, (ii) the Company's leveraged
position may impede its ability to obtain financing in the future for working
capital, capital expenditures, acquisitions and general corporate purposes, and
(iii) the Company's highly leveraged financial position may make it more
vulnerable to economic downturns and may limit its ability to withstand
competitive pressures. Based upon the successful implementation of management's
business and operating strategy, the Company believes it will have sufficient
capital to carry on its business and will be able to meet its scheduled debt
service requirements. However, there can be no assurance that the future cash
flow of the Company will be sufficient to meet the Company's obligations and
commitments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
In addition, as of October 31, 1997, after giving effect to the
consummation of the Initial Offerings and the Asset Drop-Down, the Company would
have had outstanding indebtedness of approximately $85 million under the Senior
Credit Facility and would have had $40.0 million of additional borrowing
availability under the Senior Credit Facility. The Senior Credit Facility bears
interest at floating rates. Accordingly, an increase in prevailing interest
rates which causes a corresponding increase in the interest rates under the
Senior Credit Facility could have an adverse impact on the Company's business,
operating results or financial condition. See "Description of Senior Credit
Facility."
14
<PAGE> 20
The Company will be required to make quarterly scheduled principal payments
on the Term Loans (as defined herein) under the Senior Credit Facility
commencing on January 1, 1998 and to repay the Term Loans in full in 2004. The
Senior Credit Facility also provides that the Revolving Credit Facility will be
reduced each year commencing on January 1, 2000 and that all borrowings under
the Revolving Credit Facility will become due in 2003. The Company's ability to
make the required scheduled payments will depend on its financial and operating
performance, which is subject to prevailing economic and competitive conditions
and to certain financial, business and other factors beyond its control,
including interest rates, unscheduled shutdowns at the Company's suppliers or
printers, paper prices and other developments. If the Company is unable to
generate sufficient cash flow from operations in the future to service its
indebtedness and to meet its other commitments, the Company will be required to
adopt one or more alternatives, such as refinancing or restructuring its
indebtedness, selling material assets or operations or seeking to raise
additional debt or equity capital. There can be no assurance that any of these
actions could be effected on a timely basis or on satisfactory terms or that
these actions would enable the Company to continue to satisfy its capital
requirements. In addition, the terms of existing or future debt agreements,
including the Indenture and the Senior Credit Facility, may prohibit the Company
from adopting any of these alternatives, which could cause the Company to
default on a portion of, or all of, its indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Senior Credit
Facility" and "Description of the Notes."
RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE AND THE LIMITATIONS ON THE
ACCESS TO THE CASH FLOWS OF SUBSIDIARIES
Holdings is a holding company which has no significant assets other than
its investments in its direct and indirect subsidiaries, and therefore, its
ability to make payments with respect to the Discount Notes is dependent upon
the receipt of dividends or debt service in respect of intercompany indebtedness
from its direct and indirect subsidiaries.
The Senior Credit Facility and the indenture governing the Notes
significantly restrict the distribution of funds by TransWestern and the other
subsidiaries of Holdings. See "Description of Senior Credit Facility" and
"Description of the Notes." There can be no assurance that the agreements
governing indebtedness of Holdings' subsidiaries will permit such subsidiaries
to distribute funds to Holdings in amounts sufficient to pay the Accreted Value
or principal or interest on the Discount Notes when the same becomes due
(whether at maturity, upon acceleration or redemption or otherwise). The
Discount Notes are effectively subordinated in right of payment to all existing
and future claims of creditors of subsidiaries of Holdings, including the
lenders under the Senior Credit Facility, the holders of the Notes and trade
creditors. After giving pro forma effect to the Initial Offerings and the Asset
Drop-Down as of October 31, 1997, the subsidiaries of Holdings would have had
approximately $185.0 million aggregate principal amount of indebtedness
outstanding. In addition, such subsidiaries would have had $40.0 million of
additional borrowing availability under the Senior Credit Facility.
RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS
The agreements governing the outstanding indebtedness of the Company impose
certain operating and financial restrictions on the Company. The Senior Credit
Facility requires the Company to comply with financial covenants with respect to
(i) a minimum interest coverage ratio, (ii) a minimum EBITDA (as defined in the
Senior Credit Facility), (iii) a maximum leverage ratio, and (iv) a minimum
fixed charge coverage ratio. In addition, the Senior Credit Facility restricts,
among other things, the Company's ability to (i) declare dividends or redeem or
repurchase capital stock, (ii) prepay, redeem or purchase debt, (iii) incur
liens and engage in sale lease-back transactions, (iv) make loans and
investments, (v) incur additional indebtedness, (vi) amend or otherwise alter
debt and other material agreements, (vii) make capital expenditures, (viii)
engage in mergers, acquisitions and asset sales, (ix) transact with affiliates,
(x) alter the business it conducts, (xi) enter into guarantees of indebtedness,
and (xii) make optional payments on or modify the terms of subordinated debt. A
failure to comply with the restrictions contained in the Senior Credit Facility
could lead to an event of default thereunder which could result in an
acceleration of such
15
<PAGE> 21
indebtedness. Such an acceleration would constitute an event of default under
the Discount Note Indenture. See "Description of Senior Credit Facility."
The indenture relating to the Notes contains a number of covenants which
restrict, among other things, the Company's ability to (i) incur additional
Indebtedness, (ii) pay dividends and make distributions, (iii) issue stock of
subsidiaries, (iv) make certain investments, (v) repurchase stock, (vi) create
liens, (vii) enter into transactions with affiliates, (viii) enter into sale
lease-back transactions, (ix) merge or consolidate the Company or any
Guarantors, and (x) transfer or sell assets. A failure to comply with the
restrictions in this indenture could lead to an event of default thereunder
which could result in an acceleration of such indebtedness. Such an acceleration
would result in an event of default under the Discount Note Indenture. See
"Description of the Notes."
The Discount Note Indenture contains a number of covenants which restrict,
among other things, the ability of Holdings and its subsidiaries, including
TransWestern, to (i) incur additional indebtedness, (ii) pay dividends and make
distributions, (iii) issue stock of subsidiaries, (iv) make certain investments,
(v) repurchase stock, (vi) enter into transactions with affiliates, (vii) enter
into sale lease-back transactions, and (viii) merge or consolidate Holdings. A
failure to comply with the restrictions in the Discount Note Indenture could
result in an event of default thereunder. See "Description of the Discount
Notes."
IMPORTANCE OF ACCOUNT EXECUTIVES; RISKS ASSOCIATED WITH TURNOVER AMONGST ACCOUNT
EXECUTIVES
The Company's ability to achieve its business plan depends to a significant
extent on its ability to identify, hire, train and retain qualified sales
personnel in each of the regions in which the Company operates. Historically,
the Company's revenue performance has been closely related to the aggregate
number of the Company's sales people. The Company's aggregate number of
salesperson days increased by approximately 59% from fiscal 1993 to fiscal 1997
and the Company's net revenues increased by approximately 66% over the same
period. In fiscal 1993, 1994, 1995, 1996 and 1997, the Company experienced a
turnover of approximately 34%, 48%, 55%, 73% and 73%, respectively, in its sales
force, particularly among new hires. As a result of these turnover rates, the
Company expends a significant amount of resources and management time on
identifying and training its account executives. While the Company has been able
to achieve its objectives for increasing the number of sales days, the Company's
ability to attract and retain qualified sales personnel depends on numerous
factors, including factors out of the Company's control, such as conditions in
the local employment markets in which the Company operates. The Company's
business plan calls for a continued increase in the number of account
executives, and there can be no assurance that the Company will be able to hire
or retain a sufficient number of account executives to achieve its financial
objectives. A decrease in the number of account executives could have an adverse
effect on the Company's ability to service its indebtedness and could have a
material adverse effect on the Company's business, operating results or
financial condition.
RISKS RELATED TO VARIATION IN QUARTERLY RESULTS
The Company's net revenues and operating results have exhibited some degree
of variability from quarter to quarter and between periods and some degree of
seasonality. Although the Company records bookings and receives advance payments
at a fairly constant rate, the Company does not recognize net revenues with
respect to bookings or cash receipts for any given directory or the costs
directly related to sales, production, printing and distribution of that
directory until the month in which it is distributed. The actual publication and
distribution dates of individual directories are subject to change and a
significant number of individual directories are not published during the same
month each year, which results in significant monthly fluctuation in the
Company's net revenues and EBITDA. Thus, EBITDA and other financial indicators
generally relied on by investors to evaluate a company's ability to service its
debt may not, in the case of the Company, reflect actual cash received during a
given period. Also, changes to the Company's sales canvassing, production and
distribution schedules could have a material adverse effect on the Company's
ability to satisfy certain of the covenants in the Senior Credit Facility and
the indenture relating to the Notes and therefore on Holdings' ability to
satisfy certain of the covenants in the Discount Note Indenture. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
16
<PAGE> 22
RISK ASSOCIATED WITH THE EXTENSION OF CREDIT TO SMALL BUSINESSES
Approximately 95% of the Company's net revenues come from selling
advertising to local businesses. In the ordinary course of its business, the
Company extends credit to its customers for advertising purchases. Full
collection of delinquent accounts can take up to 18 to 24 months. The Company's
net accounts receivable for a given month fluctuates based on the number and
size of directories published each month. The Company's net accounts receivable
was as low as $17.7 million in June 1996 and as high as $23.3 million in April
1997. As of December 31, 1997, the Company had approximately 20,800 credit
customers with an average amount due per customer of approximately $1,100.00.
The Company's average accounts receivable turnover was approximately 167 days in
fiscal 1997. As a group, local businesses tend to have fewer financial resources
and higher financial failure rates than larger businesses. Consequently,
although the Company attempts to mitigate this exposure through the size,
geographic and industry diversification of its customer base as well as through
collection of advance payments, there can be no assurance that it will not be
adversely affected by its dependence on local businesses. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- General."
DEPENDENCE ON KEY PERSONNEL; RISKS ASSOCIATED WITH THE LOSS OF KEY PERSONNEL
The Company is dependent on the continued services of its senior management
team, including its regional sales management personnel. In connection with the
Recapitalization, the Company's previous Chairman of the Board and Chief
Executive Officer resigned and was replaced, in his Chief Executive Officer
capacity, by Ricardo Puente, the Company's existing President and, in his
capacity as Chairman of the Board, by Laurence H. Bloch, the Company's previous
Vice Chairman and Chief Financial Officer. Otherwise, the Company has retained
the services of its existing senior management team, all of whom have
significant experience in the yellow pages publishing industry. Messrs. Puente
and Bloch have each entered into an employment contract with the Company which
provides for their continued employment for a five year term. See
"Management -- Employment Agreements." Although the Company believes it could
replace such key employees in an orderly fashion should the need arise, the loss
of such key personnel could have a material adverse effect on the Company's
business, operating results or financial condition. See "Management -- Directors
and Executive Officers."
RISKS ASSOCIATED WITH ACQUISITION OF DIRECTORIES AND START-UPS OF NEW
DIRECTORIES
A substantial portion of the Company's growth, approximately 39% of revenue
growth, since the 1993 Acquisition has resulted from the acquisition of
directories from other independent yellow pages publishers and start-ups of new
directories. While one of the Company's strategies for achieving its financial
objectives is increasing the number of directories it publishes and the local
markets which it serves, there can be no assurance that the Company's historical
success with acquisitions or start-ups will continue. The Company intends to
continue to seek out opportunities for future expansion, but there can be no
assurance that the Company will be able to develop new directories or identify,
negotiate and consummate acquisitions on attractive terms, nor can there be any
assurance that new acquisitions or start-ups can be operated profitably or
integrated successfully into the Company's operations. Furthermore, start-ups
and acquisitions both require substantial attention from and place substantial
demands upon the senior management of the Company, which may divert attention
from and adversely impact their ability to manage the Company's existing
businesses. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
RISK ASSOCIATED WITH SUBSTANTIAL COMPETITION
The yellow pages directory advertising business is highly competitive.
There are over 250 independent publishers operating in competition with the
regional Bell operating companies and other telephone utilities. In most
markets, the Company competes not only with the telephone utilities, but also
with one or more independent yellow pages publishers. Many of these telephone
utility competitors are larger and have greater financial resources than the
Company. Other media in competition with yellow pages for local business and
professional advertising include newspapers, radio, television, billboards and
direct mail. There can be no
17
<PAGE> 23
assurance that the Company will be able to compete effectively with these other
firms for advertising or acquisitions in the future.
RISK OF CHANGING TECHNOLOGY; NEW PRODUCT DEVELOPMENT
The yellow pages directory advertising business is subject to changes
arising from developments in technology (including information distribution
methods) and users' technological preferences. As a result of these factors, the
Company's growth and future financial performance may depend upon its ability to
develop and market new products and services and create new distribution
channels, while enhancing existing products, services and distribution channels,
in order to accommodate the latest technological advances and user preferences,
including the use of the Internet. The increasing use of the Internet by
consumers as a means to transact commerce may result in new technologies being
developed and services provided that could compete with the Company's products
and services. The Company has entered into a strategic agreement with InfoSpace,
Inc. ("InfoSpace") with respect to its Internet service. However, there can be
no assurance that the Company will be successful in its attempt to provide its
services over the Internet. A failure by the Company to anticipate or respond
adequately to changes in technology and user preferences, or an inability to
finance the necessary capital expenditures, could have a material adverse effect
on the Company's business, operating results or financial condition.
RISK ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS
The Company is dependent upon outside suppliers for all of its raw material
needs and, therefore, is subject to price increases and delays in receiving
supplies of such materials. The Company's principal raw material is paper, and
it used approximately 16.4 million and 17.6 million pounds of directory grade
paper in its fiscal years ended April 30, 1996 and 1997, respectively, resulting
in a total cost of paper during such periods of $6.0 million and $5.8 million,
respectively. Certain commodity grades of paper, including directory grade
paper, have shown considerable price volatility since 1989. Paper prices rose
sharply in 1995 and then fell throughout 1996. The Company does not purchase
paper directly from paper mills; instead, the Company's printers purchase the
paper on behalf of the Company at prices negotiated by the Company. Changes in
the supply of, or demand for, paper could affect delivery times and prices. No
assurances can be given that the Company will continue to have available
necessary raw materials at reasonable prices or that any increases in paper
costs would not have a material adverse effect on the Company's business,
financial condition or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Result of Operations -- Overview" and
"Business -- Raw Materials."
RISKS ASSOCIATED WITH THE SENSITIVITY OF THE COMPANY'S REVENUE TO GENERAL
ECONOMIC CONDITIONS
The Company derives its net revenues from the sale of advertising in its
directories. Advertising revenues of the Company, as well as those of yellow
pages publishers in general, generally do not fluctuate widely with economic
cycles. However, a prolonged national or regional economic recession could have
a material adverse effect on the Company's business, operating results or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Business -- Industry
Overview."
ABILITY OF CONTROLLING EQUITYHOLDER TO CONTROL THE POLICIES AND OPERATIONS OF
THE COMPANY
The THL Parties own approximately 59% of TCC's Common Stock. Under the
terms of the Investors Agreement (as defined herein), all of the stockholders of
TCC have agreed to vote in favor of those individuals designated by THL to serve
on the Board of Directors of TCC, and THL has the right to appoint a majority of
the Directors until the occurrence of certain events. As a result, THL has the
ability to control the policies and operations of Holdings. Circumstances may
occur in which the interests of THL, as the principal equity holder of Holdings
could be in conflict with the interests of the holders of the Discount Notes. In
addition, the equity investors may have an interest in pursuing acquisitions,
divestitures or other transactions that, in their judgment, could enhance their
equity investment, even though such transactions might involve risks to the
holders of the Notes. See "Security Ownership of Certain Beneficial Owners and
Management."
18
<PAGE> 24
LIMITATIONS ON CHANGE OF CONTROL; ABILITY TO PURCHASE DISCOUNT NOTES UPON A
CHANGE OF CONTROL
In the event of a Change of Control, the Discount Note Issuers will be
required to make an offer for cash to purchase the Discount Notes at a purchase
price equal to (i) 101% of the Accreted Value thereof, if the repurchase date is
on or prior to November 15, 2002 or (ii) 101% of the principal amount at
maturity thereof, together with accrued and unpaid interest thereon, if any, to
the repurchase date, if such date is after November 15, 2002. Certain events
involving a Change of Control may result in an event of default under the Senior
Credit Facility, the Notes or other indebtedness of the Discount Note Issuers
that may be incurred in the future. Moreover, the exercise by the holders of the
Discount Notes of their right to require the Discount Note Issuers to purchase
the Discount Notes may cause an event of default under the Senior Credit
Facility, the Notes or such other indebtedness, even if the Change of Control
does not. The Discount Note Issuers' obligations under this provision of the
Discount Note Indenture could delay, deter or prevent a sale of Holdings which
might otherwise be advantageous to holders of the Discount Notes. Finally, there
can be no assurance that the Discount Note Issuers will have the financial
resources necessary to purchase the Discount Notes upon a Change of Control. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of the Discount
Notes -- Change of Control Offer."
RISKS OF WAIVER OF DEFAULTS, COMPLIANCE WITH THE DISCOUNT NOTE INDENTURE AND
MODIFICATION OF THE DISCOUNT NOTE INDENTURE BY THE HOLDERS OF A MAJORITY IN
PRINCIPAL AMOUNT OF THE DISCOUNT NOTES OUTSTANDING
Subject to certain limitations specified in the Discount Note Indenture,
the holders of a majority in principal amount of the Discount Notes then
outstanding have the right to (i) waive certain existing Defaults (as defined in
the Discount Note Indenture) or Events of Default (as defined in the Discount
Note Indenture), (ii) waive compliance with certain provisions of the Discount
Note Indenture or the Discount Notes, (iii) modify or supplement the Discount
Note Indenture, and (iv) direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee. These provisions of the
Discount Note Indenture could allow actions affecting the Discount Notes to be
taken without the approval of all of the holders of the Discount Notes and thus,
may have an adverse effect on the holders of the Discount Notes who do not
approve of such actions. See "Description of the Discount Notes -- Events of
Default" and "-- Modification of Indenture."
RISK ASSOCIATED WITH FRAUDULENT CONVEYANCE LIABILITY
Under applicable provisions of the U.S. Bankruptcy Code or comparable
provisions of state fraudulent transfer or conveyance laws, if the Company, at
the time it borrowed under the Senior Credit Facility and the Senior
Subordinated Facility or issued the Notes or if Holdings, at the time it issued
the Discount Notes and redeemed the Preferred Units, (i) incurred such
indebtedness with intent to hinder, delay or defraud creditors or (ii)(a)
received less than reasonably equivalent value or fair consideration for
incurring such indebtedness and (b)(1) was insolvent at the time of incurrence,
(2) was rendered insolvent by reason of such incurrence (and the application of
the proceeds thereof), (3) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company or Holdings (as the
case may be) constituted unreasonably small capital to carry on its businesses
or (4) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature, then, in each case, a court of
competent jurisdiction could void, in whole or in part, the Notes or the
Discount Notes or, in the alternative, subordinate the Notes and the Discount
Notes to existing and future indebtedness of the Company and Holdings,
respectively. The measure of insolvency for purposes of the foregoing will vary
depending upon the law applied in such case. Generally, however, Holdings would
be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets was less than the amount that would be
required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured.
Management believes that, for purposes of the U.S. Bankruptcy Code and
state fraudulent transfer or conveyance laws, the Discount Notes were issued and
are being exchanged without the intent to hinder, delay
19
<PAGE> 25
or defraud creditors and for proper purposes and in good faith and that
Holdings, after the issuance and exchange of the Discount Notes and the
application of the proceeds therefrom, will be solvent (this belief is not based
on an opinion of counsel), will have sufficient capital for carrying on its
business and will be able to pay its debts as they mature. There can be no
assurance, however, that a court passing on such questions would agree with
management's view.
ORIGINAL ISSUE DISCOUNT
The Discount Notes will be considered to be issued with original issue
discount. Holders of the Discount Notes will be required to include the
accretion of the original issue discount in gross income for U.S. federal income
tax purposes in advance of receipt of the cash payments to which such income is
attributable. See "Certain U.S. Federal Income Tax Considerations -- Original
Issue Discount on the Discount Notes" for a more detailed discussion of the U.S.
federal income tax consequences to holders of the Discount Notes of the
purchase, ownership and disposition of the Discount Notes. If a bankruptcy case
is commenced by or against Holdings or the Company under the United States
Bankruptcy Code after the issuance of the Discount Notes, the claim of a holder
of Discount Notes with respect to the principal amount thereof may be limited to
an amount equal to the sum of (i) the purchase price, and (ii) that portion of
the original issue discount which has been amortized as of any such bankruptcy
filing.
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE DISCOUNT
NOTES
The Old Discount Notes were issued to, and the Discount Note Issuers
believe are currently owned by, a relatively small number of beneficial owners.
Prior to the Discount Note Exchange Offer, there has not been any public market
for the Old Discount Notes. The Old Discount Notes have not been registered
under the Securities Act and will be subject to restrictions on transferability
to the extent that they are not exchanged for Exchange Discount Notes by holders
who are entitled to participate in this Discount Note Exchange Offer. The
holders of Old Discount Notes (other than any such holder that is an "affiliate"
of the Discount Note Issuers within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Discount Note Exchange Offer are
entitled to certain registration rights, and the Discount Note Issuers are
required to file a Shelf Registration Statement with respect to such Old
Discount Notes. The Exchange Discount Notes will constitute a new issue of
securities with no established trading market. The Discount Note Issuers do not
intend to list the Exchange Discount Notes on any national securities exchange
or seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Initial Purchasers have
advised the Discount Note Issuers that they currently intend to make a market in
the Exchange Discount Notes, but they are not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Discount Note Exchange Offer and the
pendency of the Shelf Registration Statement. Accordingly, no assurance can be
given that an active public or other market will develop for the Exchange
Discount Notes or as to the liquidity of the trading market for the Exchange
Discount Notes. If a trading market does not develop or is not maintained,
holders of the Exchange Discount Notes may experience difficulty in reselling
the Exchange Discount Notes or may be unable to sell them at all. If a market
for the Exchange Discount Notes develops, any such market may be discontinued at
any time.
If a public trading market develops for the Exchange Discount Notes, future
trading prices of such securities will depend on many factors including, among
other things, prevailing interest rates, the Discount Note Issuers' results of
operations and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors, including
the financial condition of the Discount Note Issuers, the Exchange Discount
Notes may trade at a discount from their principal amount.
FAILURE TO FOLLOW DISCOUNT NOTE EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT
HOLDERS
Issuance of the Exchange Discount Notes in exchange for the Old Discount
Notes pursuant to the Discount Note Exchange Offer will be made only after a
timely receipt by the Discount Note Issuers of such Old Discount Notes, a
properly completed and duly executed Letter of Transmittal and all other
required
20
<PAGE> 26
documents. Therefore, holders of the Old Discount Notes desiring to tender such
Old Discount Notes in exchange for Exchange Discount Notes should allow
sufficient time to ensure timely delivery. The Discount Note Issuers are under
no duty to give notification of defects or irregularities with respect to the
tender of Old Discount Notes for exchange. Old Discount Notes that are not
tendered or are tendered but not accepted will, following the consummation of
the Discount Note Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof, and, upon consummation of the Discount Note
Exchange Offer certain registration rights under the Registration Rights
Agreement will terminate. In addition, any holder of Old Discount Notes who
tenders in the Discount Note Exchange Offer for the purpose of participating in
a distribution of the Exchange Discount Notes may be deemed to have received
restricted securities, and if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Discount Notes for its own account in exchange for Old Discount Notes,
where such Old Discount Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Discount Notes. See "Plan of Distribution." To the extent that Old Discount
Notes are tendered and accepted in the Discount Note Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Discount Notes could be
adversely affected. See "The Discount Note Exchange Offer."
21
<PAGE> 27
THE DISCOUNT NOTE ISSUERS
TransWestern Holdings L.P. The Partnership was formed by CIVC, the
Management Investors and certain other investors in May 1993 to acquire the
TransWestern business from US West. US West assembled the assets and management
team that comprised the TransWestern business through the acquisition of 15
independent companies between 1985 and 1989. In November 1997, the Partnership
formed and contributed substantially all its assets to TransWestern,
TransWestern assumed or guaranteed all of the liabilities of the Partnership,
and the Partnership changed its name to TransWestern Holdings L.P.
TWP Capital Corp. Capital, a wholly-owned subsidiary of Holdings, was
incorporated in 1997 for the purpose of serving as a co-issuer of the Discount
Notes. Capital will not have substantial operations or assets of any kind and
will not have any revenues. As a result, prospective purchasers of the Discount
Notes should not expect Capital to participate in servicing the interest or
principal obligations of the Discount Notes. The Discount Note Indenture will
impose substantial restrictions on the activities of Capital.
The Company's principal executive offices are located at 8344 Clairemont
Mesa Boulevard, San Diego, California 92111, and its telephone number is (619)
467-2800.
22
<PAGE> 28
THE TRANSACTIONS
The Initial Discount Note Offering was consummated in conjunction with the
Partnership's $312.7 million Recapitalization plan set forth in the Securities
Purchase and Redemption Agreement, dated as of August 27, 1997, as amended,
among the THL Parties, CIBC WG Argosy Merchant Fund 2, L.L.C. ("CIBC Merchant
Fund"), an affiliate of CIBC Oppenheimer, which was one of the Initial
Purchasers, the Partnership and each of the Partnership's existing limited
partners (the "Existing Limited Partners").
In the Recapitalization, the THL Parties, CIBC Merchant Fund and CIVC
Partners III ("CIVC III" and together with the THL Parties and CIBC Merchant
Fund, the "New Investors"), the Management Investors and certain of the other
Existing Limited Partners made the Equity Investment in the Partnership and TCC.
The proceeds of the Equity Investment, together with approximately $182.7
million of aggregate proceeds from the debt financings described below, were
used (i) for $224.5 million of Recapitalization consideration, (ii) to repay
$75.6 million under the Old Credit Facility, (iii) to pay $10.6 million of fees
and expenses and (iv) for $2.0 million for general corporate purposes, including
working capital. The Recapitalization consideration consisted of (a) $174.4
million for redemption of outstanding partnership units, (b) $42.7 million of
capital which was reinvested by the Management Investors and certain other
Existing Limited Partners, (c) $5.5 million reserved for payments pursuant to
the Equity Compensation Plan, (d) $1.4 million for the purchase of TCC common
stock and (e) $0.5 million representing debt assumed.
The Recapitalization was financed with (i) the Equity Investment of $130.0
million, (ii) borrowings of approximately $107.7 million under the Senior Credit
Facility and (iii) borrowings of $75.0 million under the Senior Subordinated
Facility.
The Senior Credit Facility was provided by Canadian Imperial Bank of
Commerce, New York Agency, as lender and administrative agent ("CIBC"), and
First Union National Bank, as lender and documentation agent ("First Union"),
both of which are affiliates of the Initial Purchasers. The Senior Subordinated
Facility was provided by CIBC Oppenheimer and First Union Corporation, an
affiliate of First Union Capital Markets Corp., which is one of the Initial
Purchasers. TCC is owned approximately pro rata by all the equity investors in
the Partnership.
One half of the $5.5 million reserved for payments pursuant to the Equity
Compensation Plan was paid in the Recapitalization and one half remains an
obligation of the Company and was not borrowed concurrently with the other steps
of the Recapitalization. However, the entire $5.5 million for payments pursuant
to the Equity Compensation Plan is included in the sources and uses of funds
outlined below. See "Management -- Equity Compensation Arrangements."
The following table sets forth the sources and uses of funds in the
Recapitalization (dollars in millions):
<TABLE>
<S> <C>
SOURCES:
Senior Credit Facility(a)(b)...................................... $107.7
Senior Subordinated Facility(b)................................... 75.0
Equity Investment(c).............................................. 130.0
------
Total sources............................................. $312.7
======
USES:
Recapitalization consideration(d)................................. $224.5
Repayment of Old Credit Facility(e)............................... 75.6
Fees and expenses................................................. 10.6
Working Capital................................................... 2.0
------
Total uses................................................ $312.7
======
</TABLE>
- ---------------
(a) Includes borrowings of $85.0 million in Term Loans and $22.7 million under
the Revolving Credit Facility. Although the Company had actually drawn $17.2
million under the Revolving Credit Facility as of October 1, 1997, this
table reflects an amount, $22.7 million, that would have been borrowed under
the
23
<PAGE> 29
Revolving Credit Facility if all estimated fees and expenses, other debt
assumed and the total amount to be paid under the Equity Compensation Plan
had been paid on that date.
(b) The net proceeds of the Initial Offering were applied to (i) repay the
Senior Subordinated Facility, (ii) reduce the outstanding balance under the
Revolving Credit Facility, (iii) pay fees and expenses related to the
Initial Offering and (iv) for general corporate purposes, including working
capital.
(c) Includes $87.3 million from the New Investors, comprised of (i) $77.0
million invested by the THL Parties, (ii) $5.0 million invested by the CIBC
Merchant Fund, (iii) $4.5 million invested by CIVC III and (iv) $0.8 million
from new management investors. Also includes $42.7 million from continuing
investors, comprised of (i) $25.5 million from CIVC, (ii) $11.2 million from
the Management Investors, (iii) $5.0 million from FUCP and (iv) $1.0 million
from the Partnership's former Chairman.
(d) Includes $174.4 million for redemption of outstanding partnership units,
$1.4 million for the purchase of TCC common stock, $5.5 million reserved for
payments pursuant to the Equity Compensation Plan, $0.5 million representing
debt assumed and $42.7 million of capital which was reinvested by the
Management Investors and certain other Existing Limited Partners.
(e) The Old Credit Facility was provided by First Union, as lender and
administrative agent, and CIBC Inc., an affiliate of CIBC Oppenheimer, as
lender and documentation agent.
As a result of the Recapitalization, the THL Parties became the holders of
a majority of the equity of the Partnership. The following chart shows the
structure of the Partnership after the Recapitalization (the percentages shown
below reflect the approximate percentage ownership of both Class A and Preferred
Units):
[CHART]
In November 1997, the Partnership formed and contributed substantially all
of its assets to TransWestern, TransWestern assumed or guaranteed all of the
liabilities of the Partnership, and the Partnership changed its name to
TransWestern Holdings L.P. As a result of the Asset Drop-Down, Holdings' only
assets are all of the TransWestern membership interests and all of Capital's
capital stock. All of the operations that were previously conducted by the
Partnership are now being conducted by TransWestern.
24
<PAGE> 30
The following chart shows the structure of the Company after the Asset
Drop-Down:
[CHART]
Holdings applied the net proceeds of the Initial Discount Note Offering to
redeem approximately $31.3 million of the Equity Investment. Concurrent with the
Initial Discount Note Offering, TransWestern and Capital II offered $100 million
of their 9 5/8% Senior Subordinated Notes due 2007. TransWestern applied the net
proceeds of the Initial Offering to repay the Senior Subordinated Facility and
to reduce its outstanding indebtedness under the Revolving Credit Facility
established by the Senior Credit Facility.
After giving effect to the Initial Offerings and Asset Drop-Down, the THL
Parties collectively own approximately 59% of the equity of Holdings and the
CIVC Parties and the Management Investors and TCC own approximately 23%, 9% and
1.7% of the equity of Holdings, respectively. The remainder of the equity of
Holdings is held by other investors.
25
<PAGE> 31
THE PRINCIPAL INVESTORS
After giving effect to the Initial Offerings and the Asset Drop-Down, the
THL Parties are collectively the principal investors in the Company, owning
approximately 59% of the Preferred Units, the Class A Units and the stock of
TCC. THL, which is the principal THL Party, is managed by THL Co., one of the
oldest and most successful private equity investment firms in the United States.
Founded in 1974, THL Co. focuses on identifying and acquiring ownership stakes
in middle market growth companies. THL Co. currently manages more than $3
billion of capital and has participated in more than 100 acquisitions and
investments.
CIVC and CIVC III (the "CIVC Parties") together own approximately 23% of
the Preferred Units, the Class A Units and the stock of TCC. CIVC is a private
equity firm and a licensed small business investment company. Since 1990, CIVC
has invested approximately $300 million in small and middle market businesses
and was the principal investor in the 1993 Acquisition. CIVC is an indirect
subsidiary of BankAmerica Corporation, an international financial services
organization.
All of the Management Investors, who own in the aggregate approximately 9%
of the Preferred Units, the Class A Units and the stock of TCC, have been
officers and/or senior operational managers of the Company since the 1993
Acquisition. The Management Investors have extensive experience in the yellow
pages publishing business. See "Management."
26
<PAGE> 32
USE OF PROCEEDS
Holdings used the net proceeds of the Initial Discount Note Offering,
estimated to be approximately $31.3 million (after deduction of estimated
discounts to the Initial Purchasers and other Discount Note Offering expenses),
to redeem approximately $31.3 million of the Equity Investment. Affiliates of
the Initial Purchasers own Preferred Units and therefore participated in such
redemption.
The Discount Note Exchange Offer is intended to satisfy certain of the
Discount Note Issuers' obligations under the Registration Rights Agreement. The
Discount Note Issuers will not receive any cash proceeds from the issuance of
the Exchange Discount Notes offered hereby. In consideration for issuing the
Exchange Discount Notes contemplated in this Prospectus, the Discount Note
Issuers will receive Old Discount Notes in like principal amount, the form and
terms of which are the same as the form and terms of the Exchange Discount Notes
(which replace the Old Discount Notes), except as otherwise described herein.
27
<PAGE> 33
CAPITALIZATION
The following table sets forth the capitalization of Holdings as of October
31, 1997, after giving effect to the Initial Offerings and the Asset Drop-Down.
The Old Discount Notes surrendered in exchange for Exchange Discount Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Discount Notes will not result in any increase or decrease in the
indebtedness of the Discount Note Issuers. As such, no effect has been given to
the Discount Note Exchange Offer in the following capitalization table. The
information in this table should be read in conjunction with "The Transactions,"
"Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and accompanying notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-----------------------------
PRO FORMA
FOR THE INITIAL
OFFERINGS AND
THE
ACTUAL ASSET DROP-DOWN
--------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt:
Senior Credit Facility(a):
Revolving Credit Facility(a)................ $ 16,000 $ --
Term Loans(a)............................... 85,000 85,000
Senior Subordinated Facility................... 75,000 --
Notes(b)....................................... -- 100,000
Discount Notes................................. -- 32,500
Other debt..................................... 430 430
--------- ---------
Total debt.................................. 176,430 217,930
Total Partnership deficit(c)(d).................. (152,605) (187,255)
--------- ---------
Total capitalization........................ $ 23,825 $ 30,675
========= =========
</TABLE>
- ---------------
(a) The Senior Credit Facility consists of a $40 million Revolving Credit
Facility and $85 million in Term Loans. See "Description of Senior Credit
Facility." Although the Company had actually drawn $17.2 million under the
Revolving Credit Facility as of October 1, 1997, this table reflects an
amount, $22.7 million, that would have been borrowed under the Revolving
Credit Facility if all estimated fees and expenses, other assumed debt and
the total amount to be paid under the Equity Compensation Plan had been paid
on that date. On a pro forma basis, the Company would have had approximately
$40 million of additional borrowing availability under the Revolving Credit
Facility after applying a portion of the proceeds from the issuance of the
Old Notes to reducing the outstanding balance under the Revolving Credit
Facility.
(b) These obligations are direct obligations of TransWestern and Capital II, to
which the Discount Notes are effectively subordinated.
(c) As of October 31, 1997, there were 1,270,456 Preferred units, 1,270,456
Class A units and 10,000 Class B units issued and outstanding.
(d) As of the date hereof, there were 659,660 Preferred Units, 1,270,456 Class A
Units and 10,000 Class B Units issued and outstanding.
28
<PAGE> 34
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data are derived
from Holdings' consolidated financial statements appearing elsewhere in this
Prospectus, as adjusted to give effect to the Transactions. The unaudited pro
forma consolidated statements of operations data for the fiscal year ended April
30, 1997 and the six-month period ended October 31, 1997 give effect to the
Transactions as if they had occurred at the beginning of such periods, and the
unaudited pro forma consolidated balance sheet data give effect to the Initial
Offerings and the Asset Drop-Down as if they had occurred on October 31, 1997.
The pro forma adjustments are based upon available data and certain assumptions
that Holdings believes are reasonable. The unaudited pro forma consolidated
financial data do not purport to represent what Holdings' results of
consolidated operations or consolidated financial position would actually have
been had the Transactions in fact occurred at such prior times or to project the
Company's consolidated results of operations or financial position for or at any
future period or date. The unaudited pro forma consolidated financial data
should be read in conjunction with the consolidated financial statements of
Holdings' and the information contained in "The Transactions," "Use of
Proceeds," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
29
<PAGE> 35
TRANSWESTERN HOLDINGS L.P.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
TRANSACTIONS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------ ---------
<S> <C> <C> <C>
Net revenues............................................ $ 91,414 $ 91,414
Cost of revenues........................................ 19,500 19,500
------- --------
Gross profit.......................................... 71,914 71,914
Operating expenses:
Sales and marketing................................... 36,640 36,640
General and administrative............................ 16,821 $ (100)(a) 16,721
Contribution to Equity Compensation Plan.............. -- 5,543(b) 5,543
------- -------- --------
Total operating expenses................................ 53,461 5,443 58,904
------- -------- --------
Income from operations.................................. 18,453 (5,443) 13,010
Other income (expense), net............................. 48 48
Interest expense........................................ (7,816) (15,241)(c) (23,057)
------- -------- --------
Income (loss) before extraordinary item................. $ 10,685 $(20,684) $ (9,999)
======= ======== ========
EBITDA data:
Income (loss) before extraordinary item............... $ 10,685 $ (9,999)
Interest expense...................................... 7,816 23,057
Non-recurring other expense........................... 300 300
Contribution to Equity Compensation Plan.............. -- 5,543
Depreciation and amortization......................... 6,399 6,399
------- --------
EBITDA................................................ $ 25,200 $ 25,300
======= ========
Ratio of earnings to fixed charges(d)................... 2.29x --
======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations.
30
<PAGE> 36
TRANSWESTERN HOLDINGS L.P.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
TRANSACTIONS
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ---------
<S> <C> <C> <C>
Net revenues.............................................. $ 38,254 $ 38,254
Cost of revenues.......................................... 9,172 9,172
------- -------
Gross profit............................................ 29,082 29,082
Operating expenses:
Sales and marketing..................................... 17,114 17,114
General and administrative.............................. 7,893 $ (50)(a) 7,843
Contribution to Equity Compensation Plan................ 5,543 -- 5,543
------- ------- -------
Total operating expenses.................................. 30,550 (50) 30,500
------- ------- -------
Income (loss) from operations............................. (1,468) 50 (1,418)
Other income (expense), net............................... (107) (107)
Interest expense.......................................... (4,333) (9,644)(c) (13,977)
------- ------- -------
Income (loss) before extraordinary item................... $ (5,908) $(9,594) $ (15,502)
======= ======= =======
EBITDA data:
Income (loss) before extraordinary item................. $ (5,908) $ (15,502)
Interest expense........................................ 4,333 13,977
Non-recurring other expense............................. 326 326
Contribution to Equity Compensation Plan................ 5,543 5,543
Depreciation and amortization........................... 3,274 3,274
------- -------
EBITDA.................................................... $ 7,568 $ 7,618
======= =======
Ratio of earnings to fixed charges(d)..................... -- --
======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations.
31
<PAGE> 37
TRANSWESTERN HOLDINGS L.P.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
APRIL 30, ENDED OCTOBER 31,
1997 1997
---------- -----------------
<S> <C> <C> <C>
(a) Entry records elimination of expenses of former Chairman
net of expenses associated with the Management Fee (as
defined herein)........................................... $ (100) $ (50)
(b) Entry records accrued contribution to Equity Compensation
Plan (see "Management -- Equity Compensation
Arrangements")............................................ 5,543 --
(c) Pro forma adjustments to interest expense as a result of
the Transactions are as follows:
Interest expense:
Term Loans ($85,000 @ 8.50%).............................. 7,191 3,613
Notes ($100,000 @ 9.625%)................................. 9,625 4,813
Unused Revolving Credit Facility fee...................... 200 100
Discount Notes(i)......................................... 4,905 2,348
------- -------
Pro forma cash interest expense........................... 21,921 10,874
Amortization of debt issuance costs (ii).................. 1,136 568
------- -------
Total pro forma interest expense.......................... 23,057 11,442
------- -------
Less historical interest expense.......................... (7,816) (1,798)
------- -------
$ 15,241 $ 9,644
======= =======
</TABLE>
(i) Interest expense on the Discount Notes has been calculated under the
interest rate method using an annual rate of 11.875%.
(ii) It is anticipated that the total amount of the Senior Subordinated
Facility debt issuance costs of $3,400 will be written off upon
consummation of the Offerings.
(d) Earnings consist of income (loss) before extraordinary item plus
contributions to the Equity Compensation Plan plus fixed charges. Fixed
charges consist of (i) interest, whether expensed or capitalized, (ii)
amortization of debt issuance costs, whether expensed or capitalized, and
(iii) an allocation of one-fourth of the rental expense from operating
leases which management considers is a reasonable approximation of the
interest factor of rental expense. Pro forma earnings were insufficient to
cover fixed charges by $4,456 for the year ended April 30, 1997 and $9,959
for the six-month period ended October 31, 1997.
32
<PAGE> 38
TRANSWESTERN HOLDINGS L.P.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
INITIAL
OFFERINGS
AND THE
ASSET
DROP-DOWN
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 2,223 $ 3,515(a) $ 5,738
Trade receivables................................... 17,230 17,230
Deferred directory costs............................ 8,417 8,417
Other current assets................................ 475 475
-------- ---------
Total current assets.................................. 28,345 31,860
Property, equipment and leasehold improvements, net... 2,881 2,881
Acquired intangibles, net............................. 9,281 9,281
Other assets, primarily debt
issuance costs,net.................................. 8,246 6,735(a) 11,581
(3,400)(b)
-------- -------- ---------
$ 48,753 $ 6,850 $ 55,603
======== ======== =========
LIABILITIES AND PARTNERSHIP DEFICIT
Current liabilities:
Accounts payable.................................... $ 2,925 $ 2,925
Salaries and benefits payable....................... 2,498 2,498
Other accrued liabilities........................... 4,753 4,753
Amount due Holdings' general partner................ -- --
Customer deposits................................... 14,752 14,752
Current portion, long-term debt..................... 2,555 2,555
-------- ---------
Total current liabilities............................. 27,483 27,483
Long-term debt:
Senior Credit Facility.............................. 98,875 $ (16,000)(a) 82,875
Senior Subordinated Facility........................ 75,000 (75,000)(a) --
Notes............................................... -- 100,000(a) 100,000
Discount Notes...................................... -- 32,500(a) 32,500
Partnership deficit................................... (152,605) (3,400)(b) (187,255)
(31,250)(a)
-------- -------- ---------
$ 48,753 $ 6,850 $ 55,603
======== ======== =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
33
<PAGE> 39
TRANSWESTERN HOLDINGS L.P.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Reflects the actual sources and uses of funds for the Recapitalization
through October 31, 1997 and the estimated pro forma sources and uses of
funds for the Initial Offerings as if they had occurred as of October 31,
1997:
<TABLE>
<CAPTION>
INITIAL
RECAPITALIZATION OFFERINGS
---------------------- --------
<S> <C> <C> <C>
SOURCES OF FUNDS:
New Investors(i):
THL Parties..................................................... $75,674
CIVC III........................................................ 4,422
CIBC Merchant Fund ............................................. 4,914
Management Investors............................................ 738 $ 85,748
-------
Continuing investors(i)(ii):
CIVC ........................................................... 25,061
Management Investors and the former Chairman.................... 12,048
FUCP............................................................ 4,914 42,023
-------
New financing:
Senior Credit Facility(iii):
Revolving Credit Facility..................................... 22,716
Term Loans.................................................... 85,000
Senior Subordinated Facility.................................... 75,000 182,716
-------
Notes........................................................... $100,000
Discount Notes.................................................. 32,500
-------- --------
$310,487(v) $132,500
======== ========
USES OF FUNDS:
Repay Old Credit Facility ........................................ $ 75,600
Repay amount due General Partner.................................. 833
Redemption of partnership units................................... 174,381
Continuing investors(ii).......................................... 42,023
Repay Revolving Credit Facility................................... $ 16,000
Repay Senior Subordinated Facility................................ 75,000
Contribution to Equity Compensation Plan.......................... 5,543
Redemption of Preferred Units(i).................................. 31,250
Transaction costs and fees(iv):
Senior Credit Facility.......................................... $ 3,319
Senior Subordinated Facility.................................... 3,428
Transaction costs............................................... 3,858 10,605
-------
Prepaid Offering Costs.......................................... 1000
Notes........................................................... 5,485
Discount Notes.................................................. 1,250
Funds available for Working Capital............................... 502 3,515
-------- --------
$310,487(v) $132,500
======== ========
</TABLE>
(i) The table below sets forth the Equity Investment from New Investors and
continuing investors and TCC's partnership interests as of the
Recapitalization and as adjusted to reflect the Initial Discount Note
Offering and the redemption of the Preferred Units.
<TABLE>
<CAPTION>
PREFERRED AS ADJUSTED
AS OF THE UNIT FOR THE
RECAPITALIZATION REDEMPTIONS INITIAL OFFERINGS
---------------- ----------- -----------------
<S> <C> <C> <C>
New Investors:
THL Parties......................................... $ 75,674 $ (18,191) $57,483
CIVC III............................................ 4,422 (1,063) 3,359
CIBC Merchant Fund.................................. 4,914 (1,182) 3,732
Management Investors................................ 738 (177) 561
Continuing investors:
CIVC................................................ 25,061 (6,024) 19,037
Management Investors................................ 12,048 (2,894) 9,154
FUCP................................................ 4,914 (1,181) 3,733
TCC................................................... 2,238 (538) 1,700
-------- -------- -------
$130,009 $ (31,250) $98,759
======== ======== =======
</TABLE>
34
<PAGE> 40
TRANSWESTERN PUBLISHING COMPANY LLC
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(ii) Based on the purchase price per unit for the New Investors, multiplied
by the number of units retained by the continuing investors in the
Recapitalization. See "The Transactions." This implied value does not
represent (a) a purchase, sale or other change in such equity
investment for accounting or tax purposes or (b) any funds or proceeds
paid to or used by the Company in the Recapitalization.
(iii) The Senior Credit Facility makes available up to $40,000 under the
terms of the Revolving Credit Facility. The terms of the Term Loans
require annual principal payments of $2,125 (in years one through
five), $27,625 in year six and $46,750 in year seven.
(iv) The Transaction costs and fees and the allocation to the various
components of the Recapitalization and the Initial Offerings have been
estimated by management and may be subject to change. Transaction costs
and fees include legal and accounting fees and transaction charges from
lenders and investors and other incremental costs related directly to
the Transactions. The costs and fees were allocated to the various
consideration in the Transactions based on specific charges, and to the
extent charges were applicable to all of the various considerations, a
pro rata allocation was made based on the amounts involved. Management
believes that the final allocation of the transaction costs and fees
will not have a material impact on Holdings' financial statements.
(v) Does not include approximately $2.2 million expended by the New
Investors to purchase common stock of TCC directly from the holders
thereof in connection with the Recapitalization.
(b) Entry records write-off of debt issuance costs:
<TABLE>
<CAPTION>
OFFERING
---------------
<S> <C>
Senior Subordinated Facility.............................. $ 3,400
</TABLE>
35
<PAGE> 41
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
The following tables present selected historical consolidated financial
data and, insofar as they relate to each of the five fiscal years in the period
ended April 30, 1997, have been derived from the audited consolidated financial
statements of Holdings and the TransWestern business. The audited consolidated
statements of operations of Holdings for each of the three years in the period
ended April 30, 1997 and the audited consolidated balance sheet of Holdings as
of April 30, 1996 and 1997 and the notes thereto appear elsewhere in this
Prospectus. The consolidated balance sheet data at April 30, 1993, 1994 and 1995
and the consolidated statement of operations data for each of the years ended
April 30, 1993 and 1994 have been derived from the audited consolidated
financial statements of Holdings and the TransWestern business which do not
appear in this Prospectus. The selected historical consolidated statement of
operations and balance sheet data of Holdings as of and for the six months ended
October 31, 1996 and 1997 have been derived from unaudited consolidated
financial statements of Holdings included elsewhere in this Prospectus, which,
in the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such information.
Results for the six months ended October 31, 1997 are not necessarily indicative
of results that may be expected for the entire year. See "Unaudited Pro Forma
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the financial statements of Holdings
and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, SIX MONTHS ENDED
---------------------------------------------------------------- OCTOBER 31,
PREDECESSOR ----------------------
1993(A) 1994 1995 1996 1997 1996 1997
----------- ------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................... $54,949 $62,219 $ 69,845 $ 77,731 $ 91,414 $38,050 $38,254(b)
Cost of revenues................... 17,839 18,788 16,956 18,202 19,500 8,996 9,172
------- ------- ------- ------- ------- ------- --------
Gross profit..................... 37,110 43,431 52,889 59,529 71,914 29,054 29,082
Operating expenses:
Selling and marketing............ 26,473 26,301 27,671 29,919 36,640 15,888 17,114
General and administrative....... 8,793 13,037 13,804 15,072 16,821 7,870 13,436
------- ------- ------- ------- ------- ------- --------
Total operating expenses........... 35,266 39,338 41,475 44,991 53,461 23,758 30,550
------- ------- ------- ------- ------- ------- --------
Income from operations............. 1,844 4,093 11,414 14,538 18,453 5,296 (1,468)
Other income(expense), net......... 243 344 470 375 48 18 (107)
Interest expense................... (342) (2,951) (4,345) (6,630) (7,816) (4,029) (4,333)
------- ------- ------- ------- ------- ------- --------
Income before extraordinary item... 1,745 1,486 7,539 8,283 10,685 1,285 (5,908)
Extraordinary (loss)(c)............ (296) -- (392) (1,368) -- -- (1,391)
------- ------- ------- ------- ------- ------- --------
Net income......................... $ 1,449 $ 1,486 $ 7,147 $ 6,915 $ 10,685 $ 1,285 $(7,299)
======= ======= ======= ======= ======= ======= ========
OTHER DATA:
Depreciation and amortization...... $ 1,129 $ 4,603 $ 4,593 $ 4,691 $ 6,399 $ 3,122 $3,274
Capital expenditures............... 743 769 496 484 1,034 259 580
Cash flows provided by (used for):
Operating activities............. 9,022 9,853 14,608 13,091 15,302 5,672 6,245
Investing activities............. (743) (3,121) (2,838) (8,344) (3,592) (2,817) (8,762)
Financing activities............. (8,174) (6,075) (11,550) (4,361) (11,776) (2,875) 3,486
EBITDA(d).......................... 3,216 9,040 17,002 20,400 25,200 8,586 7,568(b)
EBITDA margin(e)................... 5.9% 14.5% 24.3% 26.2% 27.6% 22.6% 19.8%
Gross margin....................... 67.5% 69.8% 75.7% 76.6% 78.7% 76.4% 76.0%
Bookings(f)........................ $54,188 $64,269 $ 70,013 $ 75,709 $ 86,859 $44,485 $49,926
Advance payments as a % of net
revenues(g)...................... 26.2% 31.8% 36.9% 41.0% 45.1% 43.6% 46.6%
Number of accounts(h).............. 69,632 71,832 77,371 84,117 93,157 37,904 38,025
Average net revenues per
account(i)....................... $ 789 $ 866 $ 903 $ 924 $ 981 $ 1,004 $1,006
Number of directories.............. 90 97 106 118 128 49 57
Ratio of earnings to fixed
charges(j)....................... 3.55x 1.44x 2.69x 2.28x 2.29x 1.17x --
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................... $10,436 $12,034 $ 3,496 $ 2,088 $ 24 $(1,522) $862
Total assets....................... 46,594 43,879 41,831 47,423 48,231 47,975 48,753
Total debt......................... 28,921 25,724 47,961 84,410 78,435 84,335 176,430
Partnership equity (deficit)(k).... 5,850 4,458 (22,721) (55,606) (50,722) (57,675) (152,605)
</TABLE>
See accompanying Notes to Selected Historical Consolidated Financial and Other
Data.
36
<PAGE> 42
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
(a) Effective May 1, 1993, an investor group and CIVC formed the Partnership to
acquire the Transwestern business from US West. The results of operations
of the predecessor are not directly comparable to the results of operations
of the Company due to (i) the incurrence of interest expense from
borrowings to finance the acquisition and subsequent distributions, and
(ii) the effect of increased depreciation and amortization expense
associated with the acquisition.
(b) For the six months ended October 31, 1997 consolidated net revenues
increased $204,000 and EBITDA decreased $1.0 million as compared to the six
months ended October 31, 1996 primarily due to changes in the publication
schedule which caused a different mix of directories to be published in the
respective six month periods. EBITDA for the latest twelve months ended
October 31, 1997 and November 30, 1997 was $24,182 and $25,240
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(c) "Extraordinary item" represents the write-off of unamortized debt issuance
costs related to the repayment of debt prior to maturity. See Note 4 of the
Notes to the Financial Statements.
(d) "EBITDA" is defined as consolidated income (loss) before extraordinary item
plus consolidated interest expense, non-recurring other expense,
discretionary contributions to the Equity Compensation Plan and
depreciation and amortization. Non-recurring other expense was $300 in
fiscal 1997 and $326 in the first six months of fiscal 1998. Contributions
to the Equity Compensation Plan were $525 in fiscal 1995 and $796 in fiscal
1996 and $5,543 for the six months ended October 31, 1997. EBITDA is not a
measure of performance under GAAP. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity.
However, management understands that EBITDA is widely used by certain
investors as one measure to evaluate the financial performance of companies
in the yellow pages directory industry. The Company's definition of EBITDA
may not be comparable to that of other companies. See the tabular
presentation of EBITDA included in "Unaudited Pro Forma Financial
Data -- Unaudited Pro Forma Statement of Operations for the Fiscal Year
Ended April 30, 1997" and "-- Unaudited Pro Forma Statement of Operations
for the Six Months Ended October 31, 1997."
(e) "EBITDA margin" is defined as EBITDA as a percentage of net revenues.
Management believes that EBITDA margin provides a valuable indication of
the Company's ability to generate cash flows available for debt service.
(f) "Bookings" is defined as the daily advertising orders received from
accounts during a given period and generally occur at a steady pace
throughout the year. In fiscal 1997, net revenues included $4,200 from
acquired directories, while bookings does not reflect this adjustment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
(g) "Advance payments as a percentage of net revenues" is defined as, for a
given period, all cash deposits received on advertising orders prior to
revenue recognition as a percentage of net revenues recognized upon
directory distribution.
(h) "Number of accounts" is defined as the total number of advertising accounts
for all directories published during a given period. Customers are counted
as multiple accounts if advertising in more than one directory.
(i) "Average net revenues per account" is defined as net revenues divided by
the number of accounts.
(j) Earnings consist of income (loss) before extraordinary item plus
contributions to the Equity Compensation Plan plus fixed charges. Fixed
charges consist of (i) interest, whether expensed or capitalized, (ii)
amortization of debt issuance costs, whether expensed or capitalized, and
(iii) an allocation of one-fourth of the rental expense from operating
leases which management considers is a reasonable approximation of the
interest factor of rental expense.
(k) Partnership equity (deficit) represents the value of equity contributions
to Holdings by its partners plus net income of Holdings less partner
distributions for income taxes and distributions related to
recapitalization transactions completed during fiscal 1995 and 1996 and in
the six months ended October 31, 1997. Partnership distributions for income
taxes in fiscal 1995, 1996, 1997 and in the six months ended October 31,
1997 totaled $3,250, $3,400, $5,801 and $2,100, respectively. Partnership
distributions made in connection with recapitalization transactions
completed in fiscal 1995 and fiscal 1996 and in the six months ended
October 31, 1997 totaled $31,076, $36,400 and $174,381, respectively.
37
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Partnership was formed in May 1993 to acquire the TransWestern business
from US West. In November 1997, the Partnership formed and contributed
substantially all of its assets to TransWestern, TransWestern assumed or
guaranteed all of the liabilities of the Partnership, and the Partnership
changed its name to TransWestern Holdings L.P.
Revenue Recognition. The Company recognizes net revenues from the sale of
advertisements placed in each directory when the completed directory is
distributed. Costs directly related to sales, production, printing and
distribution of each directory are capitalized initially as deferred directory
costs and then matched against related net revenues upon distribution. All other
operating costs are recognized during the period when incurred. As the number of
directories grows, the publication schedule is periodically adjusted to
accommodate new books. In addition, changes in distribution dates are affected
by market and competitive conditions and the staffing level required to achieve
the individual directory revenue goals. As a result, the Company's directories
may be published in a month earlier or later than the previous year and may move
from one fiscal quarter or year to another. Year to year results depend on both
timing and performance factors.
Notwithstanding significant monthly fluctuation in net revenues recognized
based on actual distribution dates of individual directories, the Company's
bookings and cash collection activities generally occur at a steady pace
throughout the year. The table below demonstrates that quarterly bookings,
collection of advance payments and total cash receipts vary less than net
revenues or EBITDA:
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997 FISCAL 1998
----------------------------- ----------------------------- -------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues(a).... $20.7 $14.7 $20.9 $21.4 $23.3 $14.7 $23.5 $29.9 $19.2 19.1
EBITDA............. 5.5 2.4 7.0 5.5 5.9 2.7 7.0 9.6 4.0 3.6
Bookings(b)........ 18.1 20.0 17.6 20.0 20.5 23.9 21.4 21.1 22.7 27.2
Advance payments... 8.0 8.0 8.2 9.6 8.8 10.1 10.4 12.2 11.1 11.8
Total cash
receipts(c)...... 17.7 18.0 17.4 19.5 18.5 20.9 20.0 22.6 22.6 24.1
</TABLE>
- ---------------
(a) Fiscal 1997 includes $4.2 million of net revenues from contracts acquired
by the Company in connection with directory acquisitions.
(b) Excludes $4.2 million from contracts booked before the related directories
were acquired by the Company.
(c) Includes both advance payments and collection of accounts receivable.
Revenue Growth. Since the 1993 Acquisition, the Company's total number of
directories increased by 52, from 90 to 142, and the Company increased its total
number of accounts from nearly 70,000 to more than 93,000. Four acquisitions
completed since May 1995 expanded the Company's presence in northern California,
upstate New York, western Massachusetts, southern Indiana, Kentucky and
Tennessee and accounted for the addition of 24 directories and approximately
$9.2 million of net revenues in fiscal 1997. In addition, the Company started 26
new directories since fiscal 1993 which accounted for $5.2 million of net
revenues in fiscal 1997. Excluding these new and acquired directories, the
Company's net revenues grew 9.0% in fiscal 1995, 7.2% in fiscal 1996 and 6.7% in
fiscal 1997 with average revenue per account increasing from $919 in fiscal 1995
to $959 in fiscal 1996 and $1,017 in fiscal 1997. The Company's overall revenue
renewal and account retention rates have averaged 86% and 76%, respectively,
over the last five years.
Bookings. The length of the measurement periods for revenues and bookings
are the same; however, the measurement period for bookings for each month is the
thirty-day period ending on the twentieth of that month. Consequently, the
measurement period for bookings lags the measurement period for revenue and
other items by 10 days. Growth in bookings, which is closely correlated with the
number of account
38
<PAGE> 44
executives, has been 9.7% through the seven months ended November 30, 1997
versus the same period in 1996. Through November 30, 1997, the Company has
recognized net revenues of $42.8 million and has account bookings of $39.9
million for directories scheduled but not yet published in fiscal 1998, compared
to $42.0 million of net revenues and $37.4 million of bookings recognized
through November 30, 1996. To facilitate future growth, the Company increased
the size of its sales force by approximately 12.0%, increasing the number of
account executives from 400 as of November 30, 1996 to 448 as of November 30,
1997. Average bookings per week has grown from approximately $1.6 million for
the 12-month period ended November 30, 1996 to $1.8 million for the 12-month
period ended November 30, 1997, an increase of approximately 12.5%.
Cost of Revenues. The Company's principal operating costs are production,
paper and printing. Total operating costs represented 21.3% of net revenues in
fiscal 1997. At the individual directory level, production, printing,
distribution and licensing costs are largely fixed for an established
circulation, resulting in high marginal profit contribution from incremental
advertising sales into an existing directory. Since fiscal 1995, the Company's
constant focus on process improvement and increased productivity has enabled it
to minimize additional production and administrative costs while increasing the
number of its directories. Despite the addition of 52 directories and an
approximately 34% increase in the total number of accounts since fiscal 1993,
improved production and administrative processing has enabled the Company to
reduce total non-sales staffing from 214 in fiscal 1993 to 148 in fiscal 1997
and to improve the proportion of account executives to total employees from
43.1% in fiscal 1993 to 64.3% in fiscal 1997.
The Company's principal raw material is paper. The Company used
approximately 16.4 million and 17.6 million pounds of directory grade paper in
fiscal 1996 and 1997, respectively, resulting in a total cost of paper during
such periods of approximately $6.0 million and $5.8 million, respectively. White
pages listings are licensed from telephone utilities for a set fee per name and
the number of listings correspond directly to planned circulation and does not
fluctuate. Total licensing fees incurred by the Company in fiscal 1997 were $1.1
million. Distribution is provided by two third-party vendors at a fixed delivery
cost per directory as established by individual market.
Selling and Marketing Expenses. Direct sales expense correlates closely
with the size of the Company's sales force. As the Company continues to increase
the number of directories and to expand its total customer base, the number of
account executives required to complete the annual selling cycle grows
accordingly. The Company's ability to complete selling each directory within a
prescribed time frame depends on account executive staffing levels and
productivity. Historically, the Company has experienced a high turnover rate
among its account executives, particularly among new hires, and therefore
continues to invest in recruiting and training account executives to build the
size of its sales force and to continue to grow revenue. The number of account
executives has grown from 296 at the end of fiscal 1995 to 433 at the end of
fiscal 1997 and 448 as of November 30, 1997. However, as a result of a
significantly increased percentage of revenue attributable to new accounts,
revenue per account executive has decreased from $236,000 in fiscal 1995 to
$211,000 in fiscal 1997. Revenue per account executive has decreased because the
selling time required to develop a new account typically exceeds the time
required to service a renewal account and new accounts typically commit to
smaller advertising programs than do established renewal accounts. Although the
account renewal rate is typically lower for newer accounts than for established
accounts, as new accounts renew and mature, the net revenues from such accounts
generally increase, while the cost of revenues for such accounts decreases.
Direct sales expense accounted for approximately 19% of net revenues in fiscal
1997, 18% of net revenues in fiscal 1996 and 17% of net revenues in fiscal 1995.
Cash Flow Management. The Company has instituted several policies to
accelerate customer payments including (i) requiring customers to make minimum
deposits on their annual purchase at the time of contract signing, (ii)
requiring customers with small advertising purchases to pay 100% at the time of
contract signing, (iii) offering a cash discount to customers who pay 100% at
the time of contract signing, (iv) providing commission incentives to account
executives to collect higher customer deposits earlier in the sales process, (v)
shortening customer payment terms from 12 months to eight months or less, and
(vi) requiring new customers to begin payments immediately after contract
signing rather than waiting for the directory to be
39
<PAGE> 45
distributed. As a result of these initiatives, advance payments received prior
to directory publication as a percentage of net revenues has increased from
26.2% in fiscal 1993 to 45.1% in fiscal 1997.
Although the Company generally collects an advance payment from all
advertisers, credit is extended based upon the size of the advertising program
and customer collection history. While the Company's accounts receivable are not
subject to any concentrated credit risk, credit losses represent a cost of doing
business due to the nature of the Company's customer base, largely local
businesses, and the use of extended credit terms. Generally, for larger and
established accounts, credit may be extended under eight to 12 month installment
payment terms. In addition, customers are given credits for the current year
when errors occur in their advertisements. A reserve for bad debt and errors is
established when revenue is recognized for individual directories. The estimated
bad debt expense is determined on a market by market basis taking into account
prior years' collection history. Actual write-offs are taken against the reserve
when management determines that an account is uncollectible, which typically
will be determined after completion of the next annual selling cycle. Therefore,
actual account write-offs may not occur until 18 to 24 months after a directory
has been published. The estimated provision for bad debt equaled 9.2%, 9.1% and
9.8% of net revenues for fiscal years 1995, 1996 and 1997, respectively. Actual
account write-offs equaled 10.2% of net revenues in fiscal 1995. As described
above, actual account write-offs for fiscal 1996 and fiscal 1997 have not yet
been determined. Based on current estimates, management believes that actual
write-offs in fiscal 1996 will be approximately 9.7% of net revenues. Management
regularly reviews actual write-offs of accounts receivable as compared to the
reserve estimates made at the time individual directories are published. During
fiscal 1997, the Company's provision for bad debt included approximately
$600,000 more than management expects to write-off with respect to fiscal 1997
directories. This addition was made to offset lower realized collections with
respect to the fiscal 1995 directories.
Recapitalization Accounting and Tax Effects. The Company believes the
Recapitalization qualifies for recapitalization accounting treatment, pursuant
to which the Company has incurred substantial negative net worth. For tax
purposes the Company's basis in its assets is increased to approximately $225
million. This step-up in the basis of its assets will increase the Company's
amortization expense for tax purposes by approximately $15 million per year over
the next 15 years. Under current federal tax laws, Holdings' partners, not
Holdings, pay federal income taxes with respect to Holdings' net income.
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of
operations as a percentage of net revenues for the fiscal years ended April 30,
1995, 1996 and 1997 and for the six month periods ended October 31, 1996 and
1997:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED APRIL 30, ENDED OCTOBER 31,
------------------------- -----------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................... 24.3 23.4 21.3 23.6 24.0
----- ----- ----- ----- -----
Gross profit............................... 75.7 76.6 78.7 76.4 76.0
Selling and marketing...................... 39.6 38.5 40.1 41.8 44.7
General and administrative................. 19.8 19.4 18.4 20.7 35.1
----- ----- ----- ----- -----
Income (loss) from operations.............. 16.3% 18.7% 20.2% 13.9% (3.8)%
===== ===== ===== ===== =====
EBITDA(a).................................. 24.3% 26.2% 27.6% 22.6% 19.8%
</TABLE>
- ---------------
(a) "EBITDA" is defined as consolidated income (loss) before extraordinary item
plus consolidated interest expense, non-recurring other expense,
discretionary contributions to the Equity Compensation Plan and depreciation
and amortization. Non-recurring other expense was $300 in fiscal 1997 and
$326 in the first six months of fiscal 1998. Contributions to the Equity
Compensation Plan were $525 in fiscal 1995 and $796 in fiscal 1996 and
$5,543 for the six months ended October 31, 1997. EBITDA is not a measure of
performance under GAAP. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities and other
income or cash flow statement data prepared in accordance with GAAP, or as a
measure of profitability or liquidity. However, management understands that
EBITDA is widely used by certain investors as one measure to evaluate the
financial performance of companies in the yellow pages directory industry.
The Company's definition of EBITDA may not be comparable to that of other
companies. See the tabular presentation of EBITDA included in "Unaudited Pro
Forma Financial Data -- Unaudited Pro Forma Statement of Operations for the
Fiscal Year Ended April 30, 1997" and "-- Unaudited Pro Forma Statement of
Operations for the Six Months Ended October 31, 1997."
40
<PAGE> 46
SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1996
The Company's financial results were affected by changes in the publishing
schedule during the first six months of fiscal 1998 compared to the same period
in fiscal 1997, resulting in differences in the number and mix of directories
published. As a result, interim results are not indicative of results that may
be expected for the entire year, as the impact of changes in the Company's
publishing schedule is diminished over longer reporting periods.
On October 1, 1997 the Company consummated the Recapitalization, the
effects of which are included in the financial results of the six month period
ending October 31, 1997.
Net revenues increased $204,000, from $38.1 million for the first six
months of fiscal 1997 to $38.3 million during the first six months of fiscal
1998. The Company published 57 directories during the first six months of fiscal
1998 and 49 directories during the first six months of fiscal 1997. The increase
in net revenue consisted of $2.0 million from year to year growth of the same 43
directories published during both periods, $0.6 million from four new
directories and $3.6 million from directories for which the publication date
moved into the period offset by $6.0 million from directories for which the
publication date moved out of the period.
Same book revenue growth for the 43 directories published in both periods
was 6.1% and the average revenue per account was 6.4% higher in the first six
months of fiscal 1998 than in the first six months of fiscal 1997.
Cost of revenues for the first six months of fiscal 1998 increased $176,000
from $9.0 million to $9.2 million for the same period in fiscal 1997, primarily
due to changes in the mix of publications. Cost of revenues for the same 43
directories published in both periods decreased by $426,000, from 20.3% of
revenue to 17.9% and was attributable to a reduction in printing and
distribution expenses.
Gross profit for the six months ended October 31, 1997 remained flat at
$29.1 million compared to the same period in fiscal 1997. Timing changes led to
the publication during the first six months of fiscal 1998 of more directories
with lower profit contributions than those published during the same period in
fiscal 1997, the effect of which was partially offset by an increase in gross
profit of $2.2 million, or 9.2%, for the same 43 directories published in both
periods and $266,000 of gross profit associated with four new directories. Gross
margin decreased slightly from 76.4% during the first six months of fiscal 1997
to 76.0% during the same period in fiscal 1998.
Selling and marketing expense increased $1.2 million from $15.9 million for
the first six months of fiscal 1997 to $17.1 million for the same period in
fiscal 1998. This increase in selling and marketing costs was attributable to
increased selling costs of $0.7 million for the same 43 directories published in
both periods, $0.4 million for the four new directories and $0.1 million from an
increase in sales management costs. The provision for bad debt as a percentage
of net revenues increased from 8.7% to 9.1% due to the change in the mix of
directories published. Selling and marketing expense as a percentage of net
revenues increased from 41.8% during the first six months of fiscal 1997 to
44.7% during the same period in fiscal 1998 due to an increase in the number of
sales representatives selling advertising for the same 43 books and higher
start-up selling costs for the four new directories.
General and administrative expense increased $5.5 million from $7.9 million
in the first six months of fiscal 1997 to $13.4 million in the same period of
fiscal 1998 as a result of a contribution to the Equity Compensation Plan of
$5.5 million made on October 1, 1997 in connection with the Recapitalization.
There were no such contributions made in the first six months of fiscal 1997.
General and administrative expenses as a percentage of net revenues increased
from 20.7% for the first six months of fiscal 1997 to 35.1% during the same
period in fiscal 1998.
As a result of the above factors, income (loss) from operations decreased
$6.8 million, from $5.3 million for the first six months of fiscal 1997 to
($1.5) million for the same period in fiscal 1998. Income (loss) from operations
as a percentage of net revenues decreased from 13.9% during the first six months
of fiscal 1997 to (3.8%) during the same period of fiscal 1998.
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Depreciation and amortization increased $152,000 from $3.1 million for the
first six months of fiscal 1997 to $3.3 million in fiscal 1998.
Interest expense increased $304,000 from $4.0 million for the first six
months of fiscal 1997 to $4.3 million in fiscal 1998.
Income (loss) before extraordinary item decreased $7.2 million from $1.3
million in the first six months of fiscal 1997 to ($5.9) million in fiscal 1998.
Extraordinary item charges of $1.4 million in the six month period ended
October 31, 1997 were in connection with the Recapitalization and consisted of
write-off of unamortized debt issuance costs related to the repayment of debt
prior to maturity.
YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR ENDED APRIL 30, 1996
Net revenues increased $13.7 million, or 17.6%, from $77.7 million in
fiscal 1996 to $91.4 million in fiscal 1997. The Company published 128
directories in fiscal 1997 as compared to 118 directories in fiscal 1996. The
net revenue growth was due to (i) $9.5 million from 21 new directories published
in fiscal 1997, (ii) an increase in net revenues of $5.6 million in the same 106
directories published in both periods, and (iii) $2.0 million from the second
publication of the Tyler, Texas directory during fiscal 1997, offset by $3.4
million of net revenues associated with 12 directories published in fiscal 1996
but not in fiscal 1997.
Same book revenue growth for the 106 directories published in both periods
was 7.8%, and was the result of 74.2% of accounts representing 85.3% of the
fiscal 1996 net revenues renewing their advertising program in fiscal 1997, with
new accounts contributing to the balance of the growth. In addition, the average
revenue per account was 4.8% higher in fiscal 1997 than in fiscal 1996.
Cost of revenues increased $1.3 million, or 7.1%, from $18.2 million in
fiscal 1996 to $19.5 million in fiscal 1997. The increase was the result of (i)
$2.7 million of costs associated with 21 new directories published in fiscal
1997 and (ii) $0.5 million of additional production and distribution overhead
costs, offset by (a) $1.0 million of lower costs for the same 106 directories
published in both fiscal years and (b) $0.9 million of costs associated with 12
directories published during fiscal 1996, but not in fiscal 1997. For the same
106 directories that were published in both fiscal years, cost of revenues as a
percentage of net revenues improved from 23.4% in fiscal 1996 to 21.3% in fiscal
1997, primarily due to a decrease in printing and production costs and license
fees.
As a result of the above factors, gross profit increased $12.4 million, or
20.8%, from $59.5 million in fiscal 1996 to $71.9 million in fiscal 1997. Gross
margin increased from 76.6% in fiscal 1996 to 78.7% in fiscal 1997 as a result
of reduced printing and production costs and license fees and increased sales on
a same directory basis.
Selling and marketing expense increased $6.7 million, or 22.5%, from $29.9
million in fiscal 1996 to $36.6 million in fiscal 1997. The majority of the
increase was attributable to increased sales staffing for new and acquired
directories, the establishment of a permanent sales office in the Nashville,
Tennessee market and an increase in the provision for bad debt for write-offs
expected on fiscal 1995 directories. Selling and marketing expense as a
percentage of net revenues increased from 38.5% in fiscal 1996 to 40.1% in
fiscal 1997.
General and administrative expense increased $1.7 million, or 11.6%, from
$15.1 million in fiscal 1996 to $16.8 million in fiscal 1997, primarily as a
result of increased depreciation and amortization. General and administrative
expense as a percentage of net revenues decreased from 19.4% in fiscal 1996 to
18.4% in fiscal 1997.
As a result of the above factors, income from operations increased $3.9
million, or 26.9%, from $14.5 million in fiscal 1996 to $18.5 million in fiscal
1997. Income from operations as a percentage of net revenues increased from
18.7% in fiscal 1996 to 20.2% in fiscal 1997.
Depreciation and amortization expense increased $1.7 million, or 37.2%,
from $4.7 million in fiscal 1996 to $6.4 million in fiscal 1997.
Interest expense increased $1.2 million, or 17.9%, from $6.6 million in
fiscal 1996 to $7.8 million in fiscal 1997.
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Income before extraordinary item increased $2.4 million, or 29.0%, from
$8.3 million in fiscal 1996 to $10.7 million in fiscal 1997.
YEAR ENDED APRIL 30, 1996 COMPARED TO YEAR ENDED APRIL 30, 1995
Net revenues increased $7.9 million, or 11.3%, from $69.8 million in fiscal
1995 to $77.7 million in fiscal 1996. The Company published 118 directories in
fiscal 1996 as compared to 106 directories in fiscal 1995. The growth in net
revenues was the result of (i) $2.7 million from the addition of 15 new
directories, (ii) $5.4 million of increased net revenues from the same 103
directories published in both periods, partially offset by $209,000 from the
discontinuation of three Oklahoma directories.
Same book revenue growth for the 103 directories published in both periods
was 7.8%, and was the result of 76.3% of accounts accounting for 87.5% of the
fiscal 1995 net revenues renewing their advertising program in fiscal 1996, with
new accounts contributing to the balance of the growth. In addition, the average
revenue per account was 4.0% higher in fiscal 1996 than in fiscal 1995.
Cost of revenues increased $1.2 million, or 7.3%, from $17.0 million in
fiscal 1995 to $18.2 million in fiscal 1996. The increase was the result of $1.2
million for new directories, $0.5 million from an increase in paper prices and
distribution costs for the same 103 directories published in both fiscal 1996
and 1995, offset by $323,000 associated with the discontinuation of three
Oklahoma directories and $200,000 of production cost savings. For the same 103
directories that were published in both fiscal years, cost of revenues as a
percentage of net revenues improved from 19.4% in fiscal 1995 to 18.6% to fiscal
1996, primarily due to a decrease in printing and production costs and license
fees.
As a result of the above factors, gross profit increased $6.6 million, or
12.6%, from $52.9 million in fiscal 1995 to $59.5 million in fiscal 1996. Gross
profit margin grew from 75.7% in fiscal 1995 to 76.6% in fiscal 1996, primarily
due to improved margins on the same 103 directories published during both fiscal
1995 and 1996, new directories and from improvements in production processing.
Selling and marketing expense increased $2.2 million, or 8.1%, from $27.7
million in fiscal 1995 to $29.9 million in fiscal 1996. The bulk of this
increase was due to increased sales staffing for the 15 new directories
introduced in 1996 as well as the same 103 directories published during both
fiscal years. Selling and marketing expense as a percentage of net revenues
decreased from 39.6% in fiscal 1995 to 38.5% in fiscal 1996.
General and administrative expense increased $1.3 million, or 9.2%, from
$13.8 million in fiscal 1995 to $15.1 million in fiscal 1996. This increase was
due to higher salaries and benefits, additional costs associated with travel and
recruiting and an increase in incentives paid for the collection of advance
payments. General and administrative expense as a percentage of net revenues
decreased from 19.8% in fiscal 1995 to 19.4% in fiscal 1996.
As a result of the above factors, income from operations increased $3.1
million, or 27.4%, from $11.4 million in fiscal 1995 to $14.5 million in fiscal
1996. Income from operations as a percentage of net revenues increased from
16.3% in fiscal 1995 to 18.7% in fiscal 1996.
Depreciation and amortization expense increased $98,000, or 2.1%, from $4.6
million in fiscal 1995 to $4.7 million in fiscal 1996.
Interest expense increased $2.3 million, or 52.6%, from $4.3 million in
fiscal 1995 to $6.6 million in fiscal 1996. This increase in interest expense
was due to a refinancing of the Partnership that was consummated in November
1995.
Income before extraordinary item increased $0.7 million, or 9.9%, from $7.5
million in fiscal 1995 to $8.3 million in fiscal 1996 due to Equity Compensation
Plan expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations are not capital intensive. Capital expenditures
were $496,000, $484,000 and $1.0 million in fiscal 1995, 1996 and 1997,
respectively. Capital spending is largely for computer hardware and software
upgrades for the maintenance of its production and operating systems. The
increase of $0.5 million in
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fiscal 1997 was related to the purchase of graphics workstations that will allow
the Company to produce color advertisements in-house and avoid the high cost for
color processing charged by third-party vendors. As of the end of fiscal 1997
and October 31, 1997, the Company did not have any material commitments for
capital expenditures.
Through its focus on increasing customer advance payments and the
acceleration of cash receipts, the Company has been able to reduce working
capital requirements despite strong revenue growth. Several factors have
contributed to this reduction, including (i) programs designed to accelerate
advance payments, (ii) shortening billing options for credit payments, (iii)
improved production and administrative processing to reduce non-sales staffing
and the elimination of costly third party vended services, and (iv) consistent
earnings growth. Net accounts receivable, which represents the largest component
of working capital, increased to $23.3 million in fiscal 1997 compared to $17.5
million in fiscal 1993. This increase of $5.7 million, or 32.8%, compares
favorably to the net revenue growth of $36.5 million, or 66.4%, over the same
period. In addition, advance payments as a percentage of net revenues increased
from 26.2% in fiscal 1993 to 45.1% in fiscal 1997.
Net cash provided by operating activities was approximately $6.2 million in
the six months ended October 31, 1997 as compared to approximately $5.7 million
in the same period in 1996. This increase was primarily related to substantially
increased sources of funds from lower accounts receivable and higher customer
deposits. Despite an increase in the absolute number of directories published in
the six months ended October 31, 1997, the average amount of billed receivables
was lower due to increased advance payments. Collection of accounts receivable
also improved over the previous year. Cash flows in the six month period were
also favorably impacted by timing differences in the directory publishing
schedule, which had a favorable impact on net cash provided by accrued expenses
and payables.
Net cash provided by operating activities was approximately $14.6 million,
$13.1 million and $15.3 million in fiscal 1995, 1996 and 1997, respectively. The
decrease from 1995 to 1996 was caused by increased write-offs of doubtful
accounts totaling $(2.1) million due to a review of older balances, reduced
accounts payable and accrued liabilities of $(1.7) million caused primarily by
publication schedule changes and accrued interest of $(1.1) million related to
the write-off of unamortized financing fees booked as part of the 1996
refinancing. The increase from 1996 to 1997 was primarily related to the $3.8
million increase in net income and increased non-cash charges for depreciation,
amortization and provision for bad debt along with an approximate $1.0 million
reduction in write-offs of doubtful accounts to an amount which is in line with
normal levels associated with the growth in revenue. Also, the use of cash in
fiscal 1997 from increased trade receivables associated with higher published
revenues was partially offset by the timing impact on accrued interest and
accounts payable balances totaling $1.9 million.
Net cash used for investing activities was approximately $(8.8) million in
the six months ended October 31, 1997 as compared to approximately $(2.8)
million in the same period in 1996. This increase was primarily the result of
debt issuance costs related to the Recapitalization and cash paid for directory
acquisitions. Net cash used for investing activities was approximately $(2.8)
million, $(8.3) million and $(3.6) million in fiscal 1995, 1996 and 1997,
respectively. The increase from 1995 to 1996 was related to payments for
purchases of directories, and the decrease from 1996 to 1997 was caused by
reduced amounts paid in connection with directory asset purchases compared to
fiscal 1996 and refinancing costs in 1996 which did not recur in 1997.
Net cash provided by (used for) financing activities was approximately $3.5
million in the first six months of October 31, 1997 as compared to approximately
$(2.9) million in the same period in 1996. This increase was primarily the
result of net proceeds from the Recapitalization. Net cash used for financing
activities was approximately $(11.6) million, $(4.4) million and $(11.8) million
in fiscal 1995, 1996 and 1997, respectively. The decrease from 1995 to 1996 was
primarily related to a refinancing of the Partnership completed in fiscal 1996
which was relatively larger in amount than a refinancing completed in fiscal
1995. The increase from 1996 to 1997 was caused by a decrease in the net
proceeds of long term debt as fiscal 1997 did not include any refinancing
activity.
Holdings is a holding company which has no significant assets other than
its investments in its direct and indirect subsidiaries, and therefore, its
ability to make payments with respect to the Discount Notes is
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dependent upon the receipt of dividends or debt service in respect of
intercompany indebtedness from its direct and indirect subsidiaries.
In connection with the Transactions, Holdings and the Company incurred
significant debt. As of October 31, 1997, after giving pro forma effect to the
Initial Offerings and the Asset Drop-Down, Holdings would have had outstanding
indebtedness of approximately $217.9 million a partnership deficit of
approximately $187.3 million. Holdings pro forma earnings were insufficient to
cover fixed charges by $4.5 million for the fiscal year ended April 30, 1997 and
$10.0 million for the six-month period ended October 31, 1997. As of October 31,
1997, after giving effect to the consummation of the Initial Offerings and the
Asset Drop-Down, the Company would have had total outstanding debt of
approximately $185 million, of which $100 million is represented by the Notes
and $85 million is outstanding borrowings under the Senior Credit Facility,
which ranks senior to the Notes. In addition, the Company would have had $40.0
million of additional borrowing availability under the Senior Credit Facility.
The Company's pro forma earnings were insufficient to cover fixed charges by
approximately $7.6 million for the six-month period ended October 31, 1997.
The ability of the Company to pay principal and interest on the Notes and
Holdings to pay the Accreted Value or principal or interest on the Discount
Notes will depend upon future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors, some
of which are beyond the control of the Company and Holdings, as well as
borrowings under the Senior Credit Facility. If the Company's operating cash
flow is insufficient to meet its operating expenses and to service its debt
requirements as they become due, the Company may be required to refinance all or
a portion of the principal of the Notes and amounts outstanding under the Senior
Credit Facility and Holdings may be required to refinance all or a portion of
the principal of the Discount Notes. If the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these remedies can be effected on satisfactory terms, if at all.
Based on current levels of operations and anticipated growth, the Company does
not believe that the indebtedness incurred in connection with the Transactions
will have a material adverse effect on the Company's business, operations or
capital expenditures, although there can be no assurance in this regard. In
addition, the Company may require additional capital to fund the start up and
selective acquisition portion of its growth strategy, and there can be no
assurance that such funds will be available. See "Description of Senior Credit
Facility," "Description of the Notes" and "Description of the Discount Notes."
The Company's principal sources of funds following the Initial Offerings
and Asset Drop-Down are anticipated to be cash flows from operating activities
and borrowings under the Revolving Credit Facility. See "Description of Senior
Credit Facility." Based upon the successful implementation of management's
business and operating strategy, the Company believes that these funds will
provide it with sufficient liquidity and capital resources to meet current and
future financial obligations, including the payment of principal and interest on
the Notes, as well as to provide funds for the Company's working capital,
capital expenditures and other needs for the next twelve months. The Company's
future operating performance and ability to service or refinance the Notes and
to repay, extend or refinance the Senior Credit Facility will be subject to
future economic conditions and to financial, businesses and other factors, many
of which are beyond the Company's control. There can be no assurance that such
sources of funds will be adequate and that the Company will not require
additional capital from borrowings or securities offerings to satisfy such
requirements. In addition, the Company may require additional capital to fund
future acquisitions and there can be no assurance that such capital will be
available. See "Risk Factors."
The Revolving Credit Facility and the indenture governing the Notes
significantly restrict the distribution of funds by TransWestern and the other
subsidiaries of Holdings. See "Description of Certain Indebtedness" and
"Description of the Notes." There can be no assurance that the agreements
governing indebtedness of Holdings' subsidiaries will permit such subsidiaries
to distribute funds to Holdings in amounts sufficient to pay the Accreted Value
or principal or interest on the Discount Notes when the same becomes due
(whether at maturity, upon acceleration or redemption or otherwise). The
Discount Notes will be effectively subordinated in right of payment to all
existing and future claims of creditors of subsidiaries of Holdings, including
the lenders under the Senior Credit Facility, the holders of the Notes and trade
creditors. After giving pro forma
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effect to the Initial Offerings and the Asset Drop-Down as of October 31, 1997,
the subsidiaries of Holdings would have had approximately $185.0 million
aggregate principal amount of indebtedness outstanding. In addition, such
subsidiaries would have had $40.0 million of additional borrowing availability
under the Senior Credit Facility.
In connection with its strategy of growing revenues from existing
directories, the Company has increased its sales force from 223 employees at the
end of fiscal 1993 to 448 as of November 30, 1997. The Company seeks to continue
to increase the absolute size of its sales force, however the Company currently
does not believe that its sales force will increase at a rate equal to the
percentage increase from 1993 to 1997. The Company does not believe that
increases in the number of its sales personnel will materially impact its
liquidity.
Upon the occurrence of a Change of Control, Holdings will be required to
make an offer for cash to purchase the Discount Notes at a purchase price equal
to (i) 101% of the Accreted Value thereof, if the repurchase date is on or prior
to November 15, 2002 or (ii) 101% of the principal amount at maturity thereof,
together with accrued and unpaid interest thereon, if any, to the repurchase
date, if such date is after November 15, 2002. Certain events involving a Change
of Control may result in an event of default under the Senior Credit Facility,
the Notes or other indebtedness of Holdings that may be incurred in the future.
Moreover, the exercise by the holders of the Discount Notes of their right to
require Holdings to purchase the Discount Notes may cause an event of default
under the Senior Credit Facility, the Notes or such other indebtedness, even if
the Change of Control does not. Finally, there can be no assurance that Holdings
will have the financial resources necessary to purchase the Discount Notes upon
a Change of Control. See "Risk Factors -- Limitations on Change of Control;
Ability to Purchase Discount Notes Upon A Change of Control" and "Description of
the Discount Notes -- Change of Control Offer."
FINANCING ACTIVITIES RELATING TO THE TRANSACTIONS
Holdings applied the net proceeds of the Initial Discount Note Offering to
redeem approximately $31.3 million of the Equity Investment. However, this
redemption by Holdings did not reduce the equity capitalization of TransWestern.
See "The Transactions" and "Use of Proceeds."
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BUSINESS
The Company is one of the largest independent yellow pages directory
publishers in the United States. The Company's 142 directories serve communities
in the 12 states of California, Connecticut, Indiana, Kansas, Kentucky,
Louisiana, Massachusetts, New York, Ohio, Oklahoma, Tennessee and Texas. The
Company's presence in its markets is well-established; more than 70% of its
directories have been in publication for more than 10 years. The Company's
revenues are derived from the sale of advertising to a diversified base of over
93,000 accounts consisting primarily of small to medium-sized local businesses.
Yellow pages are an important advertising medium for local businesses due to
their low advertising cost, widespread distribution, lasting presence, and high
consumer usage. The strength of the Company's directories is evidenced by high
revenue renewal and account retention rates, which have averaged 86% and 76%,
respectively, during the last five years.
Since the 1993 Acquisition, the Company's management team has successfully
executed its strategy of growing revenues from existing directories, improving
operating efficiency, accelerating cash flows and starting and acquiring new
directories. Over this period, the Company increased average revenue per account
from $789 to $981 and increased its number of directories from 90 to 142,
driving the Company's net revenues from $54.9 million to $91.4 million and its
net income from $1.4 million to $10.7 million. The Company achieved this growth
without significantly increasing working capital or capital expenditures, while
leveraging its existing cost structure and creating a platform for future
growth. As a result, the Company's EBITDA increased from $3.2 million to $25.2
million and its EBITDA margin increased from 5.9% to 27.6%.
INDUSTRY OVERVIEW
The United States yellow pages directory industry generated revenues of
approximately $10.8 billion in 1996, with circulation of approximately 316
million directories. Yellow pages directories are published by both telephone
utilities and, in many markets, independent directory publishers, such as the
Company, which are not affiliated with the telephone service provider. More than
250 independent directory publishers circulated over 77 million directories and
generated an estimated $677 million in revenues during 1996. Between 1991 and
1996, while industry-wide yellow pages advertising revenues grew at a compound
annual rate of 3.5%, advertising revenues of independent directories grew at a
compound annual rate of approximately 6.9%. Concurrent with the overall
expansion of the yellow pages advertising market, independent directory
publishers have steadily increased their market share from 5.5% in 1991 to 6.5%
in 1996. This has occurred because the diverse needs of both consumers and
advertisers are often not satisfied by a single utility directory.
Yellow pages directories accounted for approximately 6.0% of total
advertising spending in 1996 and compete with all other forms of media
advertising, including television, radio, newspapers and direct mail. In
general, media advertising may be divided into three categories: (i) market
development or image advertising (e.g., television, radio and newspapers), (ii)
direct response sales promotion (e.g., direct mail), and (iii) point of purchase
or directional advertising (e.g., classified directories). Yellow pages
directories are primarily directional advertising because they are used either
at home or in the workplace when consumers are contemplating a purchase or in
need of a service.
Yellow pages advertising expenditures tend to be more stable than other
forms of media advertising and do not fluctuate widely with economic cycles.
Yellow pages directory advertising is considered a "must buy" by many small and
medium-sized businesses since it is often their principal means of soliciting
customers. The strength of the yellow pages as compared to other forms of
advertising lies in its consumer reach, lasting presence and cost-effectiveness.
Yellow pages are present in nearly every household and business in the United
States. Once an advertisement is placed in a directory, it remains within reach
of its target audience until the directory is replaced with the next annual
edition or discarded.
The independent publisher segment of the yellow pages industry is highly
fragmented and growing. There are approximately 250 independent yellow pages
publishers in the United States and the five largest independent publishers
accounted for 63% of 1996 revenues in the independent publisher segment.
Successful independent publishers effectively compete with telephone utilities
by differentiating their product based on geographical market segmentation,
pricing strategy and enhanced product features. To maximize both
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advertiser value and consumer usage, independent directory publishers target
their directory coverage areas based on consumer shopping patterns. In contrast,
most directories published by telephone utilities coincide with their telephone
service territories, which may incorporate multiple local markets or only
portions of a single market. Also, independent publishers generally offer yellow
pages advertisements at a significant discount to the price that competing
telephone utilities usually charge. As a result, independent yellow pages
directories allow local advertisers to better target their desired market and
are often more useful for consumers.
Independent yellow pages publishers generally compete in rural and suburban
markets and not major urban markets, where the high distribution quantities for
each edition create a barrier to entry. In most markets, independent directory
publishers compete with the telephone utility and with one or more independent
yellow pages publishers. In markets where two or more directory publishers
compete, advertisers frequently purchase advertisements in multiple directories.
In some markets, independent directory publishers compete by "overscoping"
multiple telephone utilities. Overscoping refers to publishing a directory which
encompasses the service territories of two or more telephone utilities. For
example, an independent publisher may publish a single overscoped directory
which provides coverage of an entire county that also contains three smaller
utility books corresponding to different telephone service territories. The
overscoped directory provides advertisers with a lower cost, more efficient
means to reach the entire area, and provides consumers with the most complete
yellow pages resource for the area.
In other markets, independent directory publishers compete by
"underscoping" a utility company's directory. For example, an independent
publisher may publish multiple smaller community directories which provide
targeted local coverage in an area in which a utility publishes a single
directory to cover an entire county consisting of many discrete communities.
Underscoping provides more efficient advertising for certain types of local
businesses for whom advertising outside the immediate community is unproductive,
and for consumers interested in local services, the community directory
frequently represents a more convenient and relevant source of information than
the county-wide directory.
Independent directory publishers also distinguish their directories from
the telephone utility directories on the basis of advertisement pricing. The
independents typically price advertising at a significantly lower rate than the
utility directories in the same market areas. Advertising rates are specifically
tailored to reflect the different size, market position, stage of development
and penetration rate of each directory. As a result, businesses generally are
able to place either multiple advertisements or a larger advertisement in an
independent directory for the same price as a single advertisement with the
telephone utility's directory.
OPERATING STRENGTHS
The Company believes that it benefits from the following operating
strengths:
High Revenue Stability and Account Renewal Rates. The Company's high
revenue renewal and account retention rates (averaging 86% and 76%,
respectively, during the last five fiscal years) have provided considerable
revenue and profit stability and form a strong base of business from which to
grow. For many local businesses, yellow pages directory advertising is their
principal form of advertising and provides an effective means of reaching their
potential customers. Also, advertisement placement within a directory is based
on size and seniority, and therefore advertisers have a strong incentive to
increase the size of their advertisements and to renew their advertising
program. In addition, advertisers are reluctant to cancel their advertising
programs when their local competition is well-represented in that directory.
Geographic, Directory, Industry and Account Diversity. The Company's 142
directories serve communities in 12 states across the country. No single
directory accounted for more than 5% of net revenues, and the top five
directories accounted for less than 19% of net revenues in fiscal 1997. The
Company's 93,000 accounts represent a wide variety of service, retailing and
other businesses and its top 1,000 accounts represented less than 12% of the
Company's fiscal 1997 net revenues. This high level of diversification reduces
the Company's exposure to adverse regional economic conditions and enhances
revenue and cash flow stability.
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Favorable Cash Flow Characteristics. The Company's favorable cash flow
characteristics result from its stable revenues, high level of advance payments,
predictable cost structure, low working capital investment and minimal capital
expenditure needs. During fiscal 1997, the Company collected approximately 45%
of its net revenues prior to publication of its directories, up from
approximately 26% in fiscal 1993. In addition to collecting higher levels of
advance payments, the Company shortened customer payment terms and reduced
credit exposure to its smallest customers. Further, the Company's capital
expenditures have averaged less than $750,000 per year over the last five fiscal
years.
Proven, Experienced Management. The Company has a proven senior management
team with extensive experience in the yellow pages business. Since the 1993
Acquisition, management has demonstrated the ability to grow the Company
profitably while the Company has had significant financial leverage.
Collectively, management owns approximately 9% of Holdings and also participates
in a substantial equity-based incentive program tied to the successful long-term
performance of the Company.
BUSINESS STRATEGY
The Company's strategy is to capitalize on its operating structure,
consisting of a decentralized sales force and centralized production and
administrative operations, in order to grow its position as a leading
independent yellow pages publisher. This strategy recognizes the inherent
operating leverage of established directories where production and
administrative costs are largely fixed, resulting in high marginal profit from
incremental sales. At the same time, the Company's focus on continuous process
improvements has significantly expanded capacity without increasing production
costs, establishing a platform to start and acquire directories in a highly
profitable manner. Specific elements of the Company's business strategy are as
follows:
Grow Revenues from Existing Directories. Management believes there are
opportunities to increase revenues from both existing advertisers and new
accounts. Specific initiatives include (i) cross-selling advertisers into
multiple directories, (ii) encouraging customers to purchase larger
advertisements or advertisements under multiple headings within the same
directory, (iii) introducing new premium advertising features, including color,
at premium prices, and (iv) offering Internet directory listings.
The Company also utilizes its proprietary database to increase its customer
penetration by systematically targeting potential customers and converting them
into new advertisers. To support this strategy, the Company has expanded its
sales force from 223 employees at the end of fiscal 1993 to 448 as of November
30, 1997, representing an increase of approximately 101%. Management believes
that new account growth drives long term profitability and improves the quality
of its directories. Although in connection with this strategy, the Company seeks
to continue to increase the absolute size of its sales force, the Company
currently does not believe that its sales force will increase at a rate equal to
the percentage increase from 1993 to 1997.
Improve Operating Efficiency. The Company works to continuously improve
its production processes and systems in order to increase its operating
efficiency. Management has created a team-oriented environment focused on
managing costs, streamlining processes and cross-training personnel to adjust to
fluctuations in production levels. These efforts have resulted in increased
capacity and lower production costs.
Accelerate Cash Flows. The Company continues to focus on increasing the
amount of cash it collects from advertisers prior to the publication of each
directory. Increasing advance payments and shortening customer payment terms (i)
reduces the Company's investment in working capital, (ii) decreases collection
and bad debt costs and (iii) permits the Company to finance the introduction of
new directories from internally generated funds. During 1997, the Company
collected approximately 45% of its net revenues prior to publication of its
directories, up from approximately 26% in fiscal 1993. In fiscal 1997, the
Company's average accounts receivable turnover was approximately 167 days.
Accounts receivable as a percentage of the Company's revenue decreases as the
Company increases the percentage of its net revenues that it collects prior to
directory publication.
New Directory Growth. The Company's strategy includes growth through new
directory start-ups and selective acquisitions. The Company minimizes start-up
risks by launching new directories in areas contiguous to the Company's existing
markets where the Company has existing sales infrastructure and local
recognition
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<PAGE> 55
and where existing customers can provide an initial revenue base. Since the 1993
Acquisition, the Company has introduced 26 new "fill-in" directory start-ups in
California, Connecticut, Indiana, Louisiana, New York, Oklahoma and Texas.
In addition, the Company has acquired 24 directories in California,
Indiana, Kentucky, Massachusetts, New York and Tennessee since the 1993
Acquisition. Although the Company has no current acquisition commitments,
management continuously reviews acquisition opportunities and believes it can
successfully acquire and integrate additional directories into its existing
production and administrative infrastructure.
RECENT ACQUISITION
On February 2, 1998, the Company acquired eight directories from Mast for
approximately $8.2 million. The purchase price consisted of (1) approximately
$7.7 million of cash (approximately $200,000 of the purchase price was credited
back to the Company for net advance payments for future directories already
collected by Mast), (ii) a $265,000 promissory note due in one year from the
Company to Mast (subject to adjustment based on the actual bad debt experience
of the acquired directories) and (iii) certain assumed liabilities. The cash
portion of the purchase price was funded with borrowings under the Revolving
Credit Facility and is subject to further adjustment based on the actual net
costs of the acquired directories. Six of the acquired directories are located
in Northern Ohio and Southern Michigan and serve the Toledo and Columbus areas,
and two of the acquired directories are contiguous with the Nashville market.
The Company retained 2 area sales managers and 22 account executives associated
with the acquired directories. The eight directories generated approximately
$4.7 million of net revenue in 1997.
MARKETS SERVED
The Company publishes 142 yellow pages directories serving distinct
communities in 12 states, including California, Connecticut, Indiana, Kansas,
Kentucky, Louisiana, Massachusetts, New York, Ohio, Oklahoma, Tennessee and
Texas. The Company's directories are generally well-established in their local
communities and are clustered in contiguous geographic areas to create a strong
local market presence and to achieve selling efficiencies.
The Company's net revenues are not materially concentrated in any single
directory, industry, geographic region or customer. In fiscal 1997, the Company
served approximately 93,000 active accounts with its top 1,000 accounts
representing less than 12% of net revenues and no single directory accounting
for more than 5% of net revenues. Approximately 95% of the Company's net
revenues are derived from local accounts with the remaining 5% coming from
national companies advertising locally. The Company's high level of
diversification reduces exposure to adverse regional economic conditions and
provides additional stability in operating results. During fiscal 1997, the
Company published 128 directories with a total circulation of approximately 7.0
million copies. The Company's geographic diversity is evidenced in the table
below:
<TABLE>
<CAPTION>
NUMBER OF DIRECTORIES NET REVENUES
--------------------------------------------- ---------------------------------------------
REGION F'93 F'94 F'95 F'96 F'97 F'93 F'94 F'95 F'96 F'97
- ------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northeast 34 37 39 42 45 $23.9 $26.2 $29.2 $33.1 $38.0
Central 25 26 28 35 42 9.9 11.2 12.5 14.8 19.7
Southwest 16 19 22 23 23 13.1 16.0 18.2 19.7 22.0
West 15 15 17 18 18 8.0 8.8 9.9 10.1 11.7
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total 90 97 106 118 128 $54.9 $62.2 $69.8 $77.7 $91.4
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
PRODUCTS
The Company's yellow pages directories are designed to meet the
informational needs of consumers and the advertising needs of local businesses.
Each directory consists of (i) a yellow pages section containing display
advertisements and a listing of businesses by various headings, (ii) a white
pages section listing the names, addresses, and phone numbers of residences and
businesses in the area served, (iii) a community
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<PAGE> 56
information section providing reference information about general community
services such as listings for government offices, schools and hospitals, and
(iv) a map of the geographic area covered by the directory.
Advertising space is sold throughout the directory including in-column and
display advertising space in the yellow pages, bold listings and business card
listings in the white pages, banner advertising in the community pages, and
image advertisements on the front, back, inside, and outside covers. The Company
is also currently in the process of upgrading its production capacity to include
options such as full color advertisements which generate significantly higher
advertising rates. This diversity of product offerings enables the Company to
create customized advertising programs that are responsive to specific customer
needs and financial resources.
The Company's directories are an efficient source of information for
consumers. With over 2,000 headings in its directories and an expansive list of
businesses by heading in each local market, the Company's directories are both
comprehensive and conveniently organized. The Company's management believes that
the completeness and accuracy of the data in a directory is essential to
consumer acceptance.
Although the Company remains primarily focused on its printed directories,
it has recently initiated an Internet directory service. The Company has entered
into a strategic alliance with InfoSpace to offer electronic directory services
in each of its local markets. Under this strategic alliance, InfoSpace is
responsible for the technical aspects of the alliance and the Company is
providing local content and selling advertisement space in this electronic
directory. This arrangement enables the Company to avoid technical risks which
it is not presently staffed to manage and permits the Company to participate in
any opportunities that develop through the Internet. Management believes that
the Company's experience, reputation and account relationships within its local
markets will help it successfully market this service. Although the growing use
of the Internet has not had any appreciable impact on the Company to date,
management has not yet determined how, if at all, the Internet will impact its
performance, prospects or operations. The Company cross promotes its Internet
service and its printed directories. The Company's web site is at
http://www.transwesternpub.com.
SALES AND MARKETING
Yellow pages marketing is a direct sales business which requires both
servicing existing accounts and developing new customers. Repeat customers
comprise the Company's core account base and a number of these customers have
advertised in the Company's directories for many years. On average, since fiscal
1993, accounts representing 86% of the prior year's net revenues for each
directory have renewed their advertising program in the current edition of each
directory. Management believes that this high revenue renewal rate reflects the
importance of the Company's directories to its local accounts for whom yellow
pages directory advertising is a principal form of advertising. In addition,
yellow pages advertising often comprises an integral part of the local
advertising strategy for larger national companies operating at the local level.
Advertisers have a strong incentive to increase the size of their advertisement
and to renew their advertising programs because advertisements are placed within
each heading of a directory based first on size then on seniority. Generally,
larger advertisements are more effective than smaller advertisements and
advertisements placed near the beginning of a heading generate more responses
than similarly sized advertisements placed further back in the heading.
The Company also builds on its account base by generating new business
leads from multiple sources including a comprehensive compilation of data about
individual company advertising expenditures in competitive yellow page
directories. The Company has developed a proprietary database of high potential
customers based on each individual customer's yellow page advertising
expenditures and focuses its sales resources on those potential customers. In
support of this strategy, the Company has expanded its sales force from 223
employees at the end of fiscal 1993 to 448 employees as of November 30, 1997,
representing an increase of approximately 101%. Management has observed a direct
correlation between adding new sales force employees and revenue growth.
The Company employs seven regional vice presidents and 49 area and district
sales managers who, together, are responsible for supervising the activities of
the account executives. The Company's 448 account
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<PAGE> 57
executives generate virtually all of the Company's revenues and are responsible
for servicing existing advertising accounts and developing new accounts within
their assigned service areas.
The Company has well-established practices and procedures to manage the
productivity and effectiveness of its sales force. All new account executives
complete a formal two-week training program and receive continuous on-the-job
training through the regional sales management structure. Each account executive
has a specified account assignment consisting of both new business leads and
renewal accounts and is accountable for daily, weekly and monthly sales and
advance payment goals. Account executives are compensated in the form of base
salary, commissions and car allowance. Approximately 50% of total account
executive compensation is in the form of commissions, such that sales force
compensation is largely tied to sales performance and account collection. As of
November 30, 1997, the Company employed approximately 690 people, 536 of whom
were engaged in sales and sales support functions.
The sales cycle of a directory varies based on the size of the revenue base
and can extend from a few weeks to as long as six months. Once the canvass of
customers for a directory is completed, the directory is "closed" and the
advertisements are assembled into directories in the production cycle.
PRODUCTION AND DISTRIBUTION
The Company develops a production planning guide for each directory, which
is a comprehensive planning tool setting forth production specifications and the
cost structure for that directory. Each production planning guide is
incorporated into the Company's annual production schedule and serves as the
foundation for the Company's annual budgeting process. Although the Company
views its directories as annual publications, the actual interval between
publications may vary from 11 to 13 months. New directory starts can be
incorporated into the production schedule without significant disruption because
directory production is staggered throughout the year. As of November 30, 1997,
the Company had a production staff of approximately 90 full-time employees.
The production process includes post-sales, national sales order
processing, advertisement design and manufacturing, white pages licensing and
production, yellow pages production, community pages production and pagination.
Production operations are primarily managed in-house to minimize costs and to
assure a high level of accuracy.
Prior to fiscal 1995, the Company purchased specialized yellow pages data
processing services from a third-party provider to supplement its own internal
information processing and management functions. In fiscal 1995, the Company
began eliminating a substantial portion of third-party information processing
services by internally generating leads and processing white pages and yellow
pages with its own management information systems.
Major production initiatives since fiscal 1994 which have resulted in
significant savings, include (i) the conversion of yellow pages processing from
a third-party vendor to an internal process, (ii) the internal production of all
in-column and display advertising graphics and elimination of all third-party
vendor graphic costs, (iii) internal processing of sales leads and elimination
of third-party lead processing costs, (iv) the re-negotiation and reduction of
third-party charges for keying data, (v) the internal typesetting of pages, (vi)
the internal production of community pages, and (vii) direct production cost
reductions for white pages processing and cover graphics.
After the in-house production process is complete, the directories are then
sent to outside vendors to be printed. The Company does not print any of its
directories but instead contracts with a limited number of printers to print and
bind its directories. The Company contracts with two outside vendors to
distribute its directories to each business and residence in its markets.
RAW MATERIALS
The Company's principal raw material is paper. The Company used
approximately 17.6 and 16.4 million pounds of directory grade paper in its
fiscal years ended April 30, 1997 and 1996, respectively, resulting in a total
cost of paper during such periods of approximately $5.8 million and $6.0
million, respectively. The
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<PAGE> 58
Company does not purchase paper directly from the paper mills; instead, the
Company's printers purchase the paper on behalf of the Company at prices
negotiated by the Company.
COMPETITION
The yellow pages directory advertising business is highly competitive.
There are over 250 independent publishers operating in competition with the
regional Bell operating companies and other telephone utilities. In most
markets, the Company competes not only with the local utilities, but also with
one or more independent yellow pages publishers. Other media in competition with
yellow pages for local business and professional advertising include newspapers,
radio, television, billboards and direct mail.
INTELLECTUAL PROPERTY
The Company has registered one trademark and one service mark used in its
business. In addition, each one of the Company's publications is protected under
Federal copyright laws. Telephone utilities are required to license directory
listings of names and telephone numbers that the Company then licenses for a set
fee per name for use in its white pages listings. Total licensing fees paid by
the Company were $1.1 million in fiscal 1997. In addition, the Company believes
that the phrase "yellow pages" and the walking fingers logo are in the public
domain in the United States. Otherwise, the Company believes that it owns or
licenses the intellectual property rights necessary to conduct its business.
PROPERTIES
The Company houses its corporate, administrative and production staff at
its headquarters located at 8344 Clairemont Mesa Boulevard, San Diego,
California. Information relating to the Company's corporate headquarters and
other regional sales offices is set forth in the following table:
<TABLE>
<CAPTION>
SQUARE TERM
LOCATION ADDRESS FOOTAGE EXPIRATION DESCRIPTION OF USE
- -------------------------- -------------------------------- ------- ---------- ------------------
<S> <C> <C> <C> <C>
San Diego, CA............. 8344 Clairemont Mesa Boulevard 35,824 10/31/03 Corporate Office/
Sales/Production
Houston, TX............... 11243 Fuqua 9,600 3/31/01 Sales Office
Elmsford, NY.............. 150 Clearbrook Road 8,775 12/31/00 Sales Office
Albany, NY................ 501 New Karner Road, Suite 1 7,565 3/31/99 Sales Office
Bedford, TX............... 4001 Airport Fwy., Suite 230 5,697 7/31/00 Sales Office
Louisville, KY............ 2300 Envoy Circle, #2301 5,600 3/31/02 Sales Office
Highland, NY.............. 7-9 Cummings Lane 5,000 4/30/99 Sales Office
Stamford, CT.............. 333 Ludlow Street 4,895 8/31/02 Sales Office
Nashville, TN............. 2525 Perimeter Drive, Suite 105 3,637 5/31/01 Sales Office
Oklahoma City, OK......... 4901 W. Reno, Suite 800 2,931 6/30/02 Sales Office
</TABLE>
The Company leases 24 other sales offices for more remote sales areas and
periodically leases small facilities for temporary storage of directories.
EMPLOYEES
As of November 30, 1997, the Company employed approximately 690 full-time
employees, none of whom are members of a union. The Company believes that it has
good relations with its employees.
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. Management does not believe that the outcome of any of
the matters in which it is currently involved will have a material adverse
effect on the financial condition or results of operations of the Company.
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<PAGE> 59
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information (ages as of November 30,
1997) with respect to the persons who are members of the Board of Directors (the
"Board") of TCC or executive officers of Holdings or TransWestern. TCC controls
the policies and operations of Holdings and TransWestern. See "Limited
Partnership Agreement." THL has the ability to appoint a majority of the members
of the Board of TCC pursuant to the Investors Agreement. See "Certain
Transactions -- Investors Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
- ---------------------------------- --- -------------------------------------------------
<S> <C> <C>
Laurence H. Bloch................. 44 Chairman of the Board, Secretary and Director
Ricardo Puente.................... 44 President, Chief Executive Officer and Director
Joan M. Fiorito................... 43 Vice President, Chief Financial Officer and
Assistant Secretary
Marybeth Brennan.................. 41 Vice President - Operations
Joseph L. Wazny................... 52 Vice President - Information Services
Robert Bambace.................... 56 Regional Vice President - Sales
Richard Beck...................... 52 Regional Vice President - Sales
Michael Bynum..................... 42 Regional Vice President - Sales
Steve Cartlidge................... 47 Regional Vice President - Sales
Richard Mellert................... 53 Regional Vice President - Sales
Ita Shea-Oglesby.................. 40 Regional Vice President - Sales
C. Hunter Boll.................... 42 Director
Terrence M. Mullen................ 30 Director
Christopher J. Perry.............. 42 Director
Scott A. Schoen................... 40 Director
Marcus D. Wedner.................. 34 Director
</TABLE>
Laurence H. Bloch is Chairman and Secretary of TransWestern and Holdings
and has been a Director of TCC since 1993. Prior to the Recapitalization, Mr.
Bloch served as Vice Chairman and Chief Financial Officer of the Company. Before
joining the Company, Mr. Bloch was Senior Vice President and Chief Financial
Officer of Lanxide Corporation, a materials technology company. Mr. Bloch was a
Vice President, then Managing Director of Smith Barney from 1985 to 1990, prior
to which he was Vice President, Corporate Finance with Thomson McKinnon
Securities, Inc. Mr. Bloch received a BA from the University of Rochester and an
MBA from Wharton Business School. Mr. Bloch also serves as a Director of The
Petersen Companies, Inc.
Ricardo Puente has been President of TransWestern and Holdings and a
Director of TCC since 1993 and became Chief Executive Officer as of the
Recapitalization. Previously, he held the positions of Vice President of Sales
and Controller of the TransWestern business which he joined in 1988. Before
joining US West, Mr. Puente held various financial positions with the Pillsbury
Company for nine years. After receiving his MS in Accounting from the University
of Miami, Mr. Puente was a senior auditor with Touche Ross & Co. Mr. Puente
earned a BS in Accounting from Florida State University.
Joan M. Fiorito is the Vice President, Chief Financial Officer and
Assistant Secretary of TransWestern and Holdings and prior to the
Recapitalization was Vice President and Controller. Ms. Fiorito joined the
TransWestern business in 1989 as Manager, Financial Planning & Analysis and
subsequently was promoted to Controller. Prior to joining the TransWestern
business, Ms. Fiorito was Controller of Coastal Office Products. Ms. Fiorito
received a BS in Management from Dominican College and an MBA in Finance from
Fordham University.
Marybeth Brennan has been the Company's Vice President of Operations since
its formation in 1993. Ms. Brennan joined the TransWestern business in 1987 as
Production Manager, prior to which Ms. Brennan
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<PAGE> 60
was Director of Publications for Maynard-Thomas Publishing. Ms. Brennan received
a BA in English from Stonehill College.
Joseph L. Wazny has been the Vice President, Management Information Systems
of the Company since its formation in 1993. Before joining the Company, Mr.
Wazny was Director of Systems Development and Director, Information Systems with
R.H. Donnelley Corp. Mr. Wazny graduated with a degree in Business
Administration and Computer Sciences from Roosevelt University.
Robert Bambace has been a Regional Vice President of the Company since
1993. Mr. Bambace oversees the Downstate New York Region. Mr. Bambace joined the
TransWestern business as a District Sales Manager in 1983, and was promoted to
his current position in 1993. Mr. Bambace holds a BA in Business Administration
from the State University of New York.
Richard Beck has been a Regional Vice President of the Company since 1993.
Mr. Beck oversees the Kentucky/Ohio/Indiana Region. Mr. Beck joined the
TransWestern business in 1980 in a sales position. He holds an AA in Business
Administration from the University of Kentucky.
Michael Bynum has been a Regional Vice President of the Company since 1993.
Mr. Bynum oversees the Oklahoma/Kansas/Tennessee Region. Mr. Bynum joined the
TransWestern business in 1985 as a sales associate and holds a BA in Management
from Cameron University.
Steve Cartlidge has been a Regional Vice President of the Company since
1993. Mr. Cartlidge oversees the North Texas Region. Mr. Cartlidge joined the
TransWestern business from Donnelley Publishing in 1989 as an Area Sales Manager
and shortly thereafter was promoted to District Sales Manager. Mr. Cartlidge
earned a BA from Howard Payne University.
Richard Mellert has been a Regional Vice President of the Company since
1993. Mr. Mellert oversees the Upstate New York Region. Mr. Mellert joined the
TransWestern business in 1980. Mr. Mellert was promoted to District Sales
Manager in 1991. Mr. Mellert holds an AA degree from Dutchess Community College.
Ita Shea-Oglesby has been a Regional Vice President of the Company since
1993. Ms. Shea-Oglesby oversees the South Texas, Louisiana Region and the
Northern California Region. Ms. Shea-Oglesby joined the TransWestern business in
1983 and previously held the positions of Area Sales Manager, Sales Trainer and
District Sales Manager. Ms. Shea-Oglesby earned a BA from Louisiana State
University.
C. Hunter Boll became a Director of TCC upon the consummation of the
Recapitalization. Mr. Boll is a Managing Director of Thomas H. Lee Company where
he has been employed since 1986. Mr. Boll is also a Trustee of THL Equity Trust
III, the General Partner of THL Equity Advisors Limited Partnership III, which
is the General Partner of Thomas H. Lee Equity Fund III, L.P. Mr. Boll also
serves as a Director of Stanley Furniture Company, Inc., New York Restaurant
Group, Inc., Freedom Securities Corporation and Select Beverages, Inc. Mr. Boll
holds an MBA from Stanford University and a BA from Middlebury College.
Terrence M. Mullen became a Director of TCC upon consummation of the
Recapitalization. Mr. Mullen is currently an Associate of the Thomas H. Lee
Company. Mr. Mullen worked at the Thomas H. Lee Company from 1992 to 1994 and
rejoined in 1996. From 1990 to 1992, Mr. Mullen worked in the Corporate Finance
Department of Morgan Stanley & Co., Incorporated. Mr. Mullen also serves as a
Director of Anchor Advanced Products, Inc. Mr. Mullen received a BBA in Finance
and Economics from the University of Notre Dame and an MBA from the Harvard
Graduate School of Business Administration.
Christopher J. Perry has been a Director of TCC since 1994. Mr. Perry is
currently Managing Director and President of Continental Illinois Venture
Corporation, a position he has held since 1994, and is also a Managing Partner
of CIVC Partners III. Mr. Perry has been at Bank of America or, prior to its
merger with Bank of America, Continental Bank, since 1985. Prior positions with
Bank of America or Continental Bank include Managing Director and head of the
Mezzanine Investments Group and Managing Director and head of the Chicago
Structured Finance Group. Prior to joining Continental Bank, Mr. Perry was in
the Corporate Finance Department of Northern Trust. In addition to being a
Director of TCC, Mr. Perry is a Director of Teletouch Communications. Mr. Perry
received a BS from the University of Illinois and an MBA from Pepperdine
University and is a certified public accountant.
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<PAGE> 61
Scott A. Schoen became a Director of TCC upon consummation of the
Recapitalization. Mr. Schoen is a Managing Director of the Thomas H. Lee Company
where he has been employed since 1986. Mr. Schoen is also a Trustee of THL
Equity Trust III, the General Partner of THL Equity Advisors Limited Partnership
III, which is the General Partner of Thomas H. Lee Equity Fund III, L.P. Mr.
Schoen also serves as Vice President of Thomas H. Lee Advisors I and Thomas H.
Lee Advisors II. Mr. Schoen is a director of Anchor Advanced Products, Inc.,
First Alert, Inc., Signature Brands USA, Inc., Rayovac Corporation and Syratech
Corporation. Mr. Schoen received a BA in History from Yale University, a JD from
Harvard Law School and an MBA from the Harvard Graduate School of Business
Administration. Mr. Schoen is a member of the New York Bar.
Marcus D. Wedner has been a Director of TCC since its formation in 1993.
Mr. Wedner is currently a Managing Director of Continental Illinois Venture
Corporation, a position he has held since 1992, and is also a Managing Partner
of CIVC Partners III. Mr. Wedner joined Continental Illinois Venture Corporation
in 1988. Previously, Mr. Wedner held marketing and sales management positions at
Pacific Telesis Group and as an associate with Goldman, Sachs & Co. In addition
to being a Director of the TCC, Mr. Wedner is a Director of Teletouch
Communications. Mr. Wedner holds a BA from the University of California at Los
Angeles and received an MBA from Harvard Graduate School of Business
Administration.
COMPENSATION OF DIRECTORS
TransWestern is a limited liability company and Holdings is a limited
partnership, both of which are controlled by TCC. See "Limited Partnership
Agreement." The Directors of TCC will not be paid for their services, although
Directors are reimbursed for out-of-pocket expenses incurred in connection with
attending Board meetings.
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of TransWestern will be determined
by the Board of TCC. The following Summary Compensation Table includes
individual compensation information for the former Chairman and Chief Executive
Officer, the current President and Chief Executive Officer and each of the three
other most highly compensated executive officers of the Company in fiscal 1997
(collectively, the "Named Executive Officers") for services rendered in all
capacities to the Company during fiscal 1997. There were no stock options
exercised during the Company's last fiscal year nor were there any options
outstanding at the end of the Company's last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(a)
- ------------------------------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
James D. Dunning, Jr.(b)............................... $277,709 $277,709 $20,510
Former Chairman and Chief Executive Officer
Laurence H. Bloch(c)................................... 222,167 222,167 11,998
Chairman of the Board and Secretary
Ricardo Puente......................................... 199,519 171,822 21,360
President, Chief Executive Officer(d)
Marybeth Brennan....................................... 132,698 120,030 20,405
Vice President -- Operations
Joan M. Fiorito(e)..................................... 119,460 105,649 21,049
Vice President, Chief Financial Officer and Assistant
Secretary
</TABLE>
- ---------------
(a) Includes auto allowance, long-term disability insurance, personal life
insurance, profit sharing, tax preparation and bonuses paid pursuant to the
Equity Compensation Plan.
(b) Mr. Dunning resigned as Chairman of the Board and Chief Executive Officer
upon consummation of the Recapitalization.
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<PAGE> 62
(c) Mr. Bloch served as Vice Chairman until consummation of the
Recapitalization, at which time he became Chairman.
(d) Mr. Puente served as President until consummation of the Recapitalization,
at which time he became President and Chief Executive Officer.
(e) Ms. Fiorito served as Vice President-Controller until consummation of the
Recapitalization, at which time she became Vice President, Chief Financial
Officer and Assistant Secretary.
EQUITY COMPENSATION ARRANGEMENTS
Holding's Class B Units are designed to encourage performance by providing
the members of management the opportunity to participate in the equity growth of
TransWestern. There are 10,000 Class B Units authorized, 8,500 of which were
issued to the Management Investors and 1,500 of which were issued to the Equity
Compensation Plan discussed below. See "Limited Partnership Agreement" and
"Certain Transactions -- Executive Agreements."
In fiscal 1994, the Company established the TransWestern Publishing
Company, L.P. Equity Compensation Plan (the "Equity Compensation Plan") to
provide approximately 60 of the Company's managers (other than Messrs. Dunning,
Bloch and Puente) the opportunity to participate in the equity growth of the
Company without having direct ownership of the Company's securities. In
connection with the Recapitalization, the Company reserved $5.5 million for
distributions to participants in the Equity Compensation Plan, one half of which
was distributed in October 1997, and one half of which will be distributed in
October 1998 to participants employed by the Company at the time the
distribution is made. The Equity Compensation Plan was terminated upon the
consummation of the Recapitalization; however, a new plan has been established
on terms substantially the same as those of the Equity Compensation Plan which
also requires that participants must be employees of the Company on the date of
any distribution. Special distributions made pursuant to the Equity Compensation
Plan were recorded as an expense in the Company's financial statements when
declared by the Board of Directors. Employees participating in the Equity
Compensation Plan were eligible to receive a ratable per unit share of cash
distributions made pursuant to the Equity Compensation Plan, if and when,
declared. In fiscal 1997, distributions totaling $411,000 were paid and at April
30, 1997, there were no undistributed proceeds under the Equity Compensation
Plan.
EMPLOYMENT AGREEMENTS
Messrs. Bloch and Puente have each entered into an Employment Agreement
(each, an "Employment Agreement") with the Company. The Employment Agreements
provide for the employment of Mr. Bloch as the Chairman of the Board of
Directors of TCC and Chairman of the Partnership and Mr. Puente as the President
and Chief Executive Officer of the Partnership and TCC until October 1, 2002
unless terminated earlier as provided in the respective Employment Agreement.
The Employment Agreements of Messrs. Bloch and Puente provide for (i) an annual
base salary of $222,167 and $199,519 ($235,500 effective May 1, 1998),
respectively (subject to annual increases based on the consumer price index) and
(ii) annual bonuses based on the achievement of certain EBITDA (as defined in
each Employment Agreement) targets of up to 100% of their base salary. Each
executive's employment may be terminated by the Company at any time with cause
or without cause. If such executive is terminated by the Company with cause or
resigns other than for good reason, the executive will be entitled to his base
salary and fringe benefits until the date of termination, but will not be
entitled to any unpaid bonus. Messrs. Bloch and Puente will be entitled to their
base salary and fringe benefits and any accrued bonus for a period of 12 months
following their termination in the event such executive is terminated without
cause or resigns with good reason. The Employment Agreements also provide each
executive with customary fringe benefits and vacation periods. "Cause" is
defined in the Employment Agreements to mean (i) the commission of a felony or a
crime involving moral turpitude or the commission of any other act or omission
involving dishonesty, disloyalty or fraud, (ii) conduct tending to bring the
Company or any of its subsidiaries into substantial public disgrace or
disrepute, (iii) the substantial and repeated failure to perform duties as
reasonably directed by TCC or the Company, (iv) gross negligence or willful
misconduct with respect to the Company or any subsidiary, or (v) any other
material breach of the Employment Agreement or Company policy established by the
Board, which breach, if curable, is not cured within 15 days
57
<PAGE> 63
after written notice thereof to the executive. "Good Reason" is defined to mean
the occurrence, without such executive's consent, of (i) a reduction by the
Company of the executive's annual base salary by more than 20%, (ii) any
reduction in the executive's annual base salary (in effect immediately prior to
such reduction) if in the fiscal year prior to such reduction the EBITDA for
such prior fiscal year was equal to or greater than 80% of the target EBITDA for
such prior year, (iii) any willful action by the Company that is intentionally
inconsistent with the terms of the Employment Agreement or the executive's
Executive Agreement (as defined herein), or (iv) any material reduction in the
powers, duties or responsibilities which the executive was entitled to exercise
as of the date of the Employment Agreement. Messrs. Bloch and Puente have also
entered into Executive Agreements with the Company pursuant to which they
purchased Class B Units of the Partnership. See "Certain
Transactions -- Executive Agreements."
401(k) AND PROFIT SHARING PLAN
The Company has a 401(k) and profit-sharing retirement plan (the "Profit
Sharing Plan") for the benefit of substantially all of its employees, which was
qualified for tax exempt status by the Internal Revenue Service. Employees can
make contributions to the plan up to the maximum amount allowed by federal tax
code regulations. The Company may match the employee contributions, up to 83% of
the first 6% of annual earnings per participant. The Company may also make
annual discretionary profit sharing contributions. The Company's contributions
to the Profit Sharing Plan for the years ended April 30, 1995, 1996 and 1997
were approximately $0.6 million, $0.8 million and $0.8 million, respectively.
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<PAGE> 64
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of TransWestern's membership interests are owned by Holdings. The
following table sets forth certain information regarding the beneficial
ownership of the equity securities of Holdings by: (i) each of the Directors of
TCC and the executive officers of TransWestern; (ii) all Directors of TCC and
executive officers of TransWestern as a group; (iii) all Management Investors as
a group and (iv) each owner of more than 5% of any class of equity securities of
the Partnership ("5% Owners"). Unless otherwise noted, the address for each
executive officer of TransWestern and the Directors of TCC is c/o TransWestern,
8344 Clairemont Mesa Boulevard, San Diego, California 92111. All of Capital's
issued and outstanding capital stock is owned by Holdings. All of Capital II's
issued and outstanding capital stock is owned by TransWestern.
<TABLE>
<CAPTION>
CLASS A
COMMON PERCENT PREFERRED PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER UNITS(A) OF CLASS UNITS OF CLASS
- -------------------------------------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Laurence H. Bloch(b).............................. 19,209 1.51% 9,974 1.51%
Ricardo Puente(c)................................. 28,813 2.27 14,961 2.27
Joan M. Fiorito(d)................................ 5,282 * 2,743 *
Marybeth Brennan(d)............................... 5,282 * 2,743 *
Joseph L. Wazny(d)................................ 5,282 * 2,743 *
C. Hunter Boll(e)................................. 715,193 56.29 371,351 56.29
Terrence M. Mullen(e)............................. 712,231 56.06 369,813 56.06
Christopher J. Perry(f)........................... 288,134 22.68 149,608 22.68
Scott A. Schoen(e)................................ 715,193 56.29 371,351 56.29
Marcus D. Wedner(f)............................... 288,134 22.68 149,608 22.68
All Directors and executive officers as a group
(10 persons).................................... 1,070,551 84.27 555,862 84.27
All Management Investors as a group............... 115,250 9.07 59,841 9.07
5% OWNERS:
Thomas H. Lee Equity Fund III, L.P.(g)............ 712,034 56.05 369,710 56.05
Thomas H. Lee Foreign Fund III, L.P.(h)........... 712,034 56.05 369,710 56.05
THL-CCI Limited Partnership(i).................... 712,034 56.05 369,710 56.05
Continental Illinois Venture Corporation(j)....... 288,134 22.68 149,608 22.68
CIVC Partners III(k).............................. 288,134 22.68 149,608 22.68
</TABLE>
- ---------------
* Represents less than one percent.
(a) Holders of Class A Units are entitled to share in any distribution on a pro
rata basis, but only if the holders of the Preferred Units have received the
Preference Amount (as defined herein). The Partnership also issued Class B
Units to the Management Investors. The Class B Units will be entitled to
share in any such distributions only if the holders of the Preferred Units
and Class A Units have achieved an internal rate of return on their total
investment of 12%. The percentage of such distributions that the Class B
Units will be entitled to receive will range from 10% to 20%, based on the
internal rate of return achieved by the holders of the Preferred and Class A
Units. All Common Units listed in the table represent Class A Units unless
otherwise noted. See "Limited Partnership Agreement."
(b) Does not include 800 Class B Units which are subject to vesting in equal
installments over a five year period.
(c) Does not include 2,500 Class B Units which are subject to vesting in equal
installments over a five year period.
(d) Does not include 352 Class B Units which are subject to vesting in equal
installments over a five year period.
59
<PAGE> 65
(e) Includes 712,034 Class A Units and 369,710 Preferred Units beneficially
owned by Thomas H. Lee Equity Fund III, L.P. Such persons disclaim
beneficial ownership of all such interests. Such person's address is c/o
Thomas H. Lee Company, 75 State Street, Suite 2600, Boston, Massachusetts
02109.
(f) Includes 244,914 Class A Units and 127,167 Preferred Units owned by CIVC and
43,220 Class A Units and 22,441 Preferred Units owned by CIVC Partners III.
Such persons disclaim beneficial ownership of all such interests. Such
person's address is c/o Continental Illinois Venture Corporation, 231 South
LaSalle Street, Chicago, Illinois 60697.
(g) Includes 39,259 Class A Units and 20,385 Preferred Units owned by Thomas H.
Lee Foreign Fund III, L.P. and 38,305 Class A Units and 19,889 Preferred
Units owned by THL-CCI Limited Partnership. Such person disclaims beneficial
ownership of all such interests. Such person's address is c/o Thomas H. Lee
Company, 75 State Street, Suite 2600, Boston, Massachusetts 02109.
(h) Includes 634,470 Class A Units and 329,437 Preferred Units owned by Thomas
H. Lee Equity Fund III, L.P. and 38,305 Class A Units and 19,889 Preferred
Units owned by THL-CCI Limited Partnership. Such person disclaims beneficial
ownership of all such interests. Such person's address is c/o Thomas H. Lee
Company, 75 State Street, Suite 2600, Boston, Massachusetts 02109.
(i) Includes 634,470 Class A Units and 329,437 Preferred Units owned by Thomas
H. Lee Equity Fund III, L.P. and 39,259 Class A Units and 20,385 Preferred
Units owned by Thomas H. Lee Foreign Fund III, L.P. Such person disclaims
beneficial ownership of all such interests. Such person's address is c/o
Thomas H. Lee Company, 75 State Street, Suite 2600, Boston, Massachusetts
02109.
(j) Includes 43,220 Class A Units and 22,441 Preferred Units owned by CIVC
Partners III. Such person disclaims beneficial ownership of such interests.
Such person's address is c/o Continental Illinois Venture Corporation, 231
South LaSalle Street, Chicago, Illinois 60697.
(k) Includes 244,914 Class A Units and 127,167 Preferred Units owned by CIVC.
Such person disclaims beneficial ownership of all such interests. Such
person's address is c/o Continental Illinois Venture Corporation, 231 South
LaSalle Street, Chicago, IL 60697.
60
<PAGE> 66
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENT
Effective upon the Recapitalization, the Company entered into a Management
Agreement with THL Co. pursuant to which THL Co. agreed to provide (i) general
executive and management services, (ii) identification, negotiation and analysis
of financial and strategic alternatives, and (iii) other services agreed upon by
the Company and THL Co. On the Recapitalization closing date, THL Co. and the
other equity investors in the Company each received their pro rata portion of a
$5.0 million transaction fee. In addition, THL and all other equity investors
will receive a pro rata portion of the $500,000 annual management fee (the
"Management Fee"), plus THL will be reimbursed for all reasonable out-of-pocket
expenses (payable monthly in arrears). The Management Agreement has an initial
term of one year, subject to automatic one-year extensions, unless the Company
or THL Co. provides written notice of termination no later than 30 days prior to
the end of the initial or any successive period.
INVESTORS AGREEMENT
Pursuant to the Recapitalization, Holdings, TCC, the New Investors and the
reinvesting Existing Limited Partners (together with the New Investors, the "New
Partners") entered into an Investors Agreement (the "Investors Agreement"). The
Investors Agreement requires that each of the parties thereto vote all of his or
its voting securities and take all other necessary or desirable actions to cause
the size of the Board of Directors of TCC to be established at nine members and
to cause the election to the Board of five representatives designated by THL
(the "THL Designees"), each of the then current chairman and president of the
Partnership (the "Executive Directors") and two representatives designated by
the CIVC Parties (the "CIVC Designees"), of which one CIVC Designee will at all
times serve on the Board's compensation committee, audit committee and executive
committee. Currently, however, only three of the THL Designees have been
appointed to TCC's Board of Directors. The respective rights of THL and the CIVC
Parties to designate representatives to the Board terminates at such time when
such party owns less than 30% of the Common Units held by such party as of the
Recapitalization closing date. If at any time THL and its permitted transferees
own less partnership interests in Holdings or less equity securities in TCC than
the amount of such partnership interests or such equity securities, as the case
may be, owned by the CIVC Parties and the Management Investors, taken as a
group, then the number of THL Designees will be reduced automatically from five
to three and the number of CIVC Designees will be increased automatically from
two to three. The Investors Agreement provides that certain significant actions
may not be taken without the express approval of the at least one of the CIVC
Designees and at least one of the Executive Directors.
In addition to the foregoing, the Investors Agreement (i) requires the
holders of interests in Holdings and common stock of TCC (other than THL and
CIVC) to obtain the prior written consent of THL prior to transferring any
interests in Holdings or TCC stock (other than interests or securities held by
the Management Investors pursuant to Executive Agreements), (ii) grants in
connection with the sale of interests in Holdings or TCC stock by the Management
Investors certain preemptive rights with respect to such sale first to Holdings,
then to the limited partners, (iii) grants the New Partners certain
participation rights in connection with certain transfers made by THL, (iv)
grants the New Partners certain preemptive rights in connection with certain
issuances, sales or other transfers for consideration of any securities by
Holdings or TCC, (v) requires the holders of shares of TCC's common stock to
consent to a sale of TCC to an independent third party if such sale is approved
by the Board and the holders of a majority of the shares of TCC's common stock,
and (vi) requires the holders of interests in Holdings to consent to the sale of
Holdings in the event TCC and the holders of a majority of Class A Units approve
a sale of Holdings. The foregoing agreements terminate on the earlier of October
1, 2007 and the date on which the Partnership consummates a public offering of
$40 million or more of its equity securities (a "Qualified Public Offering").
The agreements with respect to the participation rights and preemptive rights
described above continue with respect to each security until the earlier of (i)
October 1, 2007, (ii) a Qualified Public Offering, (iii) the transfer in a
public sale of such security, (iv) with respect to equity securities of
Holdings, upon the sale of the Holdings, and (v) with respect to equity
securities of TCC, upon the sale of TCC.
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<PAGE> 67
REGISTRATION AGREEMENT
Pursuant to the Recapitalization, Holdings, TCC, and the New Partners
entered into a registration agreement (the "Registration Agreement"). Under the
Registration Agreement, the holders of a majority of registrable securities
owned by the THL Parties and the CIVC Parties have the right at any time,
subject to certain conditions, to require Holdings to register any or all of
their interests in Holdings' under the Securities Act on Form S-1 (a "Long-Form
Registration") on three occasions at Holdings' expense and on Form S-2 or Form
S-3 (a "Short-Form Registration") on three occasions at the Holdings' expense.
Holdings is not required, however, to effect any such Long-Form Registration or
Short-Form Registration within six months after the effective date of a prior
demand registration. In addition, all holders of registrable securities are
entitled to request the inclusion of such securities in any registration
statement at Holding's expense whenever Holdings proposes to register any of its
securities under the Securities Act (other than pursuant to a demand
registration). In connection with such registrations, Holdings has agreed to
indemnify all holders of registrable securities against certain liabilities,
including liabilities under the Securities Act. In addition, Holdings has the
one-time right to preempt a demand registration with a piggyback registration.
EXECUTIVE AGREEMENTS
Each Management Investor has entered into an Executive Agreement with
Holdings and TCC (each, an "Executive Agreement"), pursuant to which such
Management Investor purchased Class B Units which are subject to a five-year
vesting period, which vesting schedule accelerates upon a sale of Holdings.
Under each Management Investor's Executive Agreement, in the event that such
Management Investor's employment with the Company is terminated for any reason,
Holdings has the option to repurchase all of such Management Investor's vested
Class B Units and all other of such Management Investor's interests in Holdings
and TCC. In addition, in the event of a termination of the Management Investor's
employment by Holdings without "cause" or by such Management Investor for "good
reason" or such Management Investor's death or disability, such Management
Investor may require Holdings or TCC to repurchase his or her vested Class B
Units and all other interests of such Management Investor in Holdings and TCC.
RECAPITALIZATION AGREEMENT
The Recapitalization Agreement contained customary provisions for such
agreements, including representations and warranties with respect to the
condition and operations of the business, covenants with respect to the conduct
of the business prior to the Recapitalization closing date and various closing
conditions, including the continued accuracy of representations and warranties.
The representations and warranties made by Holdings and the Existing Limited
Partners do not survive the Recapitalization closing date; except that no party
is prevented from bringing a claim or action against any other person for any
fraud or intentional tort committed directly by such person.
Pursuant to the Recapitalization Agreement, each Existing Limited Partner
that reinvested in Holdings has agreed that for a period ending on the later of
the second anniversary of the Recapitalization closing date and the one year
anniversary of the termination of such Reinvesting Manager's employment with the
Company not to own, control, participate or engage in any yellow pages directory
publishing directory business or any business competing for the same customers
as the businesses of the Company as such businesses exist or are in process
during such period in any markets (or markets contiguous thereto) in which the
Company engages or plans to engage during such period.
James D. Dunning, Jr., the Company's and TCC's former Chairman and Chief
Executive Officer, has agreed that for the three-year period commencing on the
Recapitalization closing date not to participate, directly or indirectly, in any
yellow pages directory publishing business in the United States or any business
competing for the same customers as the Company in the geographic areas in which
the Company is engaged in the local or national yellow pages directory
publishing business as of August 27, 1997; provided that Mr. Dunning may
participate in any industry specific yellow pages business or any trade or
industry publications.
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<PAGE> 68
In addition, each Existing Limited Partner that reinvested in Holdings has
agreed that for the two-year period commencing on the Recapitalization closing
date not to solicit the employment of or hire any employee of the Company (other
than Laurence Bloch), and further, under the Recapitalization Agreement, during
such two-year period, each Existing Limited Partner that reinvested in Holdings
is subject to a confidentiality agreement with respect to all information
concerning the business of the Company and TCC of which such person has
knowledge and which is not in the public domain.
BENEFITS OF THE RECAPITALIZATION TO CERTAIN EXISTING SECURITY OWNERS AND
MANAGEMENT INVESTORS
Pursuant to the Recapitalization, Holdings redeemed a portion of the
limited partnership interests held by Existing Limited Partners and the New
Investors purchased a portion of TCC's common stock from the Existing Limited
Partners. In the Recapitalization, the Company's Named Executive Officers
received approximately $50 million and exchanged their remaining limited
partnership interests, valued at approximately $7 million in the
Recapitalization, for newly issued Preferred and Class A Units. As a group, the
Named Executive Officers continuing with the Company received an aggregate of
approximately $24 million in the Recapitalization and exchanged their remaining
limited partnership interests, valued at approximately $6 million in the
Recapitalization, for newly issued Preferred and Class A Units. All Management
Investors as a group received an aggregate of approximately $38 million in the
Recapitalization and exchanged their remaining limited partnership interests,
valued at approximately $11 million in the Recapitalization, for newly issued
Preferred and Class A Units. CIVC and its affiliates, including Christopher J.
Perry and Marcus D. Wedner, received an aggregate of approximately $70 million
in the Recapitalization and exchanged their remaining limited partnership
interests, valued at approximately $25 million in the Recapitalization, for
newly issued Preferred and Class A Units. In addition, CIVC III, an affiliate of
CIVC, contributed $4.4 million at the closing of the Recapitalization in
exchange for newly issued Preferred and Class A Units and paid approximately
$78,000 to certain of the Existing Limited Partners to purchase TCC common
stock.
Affiliates of the Initial Purchasers also participated in the equity
component of the Recapitalization. FUCP received an aggregate of approximately
$178,000 in the Recapitalization and exchanged its remaining limited partnership
interests, valued at approximately $5 million in the Recapitalization, for newly
issued Preferred and Class A Units of Holdings. CIBC Merchant Fund contributed
approximately $5 million at the closing of the Recapitalization in exchange for
newly issued Preferred and Class A Units are paid approximately $87,000 to
certain of the Existing Limited Partners to purchase TCC common stock.
PAYMENTS ON TCC NOTE
Since the 1993 Acquisition, TCC loaned to the Company all amounts
distributed to TCC in connection with the periodic and special distributions
made by the Company to its partners (the "TCC Loans"). As of September 1, 1997,
the aggregate amount of principal and interest due under the TCC Loans was
$833,419. Shortly before the consummation of the Recapitalization, the Company
repaid in full the outstanding balance of all TCC Loans.
TCC used the proceeds received from the TCC Loans to (i) pay $500,000 to
First Union Capital Markets Corp. for certain advisory services rendered in
advance of the Recapitalization, (ii) pay $100,000 to Kirkland & Ellis, counsel
to the Company, for certain services rendered in advance of the
Recapitalization, (iii) pay $143,419 for miscellaneous expenses and (iv) pay a
dividend immediately prior to the Recapitalization to TCC's stockholders of
$90,000 in the aggregate.
REDEMPTION OF PREFERRED UNITS
Holdings used $31.3 million of the proceeds of the Initial Discount Note
Offering to redeem a portion of the Equity Investment. Holdings' limited
partners received the following amounts as a result of the redemption of
approximately one half of the Preferred Units: THL Parties $18.6 million; Named
Executive Officers $1.7 million; Named Executive Officers continuing with the
Company $1.5 million; Management Investors $2.9 million; CIVC $6.1 million; CIVC
III $1.1 million; FUCP $1.2 million; and CIBC Merchant Fund $1.2 million.
63
<PAGE> 69
CERTAIN OTHER FEES IN CONNECTION WITH THE TRANSACTIONS
Upon issuing the notes under the Senior Subordinated Facility, the Company
paid CIBC Oppenheimer and First Union Corporation customary commitment and
funding fees for committing to provide, and providing, the Senior Subordinated
Facility. In addition, upon consummation of the Recapitalization, the Company
paid CIBC Oppenheimer a financial advisory fee of $2 million for advisory
services rendered in connection with the Recapitalization. In addition, upon
issuance of the Old Notes, the Company paid CIBC Oppenheimer and First Union
Capital Markets Corp. customary underwriting fees.
64
<PAGE> 70
LIMITED PARTNERSHIP AGREEMENT
Holdings is a limited partnership formed under the Delaware Revised Uniform
Limited Partnership Act (as amended from time to time, the "Delaware Limited
Partnership Act"). Holdings is governed by its Third Amended and Restated
Agreement of Limited Partnership, as amended (the "Partnership Agreement"),
between Holdings and each of the New Investors. Interests in Holdings are owned
98.3% by the New Investors and 1.7% by TCC. TCC is a corporation organized under
the Delaware General Corporation Law. The Partnership Agreement governs the
relative rights and duties of its limited partners and its general partner with
respect to Holdings.
TCC controls, directs and exercises full control over all of Holdings
activities and the Partnership Agreement vests all management powers over the
business and affairs of Holdings exclusively in TCC. Holdings' limited partners
have no right of control or management power over the business and affairs of
Holdings except in their various capacities as an officer or director of
Holdings or TCC, as the case may be. Any change affecting the rights and
liabilities of any of Holdings' limited partners requires the consent of such
limited partner.
TCC may not withdraw as Holdings' general partner without the consent of
the holders of a majority of the Class A Units, except that TCC shall be deemed
to have withdrawn as Holdings' general partner upon the effective date of the
transfer of all of its interests in Holdings. See "Certain
Transactions -- Investors Agreement."
The ownership interests in Holdings consist of Preferred Units and Common
Units. The Preferred Units are entitled to a preferred yield of 12.0% per annum,
compounded quarterly, and an amount equal to their original investment in such
Preferred Units (net of any prior repayments of Preferred Units) plus any
accrued and unpaid preferred yield (collectively, the "Preference Amount") on
any liquidation or other distribution by Holdings. The Common Units represent
the common equity of Holdings and consist of Class A Units and Class B Units.
After payment of the Preference Amount, partners holding Class A Units are
entitled to share in any remaining proceeds of any liquidation or other
distribution by Holdings pro rata according to the number of Class A Units held
by such partners. Holders of Class B Units will also be entitled to share in any
such distributions, but only if the holders of the Preferred Units and the Class
A Units have achieved an internal rate of return on their total investment of
12.0% (the "Target 1 IRR"). After the achievement of the Target 1 IRR, the
holders of Class B Units will be entitled to share in 10.0% of any distributions
made after payment of the Preference Amount. The holders of Class B Units will
be entitled to share in 15.0% of any distributions, pro rata, according to the
number of Class B Units held by such partners if the holders of the Preferred
Units and the Class A Units achieve the second target internal rate of return
and 20.0% of any distributions if such holders achieve the third target internal
rate of return during the periods set forth below.
<TABLE>
<CAPTION>
TIME PERIOD SECOND TARGET THIRD TARGET
- ------------------------- ------------- ------------
<S> <C> <C>
10/1/97 through 9/30/98 32.500% 45%
10/1/98 through 9/30/99 29.375 40
10/1/99 through 9/30/00 26.250 35
10/1/00 through 9/30/01 23.125 30
after 9/30/01 20.000 25
</TABLE>
Both the Senior Credit Facility and the Discount Note Indenture generally
limit Holdings' ability to pay cash distributions to its partners other than
distributions in amounts approximately equal to the income tax liability of the
partners of Holdings resulting from the taxable income of Holdings (the "Tax
Distributions"). Tax Distributions will be based on the approximate highest
combined tax rate that applies to any one of Holdings' partners.
The Partnership Agreement, and therefore Holdings' existence, will continue
in effect until the earlier to occur of (i) December 31, 2043, (ii) the
withdrawal of TCC if Holdings' limited partners to do not elect a successor
general partner, and (iii) the occurrence of an act that results in TCC ceasing
to be general partner under the Delaware Limited Partnership Act.
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<PAGE> 71
LIMITED LIABILITY COMPANY AGREEMENT
TransWestern is a limited liability company formed under the Delaware
Limited Liability Company Act (as amended from time to time, the "Limited
Liability Act") and is governed by the Limited Liability Company Agreement of
TransWestern Publishing Company LLC (the "LLC Agreement") executed by its
manager, TCC.
The membership interests of TransWestern's members consists of a single
class of common units (the "Member Units"). Holdings is the sole initial member
of TransWestern and currently holds 100% of the Member Units. Distributions to
TransWestern's members are in the sole discretion of the manager. However, the
Senior Credit Facility and the Indenture generally limit TransWestern's ability
to pay cash distributions to its members other than distributions in amounts
equal to the tax liability of the partners of Holdings resulting from the
taxable income of TransWestern (the "Tax Distributions"). The Tax Distribution
will be based on the approximate highest combined tax rate that applies to any
one of the Holdings' limited partners.
TCC has the sole right to make decisions regarding the management and
affairs of TransWestern and has all the powers and rights necessary or
appropriate to effectuate and carry out the purposes and business of
TransWestern, including the authority to act for and bind TransWestern.
The LLC Agreement provides that TransWestern's existence shall continue
until such time as the manager determines it is appropriate to dissolve, windup
and terminate TransWestern or, if earlier, upon the occurrence of (i) the entry
of judicial dissolution in accordance with the Limited Liability Act or (ii) the
expulsion, bankruptcy, dissolution or withdrawal of Holdings. In the event of a
termination of TransWestern, after satisfaction of all of TransWestern's debts
and liabilities, all of the assets of TransWestern would be distributed to
Holdings or if TransWestern then has more than one member, pro rata based on the
relative percentage interests in the TransWestern of its members.
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<PAGE> 72
DESCRIPTION OF SENIOR CREDIT FACILITY
In connection with the Recapitalization, the Issuers entered into the
Senior Credit Facility, among CIBC, First Union (together with CIBC and the
several banks and other financial institutions from time to time parties
thereto, the "Lenders") and the Issuers, pursuant to which the Lenders will lend
to the Company up to $125.0 million consisting of a revolving credit facility of
up to $40.0 million (the "Revolving Credit Facility") and term loans in
aggregate principal amount of $85.0 million (the "Term Loans").
Repayment. Commitments under the Revolving Credit Facility will be reduced
on a quarterly basis commencing on January 1, 2000 and the Term Loans will be
amortized on a quarterly basis commencing January 1, 1998 each in accordance
with the following schedule:
<TABLE>
<CAPTION>
REVOLVING
DATE TERM LOANS CREDIT FACILITY
--------------------------------------------------- ---------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1998............................................... $ 2,125 $ 0
1999............................................... 2,125 0
2000............................................... 2,125 6,000
2001............................................... 2,125 6,000
2002............................................... 2,125 6,000
2003............................................... 27,625 22,000
2004............................................... 46,750 0
------- -------
Total.............................................. $ 85,000 $40,000
======= =======
</TABLE>
Security; Guaranty. The Revolving Credit Facility and the Term Loans will
be secured by a first priority lien on substantially all of the properties and
assets of the Company and its future subsidiaries, including a pledge of all of
the shares of the Company's future subsidiaries. Future subsidiaries of the
Company will be required to guarantee the Revolving Credit Facility and the Term
Loans.
Interest. At the Company's option, the interest rates per annum applicable
to the Revolving Credit Facility and the Term Loans will be a fluctuating rate
of interest measured by reference to (i) LIBOR plus the applicable borrowing
margin, or (ii) a rate per annum equal to the higher of the published prime rate
of the Agent Bank or the Federal Funds Rate (as defined in the Senior Credit
Facility) as quoted by the Agent Bank plus 1/2 of 1% (the "ABR") plus the
applicable borrowing margin. The applicable borrowing margin for the Revolving
Credit Facility will range from 1.375% to 2.500% for LIBOR based borrowings and
0.375% to 1.500% for ABR based borrowings. The applicable borrowing margin for
the Term Loans will range from 1.875% to 2.750% for LIBOR based borrowings and
0.875% to 1.750% for ABR based borrowings.
Fees. The Company has agreed to pay customary fees with respect to the
Senior Credit Facility including upfront facility fees, agent and arrangement
fees and commitment fees on the unused portion of the Revolving Credit Facility.
Use of Proceeds. The entire amount of the Term Loans and $22.7 million of
the Revolving Credit Facility were made available to the Company at the time of
the Recapitalization and the remainder of the Revolving Credit Facility will be
made available to finance certain permitted acquisitions, working capital
requirements and general corporate purposes of the Company.
Prepayments; Reductions of Commitments. The Term Loans are required to be
prepaid and commitments under the Revolving Credit Facility are required to be
permanently reduced with: (i) 100% of the net cash proceeds of asset sales or
other dispositions of property if such proceeds are not used to purchase or
acquire other assets within 180 days of the original asset sale, subject to
limited exceptions, (ii) 50% of excess cash flow for a fiscal year if the
Company's total leverage ratio determined as of the last day of such fiscal year
equals or exceeds 5.0 to 1, (iii) 100% of excess insurance proceeds and (iv)
100% of the net proceeds of issuances of equity securities or debt obligations
of the Company, subject to limited exceptions, and subject to reduction to 50%
of such proceeds if the Company's total leverage ratio is less than 5.0 to 1.
Such mandatory prepayments and reductions will first be applied to the permanent
reduction of the Term Loans and second to
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the permanent reduction of the Revolving Credit Facility. Within the Term Loans,
prepayments with proceeds described in clause (i) or (iii) above will be applied
pro rata to the remaining installments of the Term Loans and prepayments with
proceeds described in clause (ii) or (iv) above will be applied to each
remaining installment of the Term Loans in inverse order of maturity. The
Company may make voluntary prepayments in minimum principal amounts of $50,000
or a whole multiple thereof.
Covenants. The Senior Credit Facility contains covenants restricting the
ability of the Company and its subsidiaries to, among others (i) declare
dividends or redeem or repurchase capital stock, (ii) prepay, redeem or
repurchase debt, (iii) incur liens and engage in sale lease-back transactions,
(iv) make loans and investments, (v) incur additional indebtedness, (vi) amend
or otherwise alter debt and other material agreements, (vii) make capital
expenditures, (viii) engage in mergers, acquisitions and asset sales, (ix)
transact with affiliates, (x) alter its line of business, (xi) enter into
guarantees of indebtedness, and (xii) make optional payments on or modify the
terms of subordinated debt. The Company must also make certain customary
indemnifications of the Lenders and their agents and will also be required to
comply with financial covenants with respect to: (a) a minimum interest coverage
ratio, (b) a minimum EBITDA (as defined in the Senior Credit Facility), (c) a
maximum leverage ratio, and (d) a minimum fixed charge coverage ratio. The
Senior Credit Facility also contains certain customary affirmative covenants.
Events of Default. Events of default under the Senior Credit Facility
include (i) the Company's failure to pay principal or interest when due, (ii)
the Company's material breach of any covenant, representation or warranty
contained in the loan documents, (iii) customary cross-default provisions, (iv)
events of bankruptcy, insolvency or dissolution of the Company, (v) the levy of
certain judgements against the Company, (vi) certain adverse events under ERISA
plans of the Company, (vii) the actual or asserted invalidity of security
documents or guarantees of the Company or its subsidiaries, and (viii) a change
of control of the Company.
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DESCRIPTION OF THE NOTES
The Exchange Notes will be issued under an Indenture, dated as of November
12, 1997 among the Issuers and Wilmington Trust Company, as trustee (the
"Trustee"). The terms of the Exchange Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act") as in effect on
the date of the Indenture. The Exchange Notes are subject to all such terms, and
holders of the Exchange Notes are referred to the Indenture and the Trust
Indenture Act for a statement of them. The following is a summary of the
material terms and provisions of the Exchange Notes. This summary does not
purport to be a complete description of the Exchange Notes and is subject to the
detailed provisions of, and qualified in its entirety by reference to, the
Exchange Notes and the Indenture (including the definitions contained therein).
The form and terms of the Exchange Notes are the same as the form and terms of
the Old Notes (which they replace) except that (i) the Exchange Notes bear a
Series B designation, (ii) the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (iii) the holders of Exchange Notes will not be entitled to certain
rights under the registration rights agreement relating to the Old Notes,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange Offer,
which rights will terminate when the Exchange Offer is consummated. A copy of
the form of Indenture may be obtained from the Issuers by any holder or
prospective investor upon request. Definitions relating to certain capitalized
terms are set forth under "-- Certain Definitions" and throughout this
description. Capitalized terms that are used but not otherwise defined herein
have the meanings assigned to them in the Indenture. For purposes of this
"Description of the Notes," the term "Company" means TransWestern Publishing
Company LLC.
GENERAL
The Notes are limited in aggregate principal amount to $100.0 million. The
Notes will be general unsecured obligations of the Issuers, subordinated in
right of payment to all existing and future Senior Indebtedness of the Issuers,
pari passu in right of payment to all senior subordinated indebtedness of the
Issuers and senior in right of payment to all subordinated indebtedness of the
Issuers. The Notes will be joint and several obligations of the Issuers.
The Notes will be unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by each Restricted Subsidiary which guarantees payment of the Notes
pursuant to the covenant described under "Limitation on Creation of
Subsidiaries" (the "Guarantors").
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on November 15, 2007. The Notes will bear interest at
a rate of 9 5/8% per annum from the date of original issuance until maturity.
Interest is payable semiannually in arrears on each May 15 and November 15,
commencing May 15, 1998, to holders of record of the Notes at the close of
business on the immediately preceding May 1 and November 1, respectively. The
interest rate on the Old Notes is subject to increase, and such Additional
Interest will be payable on the payment dates set forth above, in certain
circumstances, if the Exchange Notes (or other securities substantially similar
to the Notes) are not registered with the Commission within the prescribed time
periods.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Issuers, in whole or in
part, at any time on or after November 15, 2002 at the following redemption
prices (expressed as a percentage of principal amount),
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together, in each case, with accrued interest to the redemption date, if
redeemed during the twelve-month period beginning on November 15 of each year
listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2002.............................................. 104.813%
2003.............................................. 103.208%
2004.............................................. 101.604%
2005 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Issuers, at their option, may redeem in
the aggregate up to 35% of the original principal amount of the Notes at any
time and from time to time prior to November 15, 2000 at a redemption price
equal to 109.625% of the aggregate principal amount so redeemed, together with
accrued interest thereon to the redemption date, out of the Net Proceeds of one
or more Public Equity Offerings; provided, however, that at least $65.0 million
of the principal amount of the Notes remains outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within 90
days following the closing of any such Public Equity Offering.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select, if the Notes are listed on a national securities exchange, in
accordance with the rules of such exchange or, if the Notes are not so listed,
either on a pro rata basis or by lot or in such other manner as it shall deem
fair and equitable the Notes to be redeemed; provided, that if a partial
redemption is made with the proceeds of a Public Equity Offering, selection of
the Notes or portion thereof for redemption will be made by the Trustee on a pro
rata basis, unless such method is prohibited. The Notes will be redeemable in
whole or in part upon not less than 30 nor more than 60 days' prior written
notice, mailed by first class mail to a holder's last address as it shall appear
on the register maintained by the Registrar of the Notes. On and after any
redemption date, interest will cease to accrue on the Notes or portions thereof
called for redemption unless the Issuers shall fail to redeem any such Note.
SUBORDINATION
The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Senior Indebtedness of the Issuers. As of October 31, 1997, after giving pro
forma effect to the Initial Offerings and the Asset Drop-Down, the principal
amount of outstanding Senior Indebtedness of the Issuers, on a consolidated
basis, would have been $85.0 million. In addition, the Issuers would have had
$40.0 million of undrawn commitments available under the Senior Credit Facility.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith, relative to the Issuers or to their
creditors, as such, or to their assets, whether voluntary or involuntary, or any
liquidation, dissolution or other winding-up of the Issuers, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or any
general assignment for the benefit of creditors or other marshalling of assets
or liabilities of the Issuers (except in connection with the merger or
consolidation of the Issuers or their liquidation or dissolution following the
transfer of substantially all of their assets, upon the terms and conditions
permitted under the circumstances described under "-- Merger, Consolidation or
Sale of Assets") (all of the foregoing referred to herein individually as a
"Bankruptcy Proceeding" and collectively as "Bankruptcy Proceedings"), the
holders of Senior Indebtedness of the Issuers will be entitled to receive
payment and satisfaction in full in cash of all amounts due on or in respect of
all Senior Indebtedness of the Issuers before the holders of the Notes are
entitled to receive or retain any payment or distribution of any kind on account
of the Notes. In the event that, notwithstanding the foregoing, the Trustee or
any holder of Notes receives any payment or distribution of assets of the
Issuers of any kind, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Notes before all
Senior Indebtedness of the Issuers is paid and satisfied in full in cash, then
such payment or distribution will be held by the recipient in trust for the
benefit of holders of Senior Indebtedness and will be immediately paid over or
delivered to the holders of Senior Indebtedness or their representative or
representatives to the extent necessary to make payment in full
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in cash of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Senior Indebtedness. By reason of such subordination, in the event of
liquidation or insolvency, creditors of the Issuers who are holders of Senior
Indebtedness may recover more, ratably, than other creditors of the Issuers, and
creditors of the Issuers who are not holders of Senior Indebtedness or of the
Notes may recover more, ratably, than the holders of the Notes.
No payment or distribution of any assets or securities of the Issuers or
any Restricted Subsidiary of any kind or character (including, without
limitation, cash, property and any payment or distribution which may be payable
or deliverable by reason of the payment of any other Indebtedness of the Issuers
being subordinated to the payment of the Notes by the Issuers) may be made by or
on behalf of the Issuers or any Restricted Subsidiary, including, without
limitation, by way of set-off or otherwise, for or on account of the Notes, or
for or on account of the purchase, redemption or other acquisition of the Notes,
and neither the Trustee nor any holder or owner of any Notes shall take or
receive from the Issuers or any Restricted Subsidiary, directly or indirectly in
any manner, payment in respect of all or any portion of Notes following the
delivery by the representative of the holders of Designated Senior Indebtedness
under or in respect of the Senior Credit Facility, for so long as there shall
exist any Designated Senior Indebtedness under or in respect of the Senior
Credit Facility, and thereafter, the holders of Designated Senior Indebtedness
(in either such case, the "Representative") to the Trustee of written notice of
(i) the occurrence of a Payment Default on Designated Senior Indebtedness or
(ii) the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness and the acceleration of the maturity of Designated Senior
Indebtedness in accordance with its terms, and, in any such event, such
prohibition shall continue until such Payment Default is cured, waived in
writing or ceases to exist or such acceleration has been rescinded or otherwise
cured. At such time as the prohibition set forth in the preceding sentence shall
no longer be in effect, subject to the provisions of the following paragraph,
the Issuers shall resume making any and all required payments in respect of the
Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any assets or securities of the
Issuers of any kind or character (including, without limitation, cash, property
and any payment or distribution which may be payable or deliverable by reason of
the payment of any other Indebtedness of the Issuers being subordinated to the
payment of the Notes by the Issuers) may be made by or on behalf of the Issuers,
including, without limitation, by way of set-off or otherwise, for or on account
of the Notes, or for on account of the purchase, redemption, defeasance or other
acquisition of Notes, and neither the Trustee nor any holder or owner of Notes
shall take or receive from the Issuers or any Restricted Subsidiary, directly or
indirectly in any manner, payment in respect of all or any portion of the Notes
for a period (a "Payment Blockage Period") commencing on the date of receipt by
the Trustee of written notice from the Representative of such Non-Payment Event
of Default unless and until (subject to any blockage of payments that may then
be in effect under the preceding paragraph) the earliest of (x) more than 179
days shall have elapsed since receipt of such written notice by the Trustee, (y)
such Non-Payment Event of Default shall have been cured or waived in writing or
shall have ceased to exist or such Designated Senior Indebtedness shall have
been paid in full or (z) such Payment Blockage Period shall have been terminated
by written notice to the Issuers or the Trustee from the Representative, after
which, in the case of clause (x), (y) or (z), the Issuers shall resume making
any and all required payments in respect of the Notes, including any missed
payments. Notwithstanding any other provision of the Indenture, in no event
shall a Payment Blockage Period commenced in accordance with the provisions of
the Indenture described in this paragraph extend beyond 179 days from the date
of the receipt by the Trustee of the notice referred to above (the "Initial
Blockage Period"). Any number of additional Payment Blockage Periods may be
commenced during the Initial Blockage Period; provided, however, that no such
additional Payment Blockage Period shall extend beyond the Initial Blockage
Period. After the expiration of the Initial Blockage Period, no Payment Blockage
Period may be commenced until at least 180 consecutive days have elapsed from
the last day of the Initial Blockage Period. Notwithstanding any other provision
of the Indenture, no event of default with respect to Designated Senior
Indebtedness (other than a Payment Default) which existed or was continuing on
the date of the commencement of any Payment Blockage Period initiated by the
Representative shall be, or be made, the basis for the commencement of a second
Payment Blockage Period initiated by the Representative,
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whether or not within the Initial Blockage Period, unless such event of default
shall have been cured or waived for a period of not less than 90 consecutive
days.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior indefeasible payment and
satisfaction in full in cash of all Senior Indebtedness of the respective
Guarantor, including obligations of such Guarantor with respect to the Senior
Credit Facility (including any guarantee thereof), and will be subject to the
rights of holders of Designated Senior Indebtedness of such Guarantor to
initiate blockage periods, upon terms substantially comparable to the
subordination of the Notes to all Senior Indebtedness of the Issuers.
If the Issuers or any Guarantor fails to make any payment on the Notes or
any Guarantee, as the case may be when due or within any applicable grace
period, whether or not on account of payment blockage provisions, such failure
would constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "Events of
Default."
A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purpose.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Additional Indebtedness
The Issuers will not, and will not permit any Restricted Subsidiary of the
Issuers to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness) unless (a) after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the ratio of the total Indebtedness of the Issuers and their Restricted
Subsidiaries (excluding any Indebtedness owed to a Restricted Subsidiary by any
other Restricted Subsidiary or the Issuers and any Indebtedness owed to the
Issuers by any Restricted Subsidiary) to the Issuers' EBITDA (determined on a
pro forma basis for the last four fiscal quarters of the Issuers and their
consolidated Restricted Subsidiaries for which financial statements are
available at the date of determination) is less than (i) 6.25 to 1 if the
Indebtedness is incurred prior to November 15, 2000 and (ii) 6.0 to 1 if the
Indebtedness is incurred on or after November 15, 2000; provided, however, that
if the Indebtedness which is the subject of a determination under this provision
is Acquired Indebtedness, or Indebtedness incurred in connection with the
simultaneous acquisition of any Person, business, property or assets, then such
ratio shall be determined by giving effect to (on a pro forma basis, as if the
transaction had occurred at the beginning of the four-quarter period) both the
incurrence or assumption of such Acquired Indebtedness or such other
Indebtedness by the Issuers or any Restricted Subsidiary (together with any
other Acquired Indebtedness or other Indebtedness incurred or assumed by the
Issuers and Restricted Subsidiaries in connection with acquisitions consummated
by the Issuers during such four-quarter period) and the inclusion in the
Issuers' EBITDA of the EBITDA of the acquired Person, business, property or
assets and any pro forma expense and cost reductions calculated on a basis
consistent with Regulation S-X under the Securities Act as in effect and as
applied as of the Issue Date (together with the EBITDA of, and pro forma expense
and cost reductions relating to, any other Person, business, property or assets
acquired by the Issuers or any Restricted Subsidiary during such four-quarter
period), and (b) no Default or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness.
Notwithstanding the foregoing, the Issuers and their Restricted
Subsidiaries may incur Permitted Indebtedness.
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Limitation on Restricted Payments
The Issuers will not make, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Issuers could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under "Limitation
on Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 50% of the cumulative Consolidated Net
Income of the Company subsequent to the Issue Date (or minus 100% of any
cumulative deficit in Consolidated Net Income during such period) plus (2)
100% of the aggregate Net Proceeds and the fair market value of securities
or other property received by the Company from the issue or sale, after the
Issue Date, of Capital Stock (other than Disqualified Capital Stock or
Capital Stock of the Company issued to any Subsidiary of the Company) of
the Company or any Indebtedness or other securities of the Company
convertible into or exercisable or exchangeable for Capital Stock (other
than Disqualified Capital Stock) of the Company which have been so
converted or exercised or exchanged, as the case may be, plus (3) without
duplication of any amounts included in clauses (1) and (2) above, 100% of
the aggregate net proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock plus (4) $5,000,000.
For purposes of determining under this clause (c) the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market
value determined, in good faith, by the Board of Directors of the Company.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company or
subordinated Indebtedness by conversion into, or by or in exchange for, shares
of Capital Stock (other than Disqualified Capital Stock), or out of, the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock), (iii) the redemption or retirement of Indebtedness
of the Issuers subordinated to the Notes in exchange for, by conversion into, or
out of the Net Proceeds of a substantially concurrent sale or incurrence of
Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Issuers
that is contractually subordinated in right of payment to the Notes to at least
the same extent as the subordinated Indebtedness being redeemed or retired, (iv)
the retirement of any shares of Disqualified Capital Stock by conversion into,
or by exchange for, shares of Disqualified Capital Stock, or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Disqualified Capital Stock, (v) so long as no
Default or Event of Default shall have occurred and be continuing, at the time
of or immediately after giving effect to such payment, the purchase, redemption
or other acquisition for value of shares of Capital Stock (other than
Disqualified Capital Stock) or options on such shares held by the Issuers' or
their Subsidiaries' officers or employees or former officers or employees (or
their estates or beneficiaries under their estates) upon the death, disability,
retirement or termination of employment of such current or former officers or
employees pursuant to the terms of an employee benefit plan or any other
agreement pursuant to which such shares of Capital Stock or options were issued
or pursuant to a severance, buy-sale or right of first refusal agreement with
such current or former officer or employee and payments of principal and
interest on the Management Subordinated Notes in accordance with the terms
thereof; provided that the aggregate cash consideration paid, or distributions
or payments made, pursuant to this clause (v) shall not exceed $2,000,000 in any
fiscal year or $10,000,000 in the aggregate from and after the Issue Date, (vi)
payments by the Company to the Equity Compensation Trust, in an aggregate amount
not to exceed $3,100,000, to be paid up to 12 months after the Issue Date in
connection with the Recapitalization, (vii) the payment of management fees under
the management agreement with THL and its Affiliates and successors and assigns
that do not exceed $500,000
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per year and the reimbursement of expenses pursuant thereto, (viii)
distributions to Holdings solely for the purpose of enabling Holdings to pay
its, Capital's or TCC's reasonable operating and administrative expenses
(including professional fees and expenses), the amount of which in any fiscal
year will not exceed 0.2% at the Company's consolidated net revenues for such
fiscal year, (ix) distributions not to exceed $100,000 in the aggregate to
Holdings to make payments as liquidated damages to the holders of the Discount
Notes under the registration rights agreement relating to the Discount Notes,
(x) the distribution of the proceeds of the Offering to Holdings on the Issue
Date to the extent necessary to repay outstanding Indebtedness under the Senior
Subordinated Facility and (xi) the redemption on the Issue Date of approximately
one-half of the outstanding Preferred Units with the proceeds from the sale of
the Discount Notes. Notwithstanding the foregoing, the amount of any payments
made in reliance on clause (v) above shall reduce the amount otherwise available
for Restricted Payments pursuant to subparagraph (c) above.
Not later than the date of making any Restricted Payment, the Issuers shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Issuers' latest available financial
statements, and, to the extent that the absence of a Default or an Event of
Default is condition to the making of such Restricted Payment, that no Default
or Event of Default exists and is continuing and no Default or Event of Default
will occur immediately after given effect to any Restricted Payments.
Limitation on Other Senior Subordinated Debt
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any
Indebtedness (other than the Notes and the Guarantees, as the case may be) that
is both (i) subordinate in right of payment to any Senior Indebtedness of the
Issuers or their Restricted Subsidiaries, as the case may be, and (ii) senior in
right of payment to the Notes and the Guarantees, as the case may be. For
purposes of this covenant, Indebtedness is deemed to be senior in right of
payment to the Notes and the Guarantees, as the case may be, if it is not
explicitly subordinate in right of payment to Senior Indebtedness at least to
the same extent as the Notes and the Guarantees, as the case may be, are
subordinate to Senior Indebtedness.
Limitations on Investments
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, make any Investment other than (i) a Permitted Investment or
(ii) an Investment that is made as a Restricted Payment in compliance with the
"Limitation on Restricted Payments" covenant, after the Issue Date.
Limitations on Liens
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Issuers or any Restricted Subsidiary or any shares of stock
(other than under the Senior Credit Facility) or debt of any Restricted
Subsidiary which owns property or assets, now owned or hereafter acquired,
unless (i) if such Lien secures Indebtedness which is pari passu with the Notes,
then the Notes are secured on an equal and ratable basis with the obligations so
secured until such time as such obligation is no longer secured by a Lien or
(ii) if such Lien secures Indebtedness which is subordinated to the Notes, any
such Lien shall be subordinated to the Lien granted to the Holders of the Notes
to the same extent as such subordinated Indebtedness is subordinated to the
Notes.
Limitation on Transactions with Affiliates
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (including entities in which the Issuers or any of their Restricted
Subsidiaries owns a minority interest) (an "Affiliate Transaction") or extend,
renew, waive or otherwise modify the terms of any Affiliate Transaction entered
into prior to the Issue
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<PAGE> 80
Date if such extension, renewal, waiver or other modification is more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date unless (i) such Affiliate Transaction
is between or among the Issuers and/or their Wholly-Owned Subsidiaries and/or
Holdings (so long as Holdings owns least 99% of the voting and economic power of
the Common Stock of the Company); or (ii) the terms of such Affiliate
Transaction are fair and reasonable to the Issuers or such Restricted
Subsidiary, as the case may be, and the terms of such Affiliate Transaction are
at least as favorable as the terms which could be obtained by the Issuers or
such Restricted Subsidiary, as the case may be, in a comparable transaction made
on an arm's-length basis between unaffiliated parties. In any Affiliate
Transaction involving an amount or having a value in excess of $1.0 million
which is not permitted under clause (i) above, the Issuers must obtain a
resolution of the Board of Directors of the Company certifying that such
Affiliate Transaction complies with clause (ii) above. In any Affiliate
Transaction with a value in excess of $5.0 million which is not permitted under
clause (i) above (other than any sale by the Company of its Capital Stock that
is not Disqualified Capital Stock), the Issuers must obtain a written opinion as
to the fairness of such a transaction from an independent investment banking
firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitation on Restricted
Payments" contained herein, (ii) any transaction pursuant to an agreement,
arrangement or understanding existing on the Issue Date and described elsewhere
in this Prospectus, (iii) any transaction, approved by the Board of Directors of
the Company or Capital II, with an officer or director of the Issuers or of any
Subsidiary in his or her capacity as officer or director entered into in the
ordinary course of business, or (iv) transactions permitted by the Indenture
under the provision "Merger, Consolidation or Sale of Assets."
Limitation on Creation of Subsidiaries
The Issuers will not create or acquire, nor permit any of their Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary that is acquired or created in connection with the acquisition by the
Company of a business primarily engaged in, or an asset primarily utilized in,
providing directory services and/or classified advertising, or (ii) an
Unrestricted Subsidiary; provided, however, that each Restricted Subsidiary
acquired or created pursuant to clause (i) shall at the time it has either
assets or stockholder's equity in excess of $100,000 execute a guarantee in the
form attached to the Indenture and reasonably satisfactory in form and substance
to the Trustee (and with such documentation relating thereto as the Trustee
shall require, including, without limitation, a supplement or amendment to the
Indenture and opinions of counsel as to the enforceability of such guarantee),
pursuant to which such Restricted Subsidiary shall become a Guarantor. As of the
Issue Date, the Company will have no Subsidiaries other than Capital.
Limitation on Certain Asset Sales
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, consummate an Asset Sale unless (i) such Issuer or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such sale or other disposition at least equal to the fair market value thereof
(as determined in good faith by the Company's Board of Directors, and evidenced
by a board resolution); (ii) not less than 75% of the consideration received by
the Issuers or their Subsidiaries, as the case may be, is in the form of cash or
Temporary Cash Investments other than in the case where the Company is
undertaking a Permitted Asset Swap; and (iii) the Asset Sale Proceeds received
by such Issuer or such Restricted Subsidiary are applied (a) first, to the
extent the Company elects, or is required, to prepay, repay or purchase debt or
to reduce an unused commitment to lend under any then existing Senior
Indebtedness of the Company or any Restricted Subsidiary within 180 days
following the receipt of the Asset Sale Proceeds from any Asset Sale, but only
to the extent that any such repayment shall result in a permanent reduction of
the commitments thereunder in an amount equal to the principal amount so repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds after
application as described above, to the extent the Company or a Restricted
Subsidiary elects, to an investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital Stock or
property of another person) used or useful in businesses similar or ancillary to
the business of the Company or such Restricted Subsidiary as conducted at the
time of such Asset Sale,
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provided that such investment occurs or the Issuers or a Restricted Subsidiary
enters into contractual commitments to make such investment, subject only to
customary conditions (other than the obtaining of financing), on or prior to the
181st day following receipt of such Asset Sale Proceeds (the "Reinvestment
Date") and Asset Sale Proceeds contractually committed are so applied within 270
days following the receipt of such Asset Sale Proceeds; and (c) third, if on the
Reinvestment Date with respect to any Asset Sale, the Available Asset Sale
Proceeds exceed $10.0 million, the Issuers shall apply an amount equal to such
Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of repurchase (an "Excess Proceeds Offer").
If an Excess Proceeds Offer is not fully subscribed, the Company may retain the
portion of the Available Asset Sale Proceeds not required to repurchase Notes
and use such portion for general corporate purposes, and such retained portion
will not be considered in the calculation of "Available Asset Sale Proceeds"
with respect to any subsequent offer to purchase Notes.
If the Issuers are required to make an Excess Proceeds Offer, the Issuers
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Issuers to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the aggregate principal
amount thereof together with accrued and unpaid interest, if any, thereon to the
date of purchase; (2) the purchase date, which shall be no earlier than 30 days
and not later than 60 days from the date such notice is mailed; (3) the
instructions, determined by the Issuers, that each Holder must follow in order
to have such Notes repurchased; and (4) the calculations used in determining the
amount of Available Asset Sale Proceeds to be applied to the repurchase of such
Notes.
Limitation on Preferred Stock of Restricted Subsidiaries
The Issuers will not permit any Restricted Subsidiary to issue any
Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any Person (other than the Company or a Subsidiary) to
hold any such Preferred Stock unless the Company or such Restricted Subsidiary
would be entitled to incur or assume Indebtedness under the first paragraph of
the covenant described under "Limitation on Additional Indebtedness" in an
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
Limitation on Capital Stock of Subsidiaries
The Issuers will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Subsidiary (other than under the Senior Credit
Facility or under the terms of any Designated Senior Indebtedness) or (ii)
permit any of their Subsidiaries to issue any Capital Stock, other than to the
Issuers or a Wholly-Owned Subsidiary of the Company. The foregoing restrictions
shall not apply to an Asset Sale made in compliance with "Limitation on Certain
Asset Sales" or the issuance of Preferred Stock in compliance with the covenant
described under "Limitation on Preferred Stock of Subsidiaries." In no event
will the Company sell, pledge, hypothecate or otherwise convey or dispose of any
Capital Stock of Capital or will Capital issue any Capital Stock.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Issuers to (a)(i) pay dividends or make any other
distributions to the Issuers or any Restricted Subsidiary of the Issuers (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits or (ii) repay any Indebtedness or any other
obligation owed to the Issuers or any Restricted Subsidiary of the Issuers, (b)
make loans or advances or capital contributions to the Issuers or any of their
Restricted Subsidiaries or (c) transfer any of its properties or assets to the
Issuers or any of their Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (i) encumbrances or restrictions
existing on the Issue Date to the extent and in the manner such encumbrances and
restrictions are in effect on the Issue Date (including without limitation
pursuant to the Senior Credit Facility or under the Discount Notes), (ii) the
Indenture, the Notes and the Guarantees,
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(iii) applicable law, (iv) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person (including any Subsidiary of the Person), so acquired, (v) customary
non-assignment provisions in leases or other agreements entered in the ordinary
course of business and consistent with past practices, (vi) Refinancing
Indebtedness; provided that such restrictions are no more restrictive than those
contained in the agreements governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, (vii) customary
restrictions in security agreements or mortgages securing Indebtedness of the
Issuers or a Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements and mortgages or
(viii) customary restrictions with respect to a Restricted Subsidiary of the
Issuers pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary.
Limitation on Sale and Lease-Back Transactions
The Issuers will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined, in good faith, by the Board of
Directors of the Company, and (ii) the Issuers could incur the Attributable
Indebtedness in respect of such Sale and Lease-Back Transaction in compliance
with the covenant described under "Limitation on Additional Indebtedness."
Payments for Consent
Neither the Issuers nor any of their Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
Limitation on Conduct of Business of Capital II
Except to the extent permitted under "Merger, Consolidation or Sale of
Assets," Capital II will not hold any operating assets or other properties or
conduct any business other than to serve as an Issuer and co-obligor with
respect to the Notes and will not own any Capital Stock of any other Person.
Certain Consents and Filings
As of December 31, 1997, the Issuers have made, or caused to have been
made, all filings, and have received all required consents of third parties,
relating to the Asset Drop-Down, other than filings and consents the absence of
which, individually or in the aggregate, will not have a material adverse effect
on the business, assets, condition (financial or otherwise) or results of
operations of the Company and its Subsidiaries, taken as a whole, or on the
legality, validity, binding effect or enforceability of the Notes or the
Indenture.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof together with any accrued
and unpaid interest thereon to the Change of Control Payment Date (as
hereinafter defined) (such applicable purchase price being hereinafter referred
to as the "Change of Control Purchase Price") in accordance with the procedures
set forth in this covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each
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holder of the Notes, at the address appearing in the register maintained by the
registrar of the Notes, a notice stating:
(i) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(ii) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days from the date such
notice is mailed (the "Change of Control Payment Date"));
(iii) that any Note not tendered will remain outstanding and continue
to accrue interest;
(iv) that, unless the Issuers default in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(v) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day preceding
the Change of Control Payment Date;
(vi) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(vii) that holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
(viii) any other procedures that a holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Issuers. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Issuers shall execute and issue, the Guarantors shall endorse the Guarantee
and the Trustee shall promptly authenticate and mail to such holder, a new Note
equal in principal amount to any unpurchased portion of the Notes surrendered;
provided that each such new Note shall be issued in an original principal amount
in denominations of $1,000 and integral multiples thereof.
The Indenture will require that if the Senior Credit Facility is in effect,
or any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to holders
described in the preceding paragraph, but in any event within 20 days following
any Change of Control, the Issuers on a joint and several basis covenant to (i)
repay in full all obligations under or in respect of the Senior Credit Facility
or offer to repay in full all obligations under or in respect of the Senior
Credit Facility and repay the obligations under or in respect of the Senior
Credit Facility of each lender who has accepted such offer or (ii) obtain the
requisite consent under the Senior Credit Facility to permit the repurchase of
the Notes as described above. The Issuers must first comply with the covenant
described in the preceding sentence before they shall be required to purchase
Notes in the event of a Change of Control; provided that the Issuers' failure to
comply with the covenant described in the preceding sentence constitutes
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an Event of Default described in clause (iii) under "Events of Default" below if
not cured within 60 days after the notice required by such clause. As a result
of the foregoing, a holder of the Notes may not be able to compel the Issuers to
purchase the Notes unless the Issuers are able at the time to refinance all of
the obligations under or in respect of the Senior Credit Facility or obtain
requisite consents under the Senior Credit Facility. Failure by the Issuers to
make a Change of Control Offer when required by the Indenture constitutes a
default under the Indenture and, if not cured within 60 days after notice,
constitutes an Event of Default.
The Indenture will require that (A) if either Issuer or any Subsidiary
thereof has issued any outstanding (i) Indebtedness that is subordinated in
right of payment to the Notes or (ii) Preferred Stock, and such Issuer or
Subsidiary is required to make a change of control offer or to make a
distribution with respect to such subordinated Indebtedness or Preferred Stock
in the event of a change of control, the Issuers shall not consummate any such
offer or distribution with respect to such subordinated Indebtedness or
Preferred Stock until such time as the Issuers shall have paid the Change of
Control Purchase Price in full to the holders of Notes that have accepted the
Issuers' Change of Control Offer and shall otherwise have consummated the Change
of Control Offer made to holders of the Notes and (B) the Issuers will not issue
Indebtedness that is subordinated in right of payment to the Notes or Preferred
Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Notes in the event
of a Change in Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Issuers to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Issuers will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither of the Issuers will, nor will they permit any Guarantor to,
consolidate with, merge with or into, or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction or
a series of related transactions) to, any Person unless (in the case of the
Company or any Guarantor): (i) the Company or such Guarantor, as the case may
be, shall be the continuing Person, or the Person (if other than the Company or
such Guarantor) formed by such consolidation or into which the Company or such
Guarantor, as the case may be, is merged or to which the properties and assets
of the Company or such Guarantor, as the case may be, are transferred shall be a
corporation (or, in the case of the Company, a corporation or a limited
partnership) organized and existing under the laws of the United States or any
State thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company or such
Guarantor, as the case may be, under the Notes and the Indenture, and the
obligations under the Indenture shall remain in full force and effect; provided,
that at any time the Company or its successor is a limited partnership, there
shall be a co-issuer of the Notes that is a corporation; (ii) immediately before
and immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction or series of transactions on a pro forma basis the
Consolidated Net Worth of the Company or the surviving entity as the case may be
is at least equal to the Consolidated Net Worth of the Company immediately
before such transaction or series of transactions; and (iv) immediately after
giving effect to such transaction on a pro forma basis the Company or such
Person could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant set forth under "Limitation on
Additional Indebtedness." Notwithstanding anything in this "Merger,
Consolidation or Sale of Assets" provision herein to the contrary, but subject
to the "Change of Control Offer" provisions above, (a) any of the Company,
Capital II and TCC may merge with or into, or consolidate with, another of them
and subject only to compliance with clause (i) of the immediately preceding
sentence and (b) the Company may merge into, consolidate with or transfer all or
substantially all of its assets to another entity, which entity shall have no
significant assets (other than an ownership interest in the Company) and no
liabilities immediately prior to such transaction, without regard to the
requirements of clause (iv) of the immediately preceeding sentence.
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In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Issuers shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
GUARANTEES
The Notes are unconditionally guaranteed on an unsecured senior
subordinated basis by the Guarantors, if any. All payments pursuant to the
Guarantees by the Guarantors will be unconditionally subordinated in right of
payment to the prior indefeasible payment and satisfaction in full in cash of
all Senior Indebtedness of the Guarantor, to the same extent and in the same
manner that all payments pursuant to the Notes are subordinated in right of
payment to the prior payment in full of all Senior Indebtedness of the Issuers.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any Guarantees of Senior Indebtedness)
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under "Limitation on Certain Asset Sales," or the Guarantor
merges with or into or consolidates with, or transfers all or substantially all
of its assets to, the Company or another Guarantor in a transaction in
compliance with "Merger, Consolidation or Sale of Assets," and such Guarantor
has delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent herein provided for relating to such
transaction have been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes whether at maturity, upon acceleration or redemption or otherwise
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(ii) default for 30 days (whether or not such payment is prohibited by
the subordination provisions of the Indenture) in payment of any interest
on the Notes;
(iii) default by either of the Issuers or any Guarantor in the
observance or performance of any other covenant in the Notes or the
Indenture for 60 days after written notice from the Trustee or the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding;
(iv) default in the payment at final maturity of principal in an
aggregate amount of $5.0 million or more with respect to any Indebtedness
of either Issuer or any Restricted Subsidiary thereof, or the acceleration
of any such Indebtedness aggregating $5.0 million or more which default
shall not be cured, waived or postponed pursuant to an agreement with the
holders of such Indebtedness within 60 days after written notice as
provided in the Indenture, or such acceleration shall not be rescinded or
annulled within 20 days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5.0 million shall be rendered
against either of the Issuers or any Restricted Subsidiary thereof, and
shall not be discharged for any period of 60 consecutive days during which
a stay of enforcement shall not be in effect;
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(vi) certain events involving bankruptcy, insolvency or reorganization
of either of the Issuers or any Restricted Subsidiary thereof; and
(vii) any of the Guarantees ceases to be in full force and effect or
any of the Guarantees is declared to be null and void and unenforceable or
any of the Guarantees is found to be invalid or any of the Guarantors
denies in writing its liability under its Guarantee (other than by reason
of release of a Guarantor in accordance with the terms of the Indenture).
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee by
notice to the Issuers or the holders of not less than 25% in aggregate principal
amount of the Notes then outstanding by written notice to the Issuers and the
Trustee may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued but unpaid interest to the
date of acceleration and such amounts shall become immediately due and payable
or if there are any amounts outstanding under or in respect of the Senior Credit
Facility, such amounts shall become due and payable upon the first to occur of
an acceleration of amounts outstanding under or in respect of the Senior Credit
Facility or five business days after receipt by the Company and the
representative of the holders of Senior Indebtedness under or in respect of the
Senior Credit Facility, of notice of the acceleration of the Notes; provided,
however, that after such acceleration but before a judgment or decree based on
such acceleration is obtained by the Trustee, the holders of a majority in
aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all existing Events of
Default, other than nonpayment of accelerated principal, premium, if any, or
interest that has become due solely because of the acceleration, have been cured
or waived as provided in the Indenture. In case an Event of Default resulting
from certain events of bankruptcy, insolvency or reorganization shall occur, the
principal, premium, if any, and interest amount with respect to all of the Notes
shall be due and payable immediately without any declaration or other act on the
part of the Trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
indemnity satisfactory to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Issuers may elect either (a) to defease and
be discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from their obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "Certain Covenants" ("covenant defeasance"), upon the deposit with the
Trustee (or other qualifying trustee), in trust for such purpose of money and/or
U.S. Government Obligations (as defined in the Indenture) which through the
payment of principal and interest in accordance with their terms will provide
money, in an amount sufficient to pay the principal of, premium, if any, and
interest on the Notes, on the scheduled due dates therefor or on a selected date
of redemption in accordance with the terms of the
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Indenture. Such a trust may only be established if, among other things, the
Issuers have delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) (i) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company Act
of 1940, as amended, and (ii) describing either a private ruling concerning the
Notes or a published ruling of the Internal Revenue Service, to the effect that
holders of the Notes or persons in their positions will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount and in the same manner and at the same times, as would have been the case
if such deposit, defeasance and discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, the Issuers, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
adversely affect the rights of any holder. The Indenture contains provisions
permitting the Issuers, the Guarantors and the Trustee, with the consent of
holders of at least a majority in principal amount of the outstanding Notes, to
modify or supplement the Indenture or the Notes, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture or the Notes, (ii) reduce the rate of or
change the time for payment of interest on any Note, (iii) reduce the principal
of or premium on or change the stated maturity of any Note, (iv) make any Note
payable in money other than that stated in the Note or change the place of
payment from New York, New York, (v) change the amount or time of any payment
required by the Notes or reduce the premium payable upon any redemption of
Notes, or change the time before which no such redemption may be made, (vi)
waive a default in the payment of the principal of, interest on, or redemption
payment with respect to any Note, (vii) take any other action otherwise
prohibited by the Indenture to be taken without the consent of each holder
affected thereby or (viii) affect the ranking of the Notes or the Guarantees in
a manner adverse to the Holders.
REPORTS TO HOLDERS
So long as the Issuers are subject to the periodic reporting requirements
of the Exchange Act, they will continue to furnish the information required
thereby to the Commission and to the holders of the Notes. The Indenture will
provide that even if the Company is entitled under the Exchange Act not to
furnish such information to the Commission or to the holders of the Notes, it
will nonetheless continue to furnish such information to the Commission and
holders of the Notes.
COMPLIANCE CERTIFICATE
The Issuers will deliver to the Trustee on or before 120 days after the end
of the Issuers' fiscal year and on or before 50 days after the end of each of
the first, second and third fiscal quarters in each year an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default and its status.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture will provide that, except during the
continuance of an Event of Default, the Trustee will perform only such duties as
are specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. The Trustee is also acting as trustee under the indenture relating
to the Discount Notes.
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TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange the Notes in accordance with
the Indenture. The Registrar under such Indenture may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and to
pay any taxes and fees required by law or permitted by the Indentures. The
Registrar is not required to transfer or exchange any Note selected for
redemption. Also, the Registrar is not required to transfer or exchange any Note
for a period of 15 days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee, of such Guarantor at such date
and (y) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities and after giving effect to any collection from any
Subsidiary of such Guarantor in respect of the obligations of such Subsidiary
under the Guarantee), excluding Indebtedness in respect of the Guarantee, as
they become absolute and matured.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means the sale, transfer or other disposition (other than to
the Company or any of its Restricted Subsidiaries) in any single transaction or
series of related transactions having a fair market value in excess of
$1,000,000 of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Issuers, (b) all or substantially all of the assets
of the Issuers or of any Restricted Subsidiary thereof, (c) real property or (d)
all or substantially all of the assets of a division, line of business or
comparable business segment of the Issuers or any Restricted Subsidiary thereof;
provided that Asset Sales shall not include (i) sales, leases, conveyances,
transfers or other dispositions to the Company or to a Restricted Subsidiary or
to any other Person if after giving effect to such sale, lease, conveyance,
transfer or other disposition such other Person becomes a Restricted Subsidiary;
or (ii) the contribution of any assets to a joint venture, partnership or other
Person (which may be a Subsidiary) to the extent such contribution constitutes a
Permitted Investment (other than by operation of clause (iv) of the definition
thereof).
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Issuers or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes (including taxes required to be
distributed under the partnership agreement of the Company) measured by or
resulting from such Asset Sale, (b) payment of all brokerage commissions,
underwriting and other fees and expenses related to such Asset Sale, (c)
provision for minority interest holders in any Restricted Subsidiary as a result
of such Asset Sale and (d) deduction of appropriate amounts to be provided by
the Issuers or a Restricted Subsidiary as a reserve, in accordance with GAAP,
against any liabilities
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associated with the assets sold or disposed of in such Asset Sale and retained
by the Issuers or a Restricted Subsidiary after such Asset Sale, including,
without limitation, severance, healthcare, pension and other post-employment
benefit liabilities and liabilities related to environmental matters or against
any indemnification obligations associated with the assets sold or disposed of
in such Asset Sale, and (ii) promissory notes and other non-cash consideration
received by the Issuers or any Restricted Subsidiary from such Asset Sale or
other disposition upon the liquidation or conversion of such notes or noncash
consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by the Board of Directors of
the Company) and (ii) the present value of the total obligations (discounted at
a rate of 10%, compounded annually) of the lessee for rental payments during the
remaining term of the lease included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii)(a) or (iii)(b), and that have not been the basis
for an Excess Proceeds Offer in accordance with clause (iii)(c), of the first
paragraph of "Certain Covenants -- Limitation on Certain Asset Sales."
"Board of Directors" means (i) in the case of a Person that is a limited
partnership, the board of directors of its corporate general partner or any
committee authorized to act therefor (or, if the general partner is itself a
limited partnership, the board of directors of such general partner's corporate
general partner or any committee authorized to act therefor), (ii) in the case
of a Person that is a corporation, the board of directors of such Person or any
committee authorized to act therefor and (iii) in the case of any other Person,
the board of directors, management committee or similar governing body or any
authorized committee thereof responsible for the management of the business and
affairs of such Person.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into or exercisable for any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
A "Change of Control" means the occurrence of one or more of the following
events: (i) any Person (including a Person's Affiliates and associates), other
than a Permitted Holder, becomes the beneficial owner (directly or indirectly)
(as defined under Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act) of 50% or more of the total voting or economic power of
the Common Stock of the Company, (ii) any Person (including a Person's
Affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner (directly or indirectly) of more than 33 1/3% of the total
voting power of the Common Stock of the Company, and the Permitted Holders
beneficially own (directly or indirectly), in the aggregate, a lesser percentage
of the total voting power of the Common Stock of the Company, as the case may
be, than such other Person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board
of Directors of the Company, (iii) the admission of any Person as a general
partner of Holdings after which TCC, together with one or more Permitted
Holders, do not have the sole power, directly or indirectly, to take all of the
actions they are entitled or required, to take under the partnership agreement
of Holdings as in effect on the Issue Date, (iv) there shall be consummated any
consolidation or merger of either Issuer in which such Issuer is not the
continuing or surviving corporation or pursuant to which the Common Stock of
such Issuer would be converted into cash, securities or other property, other
than a merger or consolidation of such Issuer in which the beneficial owners of
the Common Stock of such Issuer outstanding immediately prior to the
consolidation or merger hold, directly or indirectly, at least a majority of the
Common Stock of the surviving corporation immediately after such consolidation
or merger, or (v) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors of TCC (together
with any new directors whose election by such Board of
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Directors or whose nomination for election by the shareholders of TCC has been
approved by a majority of the directors then still in office who either were
directors at the beginning of such period or whose election or recommendation
for election was previously so approved) cease to constitute a majority of the
Board of Directors of TCC.
"CIBC Merchant Fund" means the CIBC WG Argosy Merchant Fund 2, L.L.C.
"CIVC" means Continental Illinois Venture Corporation.
"Commodity Hedge Agreement" shall mean any option, hedge or other similar
agreement or arrangement designed to protect against fluctuations in commodity
or materials prices.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including, but not limited to, Redeemable Dividends, whether paid or accrued,
on Preferred Stock of Subsidiaries, imputed interest included in Capitalized
Lease Obligations, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, the net
costs associated with hedging obligations, amortization of other financing fees
and expenses, the interest portion of any deferred payment obligation,
amortization of discount or premium, if any, and all other non-cash interest
expense (other than interest amortized to cost of sales)) plus, without
duplication, all net capitalized interest for such period and all interest
incurred or paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person, plus the amount
of all dividends or distributions paid on Disqualified Stock (other than
dividends paid or payable in shares of Capital Stock of the Company), less the
amortization of deferred financing costs.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP, plus,
in the case of the Company, payments by the Company to the Equity Compensation
Trust for the benefit of the beneficiaries thereof, minus Permitted Tax
Distributions (to the extent such Permitted Tax Distributions are made);
provided, however, that (a) the Net Income of any Person (the "other Person") in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other Person to
be consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the Person in question that is subject to any
restriction or limitation on the payment of dividends or the making of other
distributions (other than pursuant to the Notes or the Indenture) shall be
excluded to the extent of such restriction or limitation, (c)(i) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (ii) any net gain (but not loss)
resulting from an Asset Sale by the Person in question or any of its
Subsidiaries other than in the ordinary course of business shall be excluded and
(d) extraordinary, unusual and non-recurring gains and losses (including any
related tax effects on the Issuers) shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholder's equity of such Person less the amount of such
stockholder's equity attributable to Disqualified Capital Stock of such Person
and its Subsidiaries, as determined in accordance with GAAP.
"Default" means any condition or event that is, or with the passing of time
or giving of any notice expressly required under the Indenture (or both), would
be, an Event of Default.
"Designated Senior Indebtedness" as to the Company or any Guarantor, as the
case may be, means any Senior Indebtedness (a) under the Senior Credit Facility,
or (b)(i) which at the time of determination
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exceeds $25.0 million in aggregate principal amount (or accreted value in the
case of Indebtedness issued at a discount) outstanding or available under a
committed facility, (ii) which is specifically designated in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by such
Person and (iii) as to which the Trustee has been given written notice of such
designation.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness; provided that Capital Stock of the Company that is held by a
current or former employee of the Company subject to a put option and/or a call
option with the Company triggered by the termination of such employee's
employment with the Company and/or the Company's performance shall not be deemed
to be Disqualified Capital Stock solely by virtue of such call option and/or put
option. Without limitation of the foregoing, Disqualified Capital Stock shall be
deemed to include (i) any Preferred Stock of a Restricted Subsidiary of the
Company and (ii) any Preferred Stock of the Company, with respect to either of
which, under the terms of such Preferred Stock, by agreement or otherwise, such
Restricted Subsidiary or the Company is obligated to pay current dividends or
distributions in cash (other than Permitted Tax Distributions) during the period
prior to the maturity date of the Notes; provided, however, that Preferred Stock
of the Company or any Restricted Subsidiary thereof that is issued with the
benefit of provisions requiring a change of control offer to be made for such
Preferred Stock in the event of a change of control of the Company or such
Restricted Subsidiary, which provisions have substantially the same effect as
the provisions of the Indenture described under "Change of Control," shall not
be deemed to be Disqualified Capital Stock solely by virtue of such provisions.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, plus (vii) without duplication, Permitted Tax
Distributions, plus (viii) cash payments of expenses arising in connection with
the Recapitalization, minus (b) all non-cash items increasing Consolidated Net
Income for such period, all for such Person and its Subsidiaries determined in
accordance with GAAP, except that with respect to the Issuers each of the
foregoing items shall be determined on a consolidated basis with respect to the
Issuers and their Restricted Subsidiaries only; provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment (other than in a Subsidiary which under GAAP is
consolidated) of such Person shall be included only (x) if cash income has been
received by such Person with respect to such Investment or (y) if the cash
income derived from such Investment is attributable to Temporary Cash
Investments.
"Equity Compensation Trust" means the Company's Equity Compensation Trust
for the benefit of certain of its employees, established pursuant to the Equity
Compensation Trust Agreement, dated as of November 4, 1993, as amended by an
agreement dated as of October 1, 1997 between the Company and the trustees
thereof, and any successor trust with terms substantially similar thereto (with
an additional requirement of continued employment status).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"First Union" means First Union Corporation.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
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"Guarantee" means, as the context may require, individually, a guarantee,
or collectively, any and all guarantees, of the Obligations of the Company with
respect to the Notes by each Guarantor, if any, pursuant to the terms of the
Indenture.
"Guarantor" means each Restricted Subsidiary of the Issuers that hereafter
becomes a Guarantor pursuant to the Indenture, and "Guarantors" mean such
entities, collectively.
"Guarantor Senior Indebtedness" means the principal of and premium, if any,
and interest (including, without limitation, interest accruing or that would
have accrued but for the filing of a bankruptcy, reorganization or other
insolvency proceeding whether or not such interest constitutes an allowable
claim in such proceeding) on, and any and all other fees, expense reimbursement
obligations, indemnities and other amounts due pursuant to the terms of all
agreements, documents and instruments providing for, creating, securing or
evidencing or otherwise entered into in connection with, (a) any Guarantor's
direct incurrence of any Indebtedness or its guarantee of all Indebtedness of
the Company or any Restricted Subsidiaries, in each case owed to lenders under
the Senior Credit Facility, (b) all obligations of such Guarantor with respect
to any Interest Rate Agreement, (c) all obligations of such Guarantor to
reimburse any bank or other person in respect of amounts paid under letters of
credit, acceptances or other similar instruments, (d) all other Indebtedness of
such Guarantor which does not provide that it is to rank pari passu with or
subordinate to the Guarantees and (e) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Guarantor Senior Indebtedness described above. Notwithstanding anything to the
contrary in the foregoing, Guarantor Senior Indebtedness will not include (i)
Indebtedness of such Guarantor to any of its Subsidiaries, (ii) Indebtedness
represented by the Guarantees, (iii) any Indebtedness which by the express terms
of the agreement or instrument creating, evidencing or governing the same is
junior or subordinate in right of payment to any item of Guarantor Senior
Indebtedness, (iv) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business or (v)
Indebtedness incurred in violation of this Indenture.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurrable" and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables or liabilities arising from advance payments or
customer deposits for goods and services sold by the Company in the ordinary
course of business, and other accrued liabilities arising in the ordinary course
of business) if and to the extent any of the foregoing indebtedness would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the
property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed (provided,
however, that if such obligation or obligations shall not have been assumed, the
amount of such indebtedness shall be deemed to be the lesser of the principal
amount of the obligation or the fair market value of the pledged property or
assets), (iii) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor), (iv) all obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (provided that in the case of any such letters of
credit, the items for which such letters of credit provide credit support are
those of other Persons which would be included within this definition for such
other Persons), (v) in the case of the Issuers, Disqualified Capital Stock of
the Issuers or any Restricted Subsidiary thereof, and (vi) obligations of any
such
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Person under any Interest Rate Agreement applicable to any of the foregoing (if
and to the extent such Interest Rate Agreement obligations would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP and (ii) that Indebtedness shall not
include any liability for federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business shall not be deemed to be "Indebtedness" of the Company or
any Restricted Subsidiary for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Individual Investors" means the Management Investors and the former
Chairman of Holdings.
"Interest Rate Agreement" shall mean any interest or foreign currency rate
swap, cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Issuers in connection
with an acquisition of assets which is otherwise permitted by the terms of the
Indenture), loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person or the making of any
investment in any Person. Investments shall exclude extensions of trade credit
on commercially reasonable terms in accordance with normal trade practices.
"Issue Date" means the date the Notes are first issued by the Issuers and
authenticated by the Trustee under the Indenture.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement (other than advance payments or customer deposits for goods and
services sold by the Company in the ordinary course of business), security
interest, lien, charge, easement, encumbrance, preference, priority, or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including without limitation, any
Capitalized Lease Obligation, conditional sales, or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Management Subordinated Notes" means notes issued to current or former
employees of the Company in accordance with the terms of the Executive
Agreements between the Company and such current or former employees in existence
on the Issue Date or pursuant to agreements between Holdings, TCC or the Company
and then current or former employees with substantially similar terms regarding
such issuance entered into after the Issue Date, which notes are expressly
subordinated as to payment of principal, premium, if any, and interest to the
Notes.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by an
Issuer, the aggregate net proceeds received by such Issuer, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the Board of Directors of such Issuer,
at the time of receipt) and (b) in the case of any exchange, exercise,
conversion or surrender of outstanding securities of any kind for or into shares
of
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Capital Stock of the Company which is not Disqualified Capital Stock, the net
book value of such outstanding securities on the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holder to the Company upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on account of
fractional shares and less all expenses incurred by the Company in connection
therewith).
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture and delivered to the Trustee.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Permitted Asset Swap" means any transfer of properties or assets by the
Company or any of its Subsidiaries in which 90% of the consideration received by
the transferor consists of properties or assets (other than cash) that will be
used in the business of the transferor; provided that (i) the aggregate fair
market value (as determined in good faith by the Board of Directors of the
Company) of the property or assets being transferred by the Company or such
Subsidiary is not greater than the aggregate fair market value (as determined in
good faith by the Board of Directors) of the property or assets received by the
Company or such Subsidiary in such exchange and (ii) the aggregate fair market
value (as determined in good faith by the Board of Directors) of all property or
assets transferred by the Company and any of its Subsidiaries (A) in connection
with any single transfer or series of related transfers shall not exceed $2.0
million and (B) in connection with all such transfers following the Issue Date
shall not exceed $5.0 million in the aggregate.
"Permitted Holders" means, collectively, (i) Holdings and TCC, (ii) THL,
CIVC, CIBC Merchant Fund, First Union and any Affiliate of (including any equity
fund advised by) any of the foregoing (other than any portfolio company with
operating assets) and (iii) the Individual Investors, each of the spouses,
children (adoptive or biological) or other lineal descendants of the Individual
Investors, the probate estate of any such individual and any trust, so long as
one or more of the foregoing individuals retains substantially all of the
controlling or beneficial interest thereunder.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Restricted Subsidiary (A)
arising under or in connection with the Senior Credit Facility in an amount
not to exceed $125.0 million, which amount shall be reduced by any
mandatory prepayments actually made thereunder required as a result of any
Asset Sale or similar sale of assets (to the extent, in the case of
payments of revolving credit indebtedness, that the corresponding
commitments have been permanently reduced) and any scheduled payments
actually made thereunder or (B) that constitutes Acquisition Debt (as
defined in the Senior Credit Facility) under the Senior Credit Facility to
the extent such Indebtedness permanently reduces the aggregate commitments
available under the Senior Credit Facility;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
(iv) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(v) Interest Rate Agreements;
(vi) Refinancing Indebtedness;
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(vii) Indebtedness under Commodity Hedge Agreements entered into in
the ordinary course of business consistent with reasonable business
requirements and not for speculation;
(viii) Indebtedness consisting of guarantees made in the ordinary
course of business by the Company or its Subsidiaries of obligations of the
Issuers or any of their Subsidiaries, which obligations are otherwise
permitted under the Indenture;
(ix) contingent obligations of the Company or its Subsidiaries in
respect of customary indemnification and purchase price adjustment
obligations incurred in connection with an Asset Sale; provided that the
maximum assumable liability in respect of all such obligations shall at no
time exceed the gross proceeds actually received by the Company and its
Subsidiaries in connection with such Asset Sale;
(x) Purchase Money Indebtedness and Capitalized Lease Obligations of
the Company and its Subsidiaries incurred to acquire property in the
ordinary course of business and any refinancings, renewals or replacements
of any such Purchase Money Indebtedness or Capitalized Lease Obligation
(subject to the limitations on the principal amount thereof set forth in
this clause (x)), the principal amount of which Purchase Money Indebtedness
and Capitalized Lease Obligations shall not in the aggregate at any one
time outstanding exceed 5% of the Company's consolidated total assets
stated in accordance with GAAP as of the end of the last preceding fiscal
quarter for which financial statements are available;
(xi) the Management Subordinated Notes; and
(xii) additional Indebtedness of the Company or any of its
Subsidiaries (other than Indebtedness specified in clauses (i) through (xi)
above) not to exceed $5.0 million in the aggregate at any one time
outstanding.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company, (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof or (c) such business or assets are owned by
the Company or a Restricted Subsidiary;
(iv) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to either or both of the Issuers or a Restricted
Subsidiary solely as partial consideration for the consummation of an Asset
Sale that is otherwise permitted under the covenant described under
"Limitation on Sale of Assets";
(v) Investments consisting of (a) purchases and acquisitions of
inventory, supplies, materials and equipment, or (b) licenses or leases of
intellectual property and other assets, in each case in the ordinary course
of business;
(vi) Investments consisting of (a) loans and advances to employees for
reasonable travel, relocation and business expenses in the ordinary course
of business not to exceed $1.0 million in the aggregate at any one time
outstanding, (b) loans to employees of the Company for the sole purpose of
purchasing equity of the Company, (c) extensions of trade credit in the
ordinary course of business, and (d) prepaid expenses incurred in the
ordinary course of business;
(vii) without duplication, Investments consisting of Indebtedness
permitted pursuant to clause (iv) under the definition of Permitted
Indebtedness;
(viii) Investments existing on the date of the Indenture;
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(ix) Investments of the Company under Interest Rate Agreements;
(x) Investments under Commodity Hedge Agreements entered into in the
ordinary course of business consistent with reasonable business
requirements and not for speculation;
(xi) Investments consisting of endorsements for collection or deposit
in the ordinary course of business; and
(xii) Investments (other than Investments specified in clauses (i)
through (xi) above) in an aggregate amount, as valued at the time each such
Investment is made, not exceeding $5.0 million for all such Investments
from and after the Issue Date; provided that the amount available for
Investments to be made pursuant to this clause (xii) shall be increased
from time to time to the extent any return on capital is received by the
Company or a Restricted Subsidiary on an Investment previously made in
reliance on this clause (xii).
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness; provided that any such Lien does not
extend to or cover any Property, shares or debt other than the Property, shares
or debt securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Issuers or any of their Restricted Subsidiaries, (iv)
Liens securing industrial revenue bonds, (v) Liens to secure Purchase Money
Indebtedness and Capitalized Lease Obligations that are permitted under clause
(x) of the definition of "Permitted Indebtedness"; provided that (a) with
respect to any Purchase Money Indebtedness, any such Lien is created solely for
the purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including sales and excise taxes, installation
and delivery charges and other direct costs of, and other direct expenses paid
or charged in connection with, such purchase or construction) of such Property,
(b) with respect to any Purchase Money Indebtedness, the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such costs, and (c)
such Lien does not extend to or cover any Property other than the item of
Property that is the subject of such Purchase Money Indebtedness or Capitalized
Lease Obligation, as the case may be, and any improvements on such item, (vi)
statutory liens or landlords', carriers', warehouseman's, mechanics',
suppliers', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which do not secure any Indebtedness and with
respect to amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made therefor, (vii)
Liens for taxes, assessments or governmental charges that are being contested in
good faith by appropriate proceedings, (viii) Liens securing Senior Indebtedness
or Guarantor Senior Indebtedness, (ix) Liens existing on the Issue Date; (x) any
extensions, substitutions, replacements or renewals of the foregoing, (xi) Liens
incurred in the ordinary course of business in connection with worker's
compensation, unemployment insurance or other forms of government insurance or
benefits, or to secure the performance of letters of credit, bids, tenders,
statutory obligations, surety and appeal bonds, leases, government contracts and
other similar obligations (other than obligations for borrowed money) entered
into in the ordinary course of business, (xii) any attachment or judgment Lien
not constituting an Event of Default under the Indenture that is being contested
in good faith by appropriate proceedings and for which adequate reserves have
been established in accordance with GAAP (if so required), (xiii) Liens arising
from the filing, for notice purposes only, of financing statements in respect of
operating leases, (xiv) Liens arising by operation of law in favor of depositary
banks and collecting banks, incurred in the ordinary course of business, (xv)
Liens consisting of restrictions on the transfer of securities pursuant to
applicable federal and state securities laws, (xvi) interests of lessors and
licensors under leases and licenses to which the Issuers or any of their
Restricted Subsidiaries is a party and (xvii) with respect to any real property
occupied by the Company or any of its Restricted Subsidiaries, all easements,
rights of way, licenses and similar encumbrances on or defects of title that do
not materially impair the use of such property for its intended purposes.
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"Permitted Tax Distributions" means distributions by Holdings or the
Company to their respective partners or members from time to time in an amount
approximately equal to the income tax liability of such members or partners or
members of Holdings or the Company, as the case may be, resulting from the
taxable income of Holdings or Company, as the case may be, (after taking into
account, to the extent they may reduce such tax liability, all of the prior tax
losses of Holdings or the Company, as the case may be, to the extent such losses
have not previously been deemed to reduce the taxable income of Holdings or the
Company, as the case may be, and thereby reduce distributions for taxes in
accordance herewith); such distribution for taxes shall be based on the
approximate highest combined tax rate that applies to any one of the partners or
members of Holdings or the Company, as the case may be.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means a public offering by the Company, Holdings,
Capital II, Capital, or TCC of shares of its Common Stock (however designated
and whether voting or non-voting) and any and all rights, warrants or options to
acquire such Common Stock; provided, however, that in connection with any such
Public Equity Offering the net proceeds of such Public Equity Offering are
contributed to the Company as common equity.
"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance (within 90 days from incurrence) the cost (including the cost of
construction) of an item of Property acquired in the ordinary course of
business, the principal amount of which Indebtedness does not exceed the sum of
(i) 100% of such cost and (ii) reasonable fees and expenses of such Person
incurred in connection therewith.
"Recapitalization" means the transactions described in the Recapitalization
Agreement.
"Recapitalization Agreement" means the Securities Purchase and Redemption
Agreement dated August 27, 1997 by and among Holdings, TCC, TWP Recapitalization
Corp., THL and certain limited partners of the Holdings and TCC, as amended as
of September 30, 1997.
"Redeemable Dividend" means, for any dividend or distribution (other than
Permitted Tax Distributions) with regard to Disqualified Capital Stock, the
quotient of the dividend or distribution divided by the difference between one
and the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Disqualified Capital
Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted
Subsidiaries pursuant to the terms of the Indenture, but only to the extent that
(i) the Refinancing Indebtedness is subordinated to the Notes to at least the
same extent as the Indebtedness being refunded, refinanced or extended, if at
all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Indebtedness being refunded, refinanced or extended, or (b)
after the maturity date of the Notes, (iii) the portion, if any, of the
Refinancing Indebtedness that is scheduled to mature on or prior to the maturity
date of the Notes has a weighted average life to maturity at the time such
Refinancing Indebtedness is incurred that is equal to or greater than the
weighted average life to maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to the
maturity date of the Notes, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the sum of (a) the
aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended, (b) the amount of accrued and unpaid interest,
if any, and premiums
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owed, if any, not in excess of preexisting prepayment provisions on such
Indebtedness being refunded, refinanced or extended and (c) the amount of
customary fees, expenses and costs related to the incurrence of such Refinancing
Indebtedness, and (v) such Refinancing Indebtedness is incurred by the same
Person that initially incurred the Indebtedness being refunded, refinanced or
extended, except that the Company may incur Refinancing Indebtedness to refund,
refinance or extend Indebtedness of any Wholly-Owned Subsidiary of the Company.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Issuers or any Restricted Subsidiary of the Issuers or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Issuers or any Restricted Subsidiary of the Issuers (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Capital Stock), (y) Permitted Tax
Distributions and (z) in the case of Restricted Subsidiaries of the Company,
dividends or distributions payable to the Company or to a Wholly-Owned
Subsidiary of the Company), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company or any of its
Restricted Subsidiaries (other than Capital Stock owned by the Company or a
Wholly-Owned Subsidiary of the Company, excluding Disqualified Stock), (iii) the
making of any principal payment on, or the purchase, defeasance, repurchase,
redemption or other acquisition or retirement for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, of any
Indebtedness which is subordinated in right of payment to the Notes other than
subordinated Indebtedness acquired in anticipation of satisfying a scheduled
sinking fund obligation, principal installment or final maturity (in each case
due within one year of the date of acquisition), (iv) without limiting the
generality of the foregoing clause (iii), the making of any principal or
interest payment on the Management Subordinated Notes, (v) the making of any
payments to the Equity Compensation Trust, (vi) the making of any Investment or
guarantee of any Investment in any Person other than a Permitted Investment,
(vii) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary
on the basis of the Investment by the Issuers therein and (viii) forgiveness of
any Indebtedness of an Affiliate of the Issuers (other than a Restricted
Subsidiary) to the Issuers or a Restricted Subsidiary. For purposes of
determining the amount expended for Restricted Payments, cash distributed or
invested shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value determined by the Company's Board of
Directors.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Unrestricted Subsidiary or any Person that is to become a Subsidiary as a
Restricted Subsidiary if immediately after giving effect to such action (and
treating any Acquired Indebtedness as having been incurred at the time of such
action), the Issuers could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Additional Indebtedness" covenant.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal Property, which Property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means the Credit Agreement, dated as of October 1,
1997, among the Issuers, the lenders listed therein and Canadian Imperial Bank
of Commerce, as administrative agent, and First Union National Bank, as
documentation agent, as amended and restated as of November 6, 1997, together
with the documents related thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including adding
Subsidiaries of the Issuers as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.
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"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, expense reimbursement obligations,
indemnities and other amounts due pursuant to the terms of all agreements,
documents and instruments providing for, creating, securing or evidencing or
otherwise entered into in connection with (a) all Indebtedness of the Issuers
owed to lenders under the Senior Credit Facility, (b) all obligations of the
Company with respect to any Interest Rate Agreement, (c) all obligations of the
Company to reimburse any bank or other Person in respect of amounts paid under
letters of credit, acceptances or other similar instruments, (d) all other
Indebtedness of the Company which does not provide that it is to rank pari passu
with or subordinate to the Notes and (e) all deferrals, renewals, extensions and
refundings of, and amendments, modifications and supplements to, any of the
Senior Indebtedness described above. Notwithstanding anything to the contrary in
the foregoing, Senior Indebtedness will not include (i) Indebtedness of the
Company to any of its Subsidiaries, (ii) Indebtedness represented by the Notes,
(iii) any Indebtedness which by the express terms of the agreement or instrument
creating, evidencing or governing the same is junior or subordinate in right of
payment to any item of Senior Indebtedness, (iv) any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business and (v) Indebtedness incurred in violation of the Indenture.
"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
first-named Person or any of its Subsidiaries; or (ii) in the case of a
partnership, limited liability company, joint venture, association or other
business entity, with respect to which such first-named Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise or if in accordance with
GAAP such entity is consolidated with the first-named Person for financial
statement purposes.
"TCC" means TransWestern Communications Company, Inc., a Delaware
corporation and the general partner of the Company.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500.0 million and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"THL" means Thomas H. Lee Equity Fund III, L.P.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company; provided that a Subsidiary organized or acquired after
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in compliance with the covenant set forth under "Limitation on
Restricted Payments." The Trustee shall be given prompt notice by the Company of
each resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
"Wholly-Owned Subsidiary" of a specified Person means any Subsidiary (or,
if such specified Person is the Company, a Restricted Subsidiary), all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by such Person.
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THE DISCOUNT NOTE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE DISCOUNT NOTE EXCHANGE OFFER
The Old Discount Notes were originally sold by the Discount Note Issuers on
November 12, 1997 to the Initial Purchasers pursuant to the Purchase Agreement.
The Initial Purchasers subsequently resold the Old Discount Notes to qualified
institutional buyers in reliance on Rule 144A under the Securities Act and
qualified buyers outside the United States in reliance upon Regulation S under
the Securities Act. As a condition of the Purchase Agreement, the Discount Note
Issuers have entered into the Registration Rights Agreement with the Initial
Purchasers pursuant to which the Discount Note Issuers have agreed, for the
benefit of the holders of the Old Discount Notes, at the Discount Note Issuers'
cost, (i) to use their reasonable best efforts to file the Discount Note
Exchange Offer Registration Statement within 45 days after the date of the
original issue of the Old Discount Notes with the Commission with respect to the
Discount Note Exchange Offer for the Exchange Discount Notes; (ii) use their
reasonable best efforts to cause the Discount Note Exchange Offer Registration
Statement to be declared effective under the Securities Act within 135 days
after the date of the original issuance of the Old Discount Notes and (iii)
unless the Discount Note Exchange Offer would not be permitted by applicable law
or Commission policy, commence the Discount Note Exchange Offer and use their
reasonable best efforts to issue the Exchange Discount Notes on or prior to 60
days after the date on which the Discount Note Exchange Offer Registration
Statement was declared effective by the Commission. Upon the Discount Note
Exchange Offer Registration Statement being declared effective, the Discount
Note Issuers will offer the Exchange Discount Notes in exchange for surrender of
the Old Discount Notes. The Discount Note Issuers will keep the Discount Note
Exchange Offer open for not less than 30 days (or longer if required by
applicable law) after the date on which notice of the Discount Note Exchange
Offer is mailed to the holders of the Old Discount Notes. For each Old Discount
Note surrendered to the Discount Note Issuers pursuant to the Discount Note
Exchange Offer, the holder of such Old Discount Note will receive an Exchange
Discount Note having a principal amount equal to that of the surrendered Old
Discount Note.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Discount Note Issuers believe
that the Exchange Discount Notes will in general be freely tradeable after the
Discount Note Exchange Offer without further registration under the Securities
Act. However, any purchaser of Old Discount Notes who is an "affiliate" of the
Discount Note Issuers or who intends to participate in the Discount Note
Exchange Offer for the purpose of distributing the Exchange Discount Notes (i)
will not be able to rely on the interpretation of the staff of the Commission,
(ii) will not be able to tender its Old Discount Notes in the Discount Note
Exchange Offer and (iii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
transfer of the Old Discount Notes, unless such sale or transfer is made
pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Discount Note Exchange Offer is required to
represent to the Discount Note Issuers in the Letter of Transmittal that (i) the
Exchange Discount Notes are to be acquired by the holder or the person receiving
such Exchange Discount Notes, whether or not such person is the holder, in the
ordinary course of business, (ii) the holder or any such other person (other
than a broker-dealer referred to in the next sentence) is not engaging and does
not intend to engage in distribution of the Exchange Discount Notes, (iii) the
holder or any such other person has no arrangement or understanding with any
person to participate in the distribution of the Exchange Discount Notes, (iv)
neither the holder nor any such other person is an "affiliate" of the Discount
Note Issuers within the meaning of Rule 405 under the Securities Act, and (v)
the holder or any such other person acknowledges that if such holder or any
other person participates in the Discount Note Exchange Offer for the purpose of
distributing the Exchange Discount Notes it must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale of the Exchange Discount Notes and cannot rely on those no-action
letters. As indicated above, each Participating Broker-Dealer that receives an
Exchange Discount Note for its own account in exchange for Old Discount Notes
must acknowledge that it (i) acquired the Old Discount Notes for its own account
as a result of market-making activities or other trading activities, (ii) has
not entered into any arrangement or
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understanding with the Discount Note Issuers or any "affiliate" of the Discount
Note Issuers (within the meaning of Rule 405 under the Securities Act) to
distribute the Exchange Discount Notes to be received in the Discount Note
Exchange Offer and (iii) will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Discount
Notes. For a description of the procedures for resales by Participating
Broker-Dealers, see "Plan of Distribution."
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Discount Note Issuers to effect
such a Discount Note Exchange Offer, or if for any other reason the Discount
Note Exchange Offer is not consummated within 180 days of the date of the
original issuance of the Old Discount Notes, the Discount Note Issuers will (i)
file the Shelf Registration Statement covering the resale of the Old Discount
Notes, (ii) use their reasonable best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act and (iii) use their
reasonable best efforts to keep effective the Shelf Registration Statement for
two years after its effective date. The Discount Note Issuers will, in the event
of the filing of the Shelf Registration Statement, provide to each applicable
holder of the Old Discount Notes copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resale of the Old Discount Notes. A holder
of the Old Discount Notes that sells such Old Discount Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations). In addition, each holder
of the Old Discount Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Old Discount Notes included
in the Shelf Registration Statement and to benefit from the provisions set forth
in the following paragraph.
The Registration Rights Agreement provides that (i) the Discount Note
Issuers will use their reasonable best efforts to file the Discount Note
Exchange Offer Registration Statement with the Commission on or prior to 45 days
after the date of the original issue of the Old Discount Notes with the
Commission, (ii) the Discount Note Issuers will use their reasonable best
efforts to have the Discount Note Exchange Offer Registration Statement declared
effective by the Commission on or prior to 135 days after the date of the
original issue of the Old Discount Notes, (iii) unless the Discount Note
Exchange Offer would not be permitted by applicable law or Commission policy,
the Discount Note Issuers will commence the Discount Note Exchange Offer and use
their reasonable best efforts to issue on or prior to 60 days after the Discount
Note Exchange Offer Effectiveness Date, Exchange Discount Notes in exchange for
all Old Discount Notes tendered prior thereto in the Discount Note Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Discount Note Issuers will use their reasonable best efforts to file the Shelf
Registration Statement with the Commission in a timely fashion. If (a) the
Discount Note Issuers fail to file any of the Registration Statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness, (c) the
Discount Note Issuers fail to consummate the Discount Note Exchange Offer within
180 days of the date of the original issuance of the Old Discount Notes, or (d)
the Shelf Registration Statement or the Discount Note Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the period specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
the Discount Note Issuers shall pay as liquidated damages to each holder of the
Old Discount Notes an amount (the "Damage Amount") equal to 0.50% per annum of
the average Accreted Value of the Old Discount Notes for the first 90 days
during which any such default exists, and the Damage Amount will be increased by
an additional 0.25% per annum of the average Accreted Value of the Old Discount
Notes for each subsequent 90-day period that any such Damage Amount continues to
accrue; provided that in no event shall the rate at which the Damage Amount
accrues be more than 2.0%. After the date on which such Registration Default is
cured, the Damage Amount will cease to accrue.
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Holders of Old Discount Notes will be required to make certain
representations to the Discount Note Issuers (as described in the Registration
Rights Agreement) in order to participate in the Discount Note Exchange Offer
and will be required to deliver information to be used in connection with the
Shelf Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Old Discount Notes included in the Shelf Registration
Statement and benefit from the provisions regarding the Damage Amount set forth
above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is filed as an exhibit to the Discount Note Exchange Offer Registration
Statement of which this Prospectus is a part.
Following the consummation of the Discount Note Exchange Offer, holders of
the Old Discount Notes who were eligible to participate in the Discount Note
Exchange Offer but who did not tender their Old Discount Notes will not have any
further registration rights and such Old Discount Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Old Discount Notes could be adversely affected.
TERMS OF THE DISCOUNT NOTE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Discount Note Issuers will accept any and
all Old Discount Notes validly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Discount Note Issuers will issue
$1,000 principal amount at maturity of Exchange Discount Notes in exchange for
each $1,000 principal amount at maturity of outstanding Old Discount Notes
accepted in the Discount Note Exchange Offer. Holders may tender some or all of
their Old Discount Notes pursuant to the Discount Note Exchange Offer. However,
Old Discount Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Discount Notes are the same as the form
and terms of the Old Discount Notes except that (i) the Exchange Discount Notes
bear a Series B designation and a different CUSIP Number from the Old Discount
Notes, (ii) the Exchange Discount Notes have been registered under the
Securities Act and hence will not bear legends restricting the transfer thereof
and (iii) the holders of the Exchange Discount Notes will generally not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will be satisfied when the Discount Note Exchange Offer is
consummated. The Exchange Discount Notes will evidence the same debt as the Old
Discount Notes and will be entitled to the benefits of the Discount Note
Indenture.
As of the date hereof, $57,916,000 aggregate principal amount at maturity
of Old Discount Notes are outstanding. The Discount Note Issuers have fixed the
close of business on , 1998 as the record date for the Discount Note
Exchange Offer for purposes of determining the persons to whom this Prospectus
and the Letter of Transmittal will be mailed initially.
Holders of Old Discount Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of Delaware, the Delaware Limited
Partnership Act or the Discount Note Indenture in connection with the Discount
Note Exchange Offer. The Discount Note Issuers intend to conduct the Discount
Note Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
The Discount Note Issuers shall be deemed to have accepted validly tendered
Old Discount Notes when, as and if the Discount Note Issuers have given oral or
written notice thereof (such notice if given orally, to be confirmed in writing)
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Discount Notes from the
Discount Note Issuers.
If any tendered Old Discount Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Discount Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
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Holders who tender Old Discount Notes in the Discount Note Exchange Offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Discount Notes pursuant to the Discount Note Exchange Offer. The
Discount Note Issuers will pay all charges and expenses, other than transfer
taxes in certain circumstances, in connection with the Discount Note Exchange
Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Discount Note Issuers, in their sole discretion,
extend the Discount Note Exchange Offer, in which case the term "Expiration
Date" shall mean the latest date and time to which the Discount Note Exchange
Offer is extended.
In order to extend the Discount Note Exchange Offer, the Discount Note
Issuers will notify the Exchange Agent of any extension by oral or written
notice (such notice if given orally, to be confirmed in writing) and will issue
a press release or other public announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date.
The Discount Note Issuers reserve the right, in their sole discretion, (i)
to delay accepting any Old Discount Notes, to extend the Discount Note Exchange
Offer or to terminate the Discount Note Exchange Offer if any of the conditions
set forth below under "-- Conditions" shall not have been satisfied, by giving
oral or written notice (such notice if given orally, to be confirmed in writing)
of such delay, extension or termination to the Exchange Agent or (ii) to amend
the terms of the Discount Note Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders.
ACCRETION OF THE DISCOUNT NOTES; INTEREST
The Old Discount Notes will continue to accrete at the rate of 11 7/8% per
annum to, but excluding the date of issuance of the Exchange Discount Notes. Any
Old Discount Notes not tendered or accepted for exchange will continue to
accrete at the rate of 11 7/8% per annum in accordance with their terms and will
cease to accrete upon cancellation of the Old Discount Notes and issuance of the
Exchange Discount Notes. From and after the date of issuance of the Exchange
Discount Notes, the Exchange Discount Notes shall accrete at the rate of 11 7/8%
per annum, but no cash interest will accrue or be payable in respect of the
Exchange Discount Notes prior to November 15, 2002. Thereafter, interest on the
Exchange Discount Notes will accrue on the principal amount at maturity at the
rate of 11 7/8% per annum and will be payable semi-annually on each May 15 and
November 15, commencing May 15, 2003. Interest will be payable at the option of
the Discount Note Issuers at a rate of 13 3/8% per annum by the issuance of
additional Discount Notes (valued at 100% of the face amount thereof) in lieu of
cash interest.
PROCEDURES FOR TENDERING
Only a registered holder of Old Discount Notes may tender such Old Discount
Notes in the Discount Note Exchange Offer. To tender in the Discount Note
Exchange Offer, a holder must complete, sign and date the Letter of Transmittal,
or a facsimile thereof, have the signatures thereon guaranteed if required by
the Letter of Transmittal or transmit an Agent's Message in connection with a
book-entry transfer, and mail or otherwise deliver such Letter of Transmittal or
such facsimile or Agent's Message, together with the Old Discount Notes and any
other required documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. To be tendered effectively, the Old Discount
Notes, Letter of Transmittal or Agent's Message and other required documents
must be completed and received by the Exchange Agent at the address set forth
below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. Delivery of the Old Discount Notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of such
book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
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The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Discount Notes that such
participant has received and agrees: (i) to participate in the Automated Tender
Option Program ("ATOP"); (ii) to be bound by the terms of the Letter of
Transmittal; and (iii) that the Discount Note Issuers may enforce such agreement
against such participant.
By executing the Letter of Transmittal or Agent's Message, each holder will
make to the Discount Note Issuers the representations set forth above in the
third paragraph under the heading "-- Purpose and Effect of the Discount Note
Exchange Offer."
The tender by a holder and the acceptance thereof by the Discount Note
Issuers will constitute agreement between such holder and the Discount Note
Issuers in accordance with the terms and subject to the conditions set forth
herein and in the Letter of Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD DISCOUNT NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND
SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH
TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD DISCOUNT NOTES SHOULD BE SENT TO THE
DISCOUNT NOTE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Old Discount Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Discount Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Discount Notes listed therein, such Old Discount
Notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered holder as such registered holder's name appears on such Old
Discount Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Discount Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Discount Note Issuers of their authority to so act must be
submitted with the Letter of Transmittal.
The Discount Note Issuers understand that the Exchange Agent will make a
request promptly after the date of this Prospectus to establish accounts with
respect to the Old Discount Notes at the book-entry transfer facility, The
Depository Trust Company (the "Book-Entry Transfer Facility"), for the purpose
of facilitating the Discount Note Exchange Offer, and subject to the
establishment thereof, any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of Old
Discount Notes by causing such Book-Entry Transfer Facility to transfer such Old
Discount Notes into the Exchange Agent's account with respect to the Old
Discount Notes in accordance with the Book-Entry Transfer Facility's procedures
for such transfer. Although delivery of the Old Discount Notes may be effected
through
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book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, unless an Agent's Message is received by the Exchange Agent in
compliance with ATOP, an appropriate Letter of Transmittal properly completed
and duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Discount Notes and withdrawal of tendered
Old Discount Notes will be determined by the Discount Note Issuers in their sole
discretion, which determination will be final and binding. The Discount Note
Issuers reserve the absolute right to reject any and all Old Discount Notes not
properly tendered or any Old Discount Notes the Discount Note Issuers'
acceptance of which would, in the opinion of counsel for the Discount Note
Issuers, be unlawful. The Discount Note Issuers also reserve the right to waive
any defects, irregularities or conditions of tender as to particular Old
Discount Notes. The Company may not waive any condition to the Exchange Offer
unless such condition is legally waiveable. In the event such a waiver by the
Company gives rise to the legal requirement to do so, the Company will hold the
Exchange Offer open for at least five business days thereafter. The Discount
Note Issuers' interpretation of the terms and conditions of the Discount Note
Exchange Offer (including the instructions in the Letter of Transmittal) will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Discount Notes must be cured within such time
as the Discount Note Issuers shall determine. Although the Discount Note Issuers
intend to notify holders of defects or irregularities with respect to tenders of
Old Discount Notes, neither the Discount Note Issuers, the Exchange Agent nor
any other person shall incur any liability for failure to give such
notification. Tenders of Old Discount Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Old Discount
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Discount Notes and (i) whose Old
Discount Notes are not immediately available, (ii) who cannot deliver their Old
Discount Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Discount Notes and the principal amount of Old Discount Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) (or, in
the case of a book-entry transfer, an Agent's Message) together with the
certificate(s) representing the Old Discount Notes (or a confirmation of
book-entry transfer of such Discount Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) the certificate(s) representing all tendered Old Discount Notes in
proper form for transfer or a confirmation of a book-entry transfer of such
Old Discount Notes into the Exchange Agent's account at the Book Entry
Transfer Facility, together with a Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required
signature, guarantees (or, in the case of a book-entry transfer, an Agent's
Message), and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New York Stock Exchange trading
days after the Expiration Date.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Discount Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Old Discount Notes in the Discount Note Exchange
Offer, a telegram, telex, letter or facsimile transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior to
5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Discount Notes to be withdrawn (the "Depositor"), (ii) identify the Old Discount
Notes to be withdrawn (including the certificate number(s) and principal amount
of such Old Discount Notes, or, in the case of Old Discount Notes transferred by
book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such Old
Discount Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Old Discount Notes register the transfer of such Old Discount Notes into
the name of the person withdrawing the tender and (iv) specify the name in which
any such Old Discount Notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Discount Note
Issuers, whose determination shall be final and binding on all parties. Any Old
Discount Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Discount Note Exchange Offer and no Exchange Discount Notes will
be issued with respect thereto unless the Old Discount Notes so withdrawn are
validly retendered. Any Old Discount Notes which have been tendered but which
are not accepted for exchange will be returned to the holder thereof without
cost to such holder as soon as practicable after withdrawal, rejection of tender
or termination of the Discount Note Exchange Offer. Properly withdrawn Old
Discount Notes may be retendered by following one of the procedures described
above under "-- Procedures for Tendering" at any time prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Discount Note Exchange Offer, the
Discount Note Issuers shall not be required to accept for exchange, or exchange
Discount Notes for, any Old Discount Notes, and may terminate or amend the
Discount Note Exchange Offer as provided herein before the acceptance of such
Old Discount Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Discount Note
Exchange Offer which, in the sole judgment of the Discount Note Issuers,
might materially impair the ability of the Discount Note Issuers to proceed
with the Discount Note Exchange Offer, or any material adverse development
has occurred in any existing action or proceeding with respect to the
Discount Note Issuers or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Discount Note Issuers, might materially impair the ability
of the Discount Note Issuers to proceed with the Discount Note Exchange
Offer or materially impair the contemplated benefits of the Discount Note
Exchange Offer to the Discount Note Issuers; or
(c) any governmental approval has not been obtained, which approval
the Discount Note Issuers shall, in their sole discretion, deem necessary
for the consummation of the Discount Note Exchange Offer as contemplated
hereby.
If the Discount Note Issuers determine in their sole discretion that any of
the conditions are not satisfied, the Discount Note Issuers may (i) refuse to
accept any Old Discount Notes and return all tendered Old Discount Notes to the
tendering holders, (ii) extend the Discount Note Exchange Offer and retain all
Old Discount Notes tendered prior to the expiration of the Discount Note
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Discount Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Discount Note Exchange Offer and accept all
properly tendered Old Discount Notes which have not been withdrawn.
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EXCHANGE AGENT
Wilmington Trust Company has been appointed as Exchange Agent for the
Discount Note Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail or Overnight By Hand:
Courier: Wilmington Trust Company
Wilmington Trust Company c/o Harris Trust Co. of New York, as Agent
Rodney Square North 88 Pine Street, 19th Floor
1100 North Market Street Wall Street Plaza
Wilmington, Delaware 19890 New York, New York
Attention: Corporate Trust Operations Attention: Corporate Trust Operations
By Facsimile:
(for Eligible Institutions Only)
(302) 651-1079
Confirm by Telephone:
(302) 651-8869
Kristin Long
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Discount Note
Issuers. The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telecopy, telephone or in person by
officers and regular employees of the Discount Note Issuers and their
affiliates.
The Discount Note Issuers have not retained any dealer-manager in
connection with the Discount Note Exchange Offer and will not make any payments
to brokers, dealers, or others soliciting acceptances of the Discount Note
Exchange Offer. The Discount Note Issuers, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Discount Note
Exchange Offer will be paid by the Discount Note Issuers. Such expenses include
fees and expenses of the Exchange Agent and Trustee, accounting and legal fees
and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Discount Notes will be recorded at the same carrying value as
the Old Discount Notes, which is face value less accrued original discount, as
reflected in the Discount Note Issuers' accounting records on the date of
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Discount Note Issuers. The expenses of the Discount Note
Exchange Offer will be amortized over the term of the Exchange Discount Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Discount Notes that are not exchanged for Exchange Discount Notes
pursuant to the Discount Note Exchange Offer will remain restricted securities.
Accordingly, such Old Discount Notes may be resold only (i) to the Discount Note
Issuers (upon redemption thereof or otherwise), (ii) so long as the Old Discount
Notes are eligible for resale pursuant to Rule 144A, to a person inside the
United States whom the seller reasonably believes is a qualified institutional
buyer within the meaning of Rule 144A under the Securities Act in a transaction
meeting the requirements of Rule 144A, in accordance with Rule 144 under the
Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act
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(and based upon an opinion of counsel reasonably acceptable to the Discount Note
Issuers), (iii) outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, or (iv) pursuant
to an effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE EXCHANGE DISCOUNT NOTES
With respect to resales of Exchange Discount Notes, based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Discount Note Issuers believe that a holder or
other person who receives Exchange Discount Notes, whether or not such person is
the holder (other than a person that is an "affiliate" of the Discount Note
Issuers within the meaning of Rule 405 under the Securities Act), in exchange
for Old Discount Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Discount Notes, will be allowed to resell the Exchange Discount Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Discount Notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires Exchange Discount Notes in the Discount Note Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Discount Notes, such holder cannot rely on the position of the staff of the
Commission enunciated in such no-action letters or any similar interpretive
letters, and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Further, each
Participating Broker-Dealer that receives Exchange Discount Notes for its own
account in exchange for Old Discount Notes, where such Old Discount Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Discount Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Discount Note Exchange Offer is required to
represent to the Discount Note Issuers in the Letter of Transmittal that (i) the
Exchange Discount Notes are to be acquired by the holder or the person receiving
such Exchange Discount Notes, whether or not such person is the holder, in the
ordinary course of business, (ii) the holder or any such other person (other
than a broker-dealer referred to in the next sentence) is not engaging and does
not intend to engage, in the distribution of the Exchange Discount Notes, (iii)
the holder or any such other person has no arrangement or understanding with any
person to participate in the distribution of the Exchange Discount Notes, (iv)
neither the holder nor any such other person is an "affiliate" of the Discount
Note Issuers within the meaning of Rule 405 under the Securities Act and (v) the
holder or any such other person acknowledges that if such holder or other person
participates in the Discount Note Exchange Offer for the purpose of distributing
the Exchange Discount Notes it must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of the
Exchange Discount Notes and cannot rely on those no-action letters. As indicated
above, each Participating Broker-Dealer that receives Exchange Discount Notes
for its own account in exchange for Old Discount Notes must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange
Discount Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
DESCRIPTION OF THE DISCOUNT NOTES
The Exchange Discount Notes will be issued under an Indenture, dated as of
November 12, 1997 (for purposes of this "Description of the Discount Notes," the
"Indenture") among the Discount Note Issuers and Wilmington Trust Company, as
trustee (for purposes of this "Description of the Discount Notes," the
"Trustee"). The terms of the Exchange Discount Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act") as in effect on
the date of the Indenture. The Exchange Discount Notes are subject to all such
terms, and holders of the Exchange Discount Notes are referred to the Indenture
and the Trust Indenture Act for a statement of them. The form and terms of the
Exchange Discount Notes are the same as the form and terms
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of the Old Discount Notes (which they replace) except that (i) the Exchange
Discount Notes bear a Series B designation, (ii) the Exchange Discount Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (iii) the holders of Exchange
Discount Notes will not be entitled to certain rights under the Registration
Rights Agreement, including the provisions providing for the payment of
liquidated damages on the Old Discount Notes in certain circumstances relating
to the timing of the Discount Note Exchange Offer, which rights will terminate
when the Discount Note Exchange Offer is consummated. The following is a summary
of the material terms and provisions of the Exchange Discount Notes. This
summary does not purport to be a complete description of the Exchange Discount
Notes and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Exchange Discount Notes and the Indenture
(including the definitions contained therein). A copy of the form of Indenture
may be obtained from the Discount Note Issuers by any holder or prospective
investor upon request. Definitions relating to certain capitalized terms are set
forth under "-- Certain Definitions" and throughout this description.
Capitalized terms that are used but not otherwise defined herein have the
meanings assigned to them in the Indenture. For purposes of this "Description of
the Discount Notes," the term "Company" means TransWestern Holdings L.P.
(formerly Transwestern Publishing Company, L.P.), the term "TWP" means
TransWestern Publishing Company LLC and the term "Indenture" means the Discount
Note Indenture.
GENERAL
The Discount Notes are limited to $57,916,000 million aggregate principal
amount at maturity (other than Discount Notes issued in lieu of cash interest on
the Discount Notes in accordance with the Indenture). The Discount Notes will be
general senior unsecured obligations of the Discount Note Issuers, ranking
senior in right of payment to any subordinated indebtedness of the Discount Note
Issuers. The Discount Notes will be effectively subordinated in right of payment
to all existing and future obligations of the Company's subsidiaries, including
TWP. The Discount Notes are being issued at a substantial discount to their
aggregate principal amount at maturity such that the gross proceeds from the
issuance of the Discount Notes will be approximately $32.5 million. Based on the
issue price thereof, the yield to maturity of the Discount Notes is 11 7/8% per
annum (computed on a semi-annual bond equivalent basis and assuming no Discount
Notes are issued in lieu of cash interest thereon).
MATURITY, INTEREST AND PRINCIPAL
The Discount Notes will mature on November 15, 2008. Interest will not
accrue or be payable on the Discount Notes prior to November 15, 2002.
Thereafter, interest on the Discount Notes will accrue at the rate of 11 7/8%
per annum and will be payable semi-annually on each May 15 and November 15,
commencing May 15, 2003, to the holders of record of Discount Notes at the close
of business on the May 1 and November 1 immediately preceding such interest
payment date. Interest on the Discount Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
November 15, 2002. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Commencing November 15, 2002, interest is
payable at the option of the Company, in whole but not in part, at the rate of
13 3/8% per annum by the issuance of additional Discount Notes (valued at 100%
of the face amount thereof) in lieu of cash interest; provided, however, that in
connection with any redemption or repurchase of the Discount Notes as permitted
or required by the Indenture and upon the acceleration of the Discount Notes,
all accrued interest shall be payable solely in cash. As used herein, the term
"Discount Notes" shall include Discount Notes issued in lieu of cash interest on
the Discount Notes in accordance with the Indenture, unless the context
indicates otherwise.
Pursuant to the Registration Rights Agreement, the Damage Amount is payable
with respect to the Old Discount Notes, in certain circumstances, if the Old
Discount Notes (or securities substantially similar to the Discount Notes) are
not registered within the prescribed time periods set forth in the Registration
Rights Agreement.
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OPTIONAL REDEMPTION
The Discount Notes will be redeemable at the option of the Discount Note
Issuers, in whole or in part, at any time on or after November 15, 2002 at the
following redemption prices (expressed as a percentage of principal amount at
maturity), together, in each case, with accrued interest, if any, to the
redemption date, if redeemed during the twelve-month period beginning on
November 15 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------ ----------
<S> <C>
2002.............................................................. 105.938%
2003.............................................................. 103.958%
2004.............................................................. 101.979%
2005 and thereafter............................................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Discount Note Issuers, at their option,
may redeem all, but not less than all, of the aggregate principal amount of the
Discount Notes outstanding at any time prior to November 15, 2002 at a
redemption price equal to 111.875% of the Accreted Value thereof, out of the Net
Proceeds of one or more Public Equity Offerings; provided, however, that any
such redemption occurs within 90 days following the closing of any such Public
Equity Offering.
In the event of redemption of fewer than all of the Discount Notes, the
Trustee shall select, if the Discount Notes are listed on a national securities
exchange, in accordance with the rules of such exchange or, if the Discount
Notes are not so listed, either on a pro rata basis or by lot or in such other
manner as it shall deem fair and equitable the Discount Notes to be redeemed;
provided, that if a partial redemption is made with the proceeds of a Public
Equity Offering, selection of the Discount Notes or portion thereof for
redemption will be made by the Trustee on a pro rata basis, unless such method
is prohibited. The Discount Notes will be redeemable in whole or in part upon
not less than 30 nor more than 60 days' prior written notice, mailed by first
class mail to a holder's last address as it shall appear on the register
maintained by the Registrar of the Discount Notes. On and after any redemption
date, Accreted Value will cease to accrete or interest will cease to accrue, as
the case may be, on the Discount Notes or portions thereof called for redemption
unless the Discount Note Issuers shall fail to redeem any such Note.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants.
Limitation on Additional Indebtedness
The Discount Note Issuers will not, and will not permit any Restricted
Subsidiary of the Discount Note Issuers to, directly or indirectly, incur (as
defined) any Indebtedness (including Acquired Indebtedness) unless (a)(1) in the
case of Indebtedness of TWP or any of its Restricted Subsidiaries, after giving
effect to the incurrence of such Indebtedness and the receipt and application of
the proceeds thereof, the ratio of the total Indebtedness of TWP and its
Restricted Subsidiaries (excluding any Indebtedness owed to a Restricted
Subsidiary of TWP by any other Restricted Subsidiary of TWP or TWP and any
Indebtedness owed to TWP by any Restricted Subsidiaries of TWP) to TWP's EBITDA
(determined on a pro forma basis for the last four fiscal quarters of TWP and
its consolidated Restricted Subsidiaries for which financial statements are
available at the date of determination) is less than (i) 6.25 to 1 if the
Indebtedness is incurred prior to November 15, 2000 and (ii) 6.0 to 1 if the
Indebtedness is incurred on or after November 15, 2000; and (2) in the case of
Indebtedness of the Company or any of its Restricted Subsidiaries other than TWP
or its Restricted Subsidiaries, after giving effect to the incurrence of such
Indebtedness and the receipt and application of the proceeds thereof, the ratio
of the total Indebtedness of the Discount Note Issuers and their Restricted
Subsidiaries (excluding any Indebtedness owed to a Restricted Subsidiary by any
other Restricted Subsidiary or the Discount Note Issuers and any Indebtedness
owed to the Discount Note Issuers by any Restricted Subsidiary) to the Discount
Note Issuers' EBITDA (determined on a pro forma basis for the last four fiscal
quarters of the Discount Note Issuers and their consolidated Restricted
Subsidiaries for which financial statements are available at the date of
determination) is less than (i) 7.25 to 1 if the Indebtedness is
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incurred prior to November 15, 2000 and (ii) 7.0 to 1 if the Indebtedness is
incurred on or after November 15, 2000; provided, however, that if the
Indebtedness which is the subject of a determination under this provision is
Acquired Indebtedness, or Indebtedness incurred in connection with the
simultaneous acquisition of any Person, business, property or assets, then such
ratio shall be determined by giving effect to (on a pro forma basis, as if the
transaction had occurred at the beginning of the four-quarter period) both the
incurrence or assumption of such Acquired Indebtedness or such other
Indebtedness by the Discount Note Issuers, TWP or any other Restricted
Subsidiary (together with any other Acquired Indebtedness or other Indebtedness
incurred or assumed by the Discount Note Issuers, TWP and other Restricted
Subsidiaries in connection with acquisitions consummated by the Discount Note
Issuers during such four-quarter period) and the inclusion in the Discount Note
Issuers' EBITDA of the EBITDA of the acquired Person, business, property or
assets and any pro forma expense and cost reductions calculated on a basis
consistent with Regulation S-X under the Securities Act as in effect and as
applied as of the Issue Date (together with the EBITDA of, and pro forma expense
and cost reductions relating to, any other Person, business, property or assets
acquired by the Discount Note Issuers, TWP or any other Restricted Subsidiary
during such four-quarter period), and (b) no Default or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness. The accretion of original issue discount (and
any accruals of interest or payment of interest in additional Discount Notes) on
the Discount Notes shall not be deemed an incurrence of Indebtedness for
purposes of this covenant.
Notwithstanding the foregoing, (a) the Discount Note Issuers and their
Restricted Subsidiaries may incur Permitted Indebtedness and (b) the Discount
Note Issuers will not incur any Indebtedness (other than Permitted Indebtedness
described in clause (i)(B) of the definition thereof) that is either senior or
pari passu in right of payment to the Discount Notes.
Limitation on Restricted Payments
The Discount Note Issuers will not make, and will not permit any of their
Restricted Subsidiaries to, directly or indirectly, make, any Restricted
Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Discount Note Issuers could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the covenant set
forth under "Limitation on Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 50% of the cumulative Consolidated Net
Income of the Company subsequent to the Issue Date (or minus 100% of any
cumulative deficit in Consolidated Net Income during such period) plus (2)
100% of the aggregate Net Proceeds and the fair market value of securities
or other property received by the Company from the issue or sale, after the
issue Date, of Capital Stock (other than Disqualified Capital Stock or
Capital Stock of the Company issued to any Subsidiary of the Company) of
the Company or any Indebtedness or other securities of the Company
convertible into or exercisable or exchangeable for Capital Stock (other
than Disqualified Capital Stock) of the Company which have been so
converted or exercised or exchanged, as the case may be, plus (3) without
duplication of any amounts included in clauses (1) and (2) above, 100% of
the aggregate net proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock plus (4) $5,000,000.
For purposes of determining under this clause (c) the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market
value determined, in good faith, by the Board of Directors of the Company.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company or
subordinated Indebtedness by conversion into, or by or in exchange for, shares
of Capital Stock (other than Disqualified
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Capital Stock) or out of, the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Capital Stock of
the Company (other than Disqualified Capital Stock), (iii) the redemption or
retirement of Indebtedness of the Discount Note Issuers subordinated to the
Discount Notes in exchange for, by conversion into, or out of the Net Proceeds
of a substantially concurrent sale or incurrence of Indebtedness (other than any
Indebtedness owed to a Subsidiary) of the Discount Note Issuers that is
contractually subordinated in right of payment to the Discount Notes to at least
the same extent as the subordinated Indebtedness being redeemed or retired, (iv)
the retirement of any shares of Disqualified Capital Stock by conversion into,
or by exchange for, shares of Disqualified Capital Stock, or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Disqualified Capital Stock, (v) so long as no
Default or Event of Default shall have occurred and be continuing, at the time
of or immediately after giving effect to such payment, the purchase, redemption
or other acquisition for value of shares of Capital Stock of the Discount Note
Issuers or their Subsidiaries (other than Disqualified Capital Stock) or options
on such shares held by the Discount Note Issuers' or their Subsidiaries'
officers or employees or former officers or employees (or their estates or
beneficiaries under their estates) upon the death, disability, retirement or
termination of employment of such current or former officers or employees
pursuant to the terms of an employee benefit plan or any other agreement
pursuant to which such shares of Capital Stock or options were issued or
pursuant to a severance, buy-sale or right of first refusal agreement with such
current or former officer or employee and payments of principal and interest on
the Management Subordinated Notes in accordance with the terms thereof, provided
that the aggregate cash consideration paid, or distributions or payments made,
pursuant to this clause (v) shall not exceed $2,000,000 in any fiscal year or
$10,000,000 in the aggregate from and after the Issue Date, (vi) payments to the
Equity Compensation Trust, in an aggregate amount not to exceed $3,100,000, to
be paid up to 12 months after the Issue Date in connection with the
Recapitalization, (vii) the payment of management fees under the management
agreement with THL and its Affiliates and successors and assigns that do not
exceed $500,000 per year and the reimbursement of expenses pursuant thereto,
(viii) the reimbursement of the reasonable expenses of the Company, Capital,
Capital II or TCC (ix) the redemption on the Issue Date of approximately
one-half of the outstanding Preferred Units with the proceeds from the sale of
the Discount Notes and (x) the distribution of the proceeds of the Offering to
the Company on the Issue Date to the extent necessary to repay outstanding
Indebtedness under the Senior Subordinated Facility. Notwithstanding the
foregoing, the amount of any payments made in reliance on clause (v) above shall
reduce the amount otherwise available for Restricted Payments pursuant to
subparagraph (c) above.
Not later than the date of making any Restricted Payment, the Discount Note
Issuers shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant "Limitation on Restricted Payments" were
computed, which calculations may be based upon the Discount Note Issuers' latest
available financial statements, and, to the extent that the absence of a Default
or an Event of Default is a condition to the making of such Restricted Payment,
that no Default or Event of Default exists and is continuing and no Default or
Event of Default will occur immediately after given effect to any Restricted
Payments.
Limitations on Investments
The Discount Note Issuers will not, and will not permit any of their
Restricted Subsidiaries to, make any Investment other than (i) a Permitted
Investment or (ii) an Investment that is made as a Restricted Payment in
compliance with the "Limitation on Restricted Payments" covenant, after the
Issue Date.
Limitations on Liens
The Discount Note Issuers will not create, incur or otherwise cause or
suffer to exist or become effective any Liens of any kind (other than Permitted
Liens) upon any property or asset of the Discount Note Issuers or any shares of
stock (other than under the Senior Credit Facility) or debt of any Restricted
Subsidiary which owns property or assets, now owned or hereafter acquired,
unless (i) if such Lien secures Indebtedness which is pari passu with the
Discount Notes, then the Discount Notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligation is no
longer secured by a Lien or (ii) if such Lien
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secures Indebtedness which is subordinated to the Discount Notes, any such Lien
shall be subordinated to the Lien granted to the Holders of the Discount Notes
to the same extent as such subordinated Indebtedness is subordinated to the
Discount Notes.
Limitation on Transactions with Affiliates
The Discount Note Issuers will not, and will not permit any of their
Restricted Subsidiaries to, directly or indirectly, enter into or suffer to
exist any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with any Affiliate (including entities in which the Discount Note
Issuers or any of their Restricted Subsidiaries owns a minority interest) (an
"Affiliate Transaction") or extend, renew, waive or otherwise modify the terms
of any Affiliate Transaction entered into prior to the Issue Date if such
extension, renewal, waiver or other modification is more disadvantageous to the
Holders in any material respect than the original agreement as in effect on the
Issue Date unless (i) such Affiliate Transaction is between or among the
Discount Note Issuers and/or their Wholly-Owned Subsidiaries and/or TCC; or (ii)
the terms of such Affiliate Transaction are fair and reasonable to the Discount
Note Issuers or such Restricted Subsidiary, as the case may be, and the terms of
such Affiliate Transaction are at least as favorable as the terms which could be
obtained by the Discount Note Issuers or such Restricted Subsidiary, as the case
may be, in a comparable transaction made on an arm's-length basis between
unaffiliated parties. In any Affiliate Transaction involving an amount or having
a value in excess of $1.0 million which is not permitted under clause (i) above,
the Discount Note Issuers must obtain a resolution of the Board of Directors of
the Company certifying that such Affiliate Transaction complies with clause (ii)
above. In any Affiliate Transaction with a value in excess of $5.0 million which
is not permitted under clause (i) above (other than any sale by the Company of
its Capital Stock that is not Disqualified Capital Stock), the Discount Note
Issuers must obtain a written opinion as to the fairness of such a transaction
from an independent investment banking firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitation on Restricted
Payments" contained herein, (ii) any transaction pursuant to an agreement,
arrangement or understanding existing on the Issue Date and described elsewhere
in this Prospectus, (iii) any transaction, approved by the Board of Directors of
the Company, TCC, TWP, Capital or Capital II, with an officer or director of the
Discount Note Issuers or of any Subsidiary in his or her capacity as officer or
director entered into in the ordinary course of business, or (iv) transactions
permitted by the Indenture under the provision "Merger, Consolidation or Sale of
Assets."
Limitation on Creation of Subsidiaries
The Discount Note Issuers will not create or acquire, nor permit any of
their Restricted Subsidiaries to create or acquire, any Subsidiary other than
(i) a Restricted Subsidiary that is acquired or created in connection with the
acquisition by the Company of a business primarily engaged in, or an asset
primarily utilized in, providing directory services and/or classified
advertising, or (ii) an Unrestricted Subsidiary. As of the Issue Date, the
Company will have no Subsidiaries other than TWP, Capital and Capital II.
Limitation on Certain Asset Sales
The Discount Note Issuers will not consummate an Asset Sale unless (i) such
Discount Note Issuer receives consideration at the time of such sale or other
disposition at least equal to the fair market value thereof (as determined in
good faith by the Company's Board of Directors, and evidenced by a board
resolution); (ii) not less than 75% of the consideration received by the
Discount Note Issuers is in the form of cash or Temporary Cash Investments other
than in the case where the Company is undertaking a Permitted Asset Swap; and
(iii) the Asset Sale Proceeds received by such Discount Note Issuer are applied
(a) first, to the extent the Company or any Restricted Subsidiary, as the case
may be, elects, or is required, to prepay, repay or purchase debt or to reduce
an unused commitment to lend under the Senior Credit Facility, the Senior
Subordinated Notes and/or any other Indebtedness of a Restricted Subsidiary
incurred in compliance with the Indenture within 180 days following the receipt
of the Asset Sale Proceeds from any Asset Sale, but only to the extent that any
such repayment shall result in a permanent reduction of the commitments
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thereunder in an amount equal to the principal amount so repaid; (b) second, to
the extent of the balance of Asset Sale Proceeds after application as described
above, to the extent the Company or a Restricted Subsidiary elects, to an
investment in assets (including Capital Stock or other securities purchased in
connection with the acquisition of Capital Stock or property of another person)
used or useful in businesses similar or ancillary to the business of the Company
or such Restricted Subsidiary as conducted at the time of such Asset Sale,
provided that such investment occurs or the Discount Note Issuers or a
Restricted Subsidiary enters into contractual commitments to make such
investment, subject only to customary conditions (other than the obtaining of
financing), on or prior to the 181st day following receipt of such Asset Sale
Proceeds (the "Reinvestment Date") and Asset Sale Proceeds contractually
committed are so applied within 270 days following the receipt of such Asset
Sale Proceeds; and (C) third, if on the Reinvestment Date with respect to any
Asset Sale, the Available Asset Sale Proceeds exceed $10.0 million, the Discount
Note Issuers shall apply an amount equal to such Available Asset Sale Proceeds
to an offer to repurchase the Discount Notes, at a purchase price in cash equal
to (x) 100% of the Accreted Value thereof, if the applicable repurchase date is
on or prior to November 15, 2002, or (y) 100% of the principal amount at
maturity thereof plus accrued and unpaid interest, if any, to the date of
repurchase, if the repurchase date is after November 15, 2002 (an "Excess
Proceeds Offer"). If an Excess Proceeds Offer is not fully subscribed, the
Company may retain the portion of the Available Asset Sale Proceeds not required
to repurchase Discount Notes and use such portion for general corporate
purposes, and such retained portion will not be considered in the calculation of
"Available Asset Sale Proceeds" with respect to any subsequent offer to purchase
Discount Notes.
If the Discount Note Issuers are required to make an Excess Proceeds Offer,
the Discount Note Issuers shall mail, within 30 days following the Reinvestment
Date, a notice to the Holders stating, among other things: (1) that such Holders
have the right to require the Discount Note Issuers to apply the Available Asset
Sale Proceeds to repurchase such Discount Notes at a purchase price in cash
equal to (x) 100% of the Accreted Value thereof, if the applicable purchase date
is on or prior to November 15, 2002, or (y) 100% of the principal amount at
maturity thereof together with accrued and unpaid interest, if any, thereon to
the date of purchase, if the purchase date is after November 15, 2002; (2) the
purchase date, which shall be no earlier than 30 days and not later than 60 days
from the date such notice is mailed; (3) the instructions, determined by the
Discount Note Issuers, that each Holder must follow in order to have such
Discount Notes repurchased; and (4) the calculations used in determining the
amount of Available Asset Sale Proceeds to be applied to the repurchase of such
Discount Notes.
Limitation on Preferred Stock of Restricted Subsidiaries
The Discount Note Issuers will not permit any Restricted Subsidiary to
issue any Preferred Stock (except Preferred Stock to the Company or a Restricted
Subsidiary) or permit any Person (other than the Company or a Subsidiary) to
hold any such Preferred Stock unless the Company or such Restricted Subsidiary
would be entitled to incur or assume Indebtedness under the first paragraph of
the covenant described under "Limitation on Additional Indebtedness" in an
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
Limitation on Capital Stock of Subsidiaries
The Discount Note Issuers will not (i) sell, pledge, hypothecate or
otherwise convey or dispose of any Capital Stock of a Subsidiary (other than
under the Senior Credit Facility) or (ii) permit any of their Subsidiaries to
issue any Capital Stock, other than to the Discount Note Issuers or a
Wholly-Owned Subsidiary of the Company. The foregoing restrictions shall not
apply to an Asset Sale made in compliance with "Limitation on Certain Asset
Sales" or the issuance of Preferred Stock in compliance with the covenant
described under "Limitation on Preferred Stock of Subsidiaries." In no event
will the Company sell, pledge, hypothecate or otherwise convey or dispose of any
Capital Stock of Capital or will Capital issue any Capital Stock.
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Limitation on Sale and Lease-Back Transactions
The Discount Note Issuers will not, and will not permit any Restricted
Subsidiary to, enter into any Sale and Lease-Back Transaction unless (i) the
consideration received in such Sale and Lease-Back Transaction is at least equal
to the fair market value of the property sold, as determined, in good faith, by
the Board of Directors of the Company, and (ii) the Discount Note Issuers could
incur the Attributable Indebtedness in respect of such Sale and Lease Back
Transaction in compliance with the covenant described under "Limitation on
Additional Indebtedness."
Payments for Consent
Neither the Discount Note Issuers nor any of their Subsidiaries will,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Discount Notes for or as
an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Discount Notes unless such consideration is
offered to be paid or agreed to be paid to all holders of the Discount Notes
which so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
Limitation on Conduct of Business of Capital
Except to the extent permitted under "Merger, Consolidation or Sale of
Assets," Capital will not hold any operating assets or other properties or
conduct any business other than to serve as a Discount Note Issuer and
co-obligor with respect to the Discount Notes and will not own any Capital Stock
of any other Person other than up to 1% of the Capital Stock of TWP.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Discount Notes at a
purchase price equal to (x) 101% of the Accreted Value thereof, if the Change of
Control Payment Date (as hereinafter defined) is on or prior to November 15,
2002, or (y) 101% of the principal amount at maturity thereof together with any
accrued and unpaid interest, if any, thereon to the Change of Control Payment
Date, if the Change of Control Payment Date is after November 15, 2002 (such
applicable purchase price being hereinafter referred to as the "Change of
Control Purchase Price") in accordance with the procedures set forth in this
covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each holder of the Discount Notes, at the address appearing in the register
maintained by the registrar of the Discount Notes, a notice stating:
(i) that the Change of Control Offer is being made pursuant to this
covenant and that all Discount Notes tendered will be accepted for payment,
and otherwise subject to the terms and conditions set forth herein;
(ii) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days from the date such
notice is mailed (the "Change of Control Payment Date"));
(iii) that any Discount Note not tendered will remain outstanding and
continue to accrue interest;
(iv) that, unless the Discount Note Issuers default in the payment of
the Change of Control Purchase Price, any Discount Notes accepted for
payment pursuant to the Change of Control Offer shall cease to accrete in
value or accrue interest after the Change of Control Payment Date;
(v) that holders accepting the offer to have their Discount Notes
purchased pursuant to a Change of Control Offer will be required to
surrender the Discount Notes, with the form entitled "Option of Holder
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to Elect Purchase" on the reverse of the Discount Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control Payment Date;
(vi) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Discount Notes delivered for purchase,
and a statement that such holder is withdrawing his election to have such
Discount Notes purchased;
(vii) that holders whose Discount Notes are being purchased only in
part will be issued new Discount Notes equal in principal amount to the
unpurchased portion of the Discount Notes surrendered, provided that each
Note purchased and each such new Discount Note issued shall be in an
original principal amount in denominations of $1,000 and integral multiples
thereof;
(viii) any other procedures that a holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(ix) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Discount Note Issuers shall, to
the extent lawful, (i) accept for payment Discount Notes or portions thereof
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all Discount Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee Discount Notes so accepted together with an Officers' Certificate
stating the Discount Notes or portions thereof tendered to the Discount Note
Issuers. The Paying Agent shall promptly mail to each holder of Discount Notes
so accepted payment in an amount equal to the purchase price for such Discount
Notes, and the Discount Note Issuers shall execute and issue and the Trustee
shall promptly authenticate and mail to such holder, a new Discount Note equal
in principal amount to any unpurchased portion of the Discount Notes
surrendered; provided that each such new Discount Note shall be issued in an
original principal amount in denominations of $1,000 and integral multiples
thereof.
The Indenture will require that if the Senior Credit Facility is in effect
or the Senior Subordinated Notes are outstanding, or any amounts are owing
thereunder or in respect thereof, at the time of the occurrence of a Change of
Control, prior to the mailing of the notice to holders described in the
preceding paragraph, but in any event within 20 days following any Change of
Control, the Discount Note Issuers on a joint and several basis covenant to (i)
cause the borrowers thereunder to repay in full all obligations under or in
respect of the Senior Credit Facility or offer to repay in full all obligations
under or in respect of the Senior Credit Facility and repay the obligations
under or in respect of the Senior Credit Facility of each lender who has
accepted such offer and cause the issuers thereof to repay in full all
obligations in respect of the Senior Subordinated Notes or offer to repay in
full all obligations in respect of the Senior Subordinated Notes and repay the
obligations in respect of the Senior Subordinated Notes of each holder who has
accepted such offer or (ii) cause such borrowers and issuers to obtain the
requisite consent under the Senior Credit Facility and from the holders of the
Senior Subordinated Notes, respectively, to permit the repurchase of the
Discount Notes as described above. The Discount Note Issuers must first comply
with the covenant described in the preceding sentence before they shall be
required to purchase Discount Notes in the event of a Change of Control;
provided that the Discount Note Issuers' failure to comply with the covenant
described in the preceding sentence constitutes an Event of Default described in
clause (iii) under "Events of Default" below if not cured within 60 days after
the notice required by such clause. As a result of the foregoing, a holder of
the Discount Notes may not be able to compel the Discount Note Issuers to
purchase the Discount Notes unless the Discount Note Issuers are able at the
time to refinance all of the obligations under or in respect of the Senior
Credit Facility or obtain requisite consents under the Senior Credit Facility
and refinance all of the obligations in respect of the Senior Subordinated Notes
or obtain requisite consents from the holders of the Senior Subordinated Notes.
Failure by the Discount Note Issuers to make a Change of Control Offer when
required by the Indenture constitutes a default under the Indenture and, if not
cured within 60 days after notice, constitutes an Event of Default.
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The Indenture will require that (A) if either Discount Note Issuer or any
Subsidiary thereof has issued any outstanding (i) Indebtedness that is
subordinated in right of payment to the Discount Notes or (ii) Preferred Stock,
and such Discount Note Issuer or Subsidiary is required to make a change of
control offer or to make a distribution with respect to such subordinated
Indebtedness or Preferred Stock in the event of a change of control, the
Discount Note Issuers shall not consummate any such offer or distribution with
respect to such subordinated Indebtedness or Preferred Stock until such time as
the Discount Note Issuers shall have paid the Change of Control Purchase Price
in full to the holders of Discount Notes that have accepted the Discount Note
Issuers' Change of Control Offer and shall otherwise have consummated the Change
of Control Offer made to holders of the Discount Notes and (B) the Discount Note
Issuers will not issue Indebtedness that is subordinated in fight of payment to
the Discount Notes or Preferred Stock with change of control provisions
requiring the payment of such Indebtedness or Preferred Stock prior to the
payment of the Discount Notes in the event of a Change in Control under the
Indenture.
In the event that a Change of Control occurs and the holders of Discount
Notes exercise their right to require the Discount Note Issuers to purchase
Discount Notes, if such purchase constitutes a "tender offer" for purposes of
Rule 14e-1 under the Exchange Act at that time, the Discount Note Issuers will
comply with the requirements of Rule 14e-I as then in effect with respect to
such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Neither of the Discount Note Issuers will consolidate with, merge with or
into, or transfer all or substantially all of its assets (as an entirety or
substantially as an entirety in one transaction or a series of related
transactions) to any Person unless (in the case of the Company): (i) the Company
shall be the continuing Person, or the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or to which the
properties and assets of the Company are transferred shall be a corporation (or
a limited partnership or a limited liability company) organized and existing
under the laws of the United States or any State thereof or the District of
Columbia and shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all of the
obligations of the Company, as the case may be, under the Discount Notes and the
Indenture, and the obligations under the Indenture shall remain in full force
and effect; provided, that at any time the Company or its successor is a limited
partnership or a limited liability company, there shall be a co-issuer of the
Discount Notes that is a corporation; (ii) immediately before and immediately
after giving effect to such transaction, no Default or Event of Default shall
have occurred and be continuing; (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis the Consolidated Net
Worth of the Company or the surviving entity as the case may be is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions; and (iv) immediately after giving effect
to such transaction on a pro forma basis the Company or such Person could incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
under the covenant set forth under "Limitation on Additional Indebtedness."
Notwithstanding anything in this "Merger, Consolidation or Sale of Assets"
provision to the contrary but subject to the "Change of Control Offer"
provisions above, (a) either of the Company or Capital may merge with or into,
or consolidate with, the other, and any Subsidiary of THL that is a holding
company (with no assets other than partnership interests in the Company and no
liabilities) may merge with and into the Company, in either case subject only to
clause (i) of the immediately preceding sentence and (b) the Company may merge
into, consolidate with or transfer all or substantially all of its assets to
another entity, which entity shall have no significant assets and no liabilities
immediately prior to such transaction, without regard to the requirements of
clause (iv) of the immediately preceding sentence so long as the surviving or
consolidated entity or transferee, as the case may be, shall, immediately after
giving effect to such transaction, directly own at least 99% of the voting and
economic power of the Common Stock of TWP. Nothing in this "Merger,
Consolidation and Sale of Assets" provision shall limit any merger or
consolidation involving TWP or Capital II so long as such merger or
consolidation is not with or into the Company or Capital.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Discount Note Issuers shall deliver, or
cause to be delivered, to the Trustee, in form and substance reasonably
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satisfactory to the Trustee, an Officers' Certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer and the supplemental
indenture in respect thereto comply with this provision and that all conditions
precedent herein provided for relating to such transaction or transactions have
been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any Accreted Value, principal of, or
premium, if any, on the Discount Notes whether at maturity, upon
acceleration or redemption or otherwise when due;
(ii) default for 30 days in payment of any interest on the Discount
Notes;
(iii) default by either of the Discount Note Issuers or any Restricted
Subsidiary in the observance or performance of any other covenant in the
Discount Notes or the Indenture for 60 days after written notice from the
Trustee or the holders of not less than 25% in aggregate principal amount
of the Discount Notes then outstanding;
(iv) default in the payment at final maturity of principal in an
aggregate amount of $5.0 million or more with respect to any Indebtedness
of either Discount Note Issuer or any Restricted Subsidiary thereof, or the
acceleration of any such Indebtedness aggregating $5.0 million or more
which default shall not be cured, waived or postponed pursuant to an
agreement with the holders of such Indebtedness within 60 days after
written notice as provided in the Indenture, or such acceleration shall not
be rescinded or annulled within 20 days after written notice as provided in
the Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $5.0 million shall be rendered
against either of the Discount Note Issuers or any Restricted Subsidiary
thereof, and shall not be discharged for any period of 60 consecutive days
during which a stay of enforcement shall not be in effect; and
(vi) certain events involving bankruptcy, insolvency or reorganization
of either of the Discount Note Issuers or any Restricted Subsidiary
thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Discount Notes of any default (except in payment of principal or premium,
if any, or interest on the Discount Notes) if the Trustee considers it to be in
the best interest of the holders of the Discount Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee by
notice to the Discount Note Issuers or the holders of not less than 25% in
aggregate principal amount at maturity of the Discount Notes then outstanding by
written notice to the Discount Note Issuers and the Trustee may declare the
Discount Notes to be immediately due and payable in an amount equal to (x) the
Accreted Value of the Discount Notes outstanding on the date of acceleration, if
such declaration is made on or prior to November 15, 2002, or (y) the entire
principal amount at maturity of the Discount Notes outstanding on the date of
acceleration plus accrued but unpaid interest, if any, to the date of
acceleration, if such declaration is made after November 15, 2002, and such
amounts shall become immediately due and payable or if there are any amounts
outstanding under the Senior Credit Facility or the Senior Subordinated Notes,
such amounts shall become due and payable upon the first to occur of an
acceleration of amounts outstanding under the Senior Credit Facility or the
Senior Subordinated Notes or five business days after receipt by the Company,
the representative of the lenders under the Senior Credit Facility and the
trustee under the indenture relating to the Senior Subordinated Notes of notice
of acceleration of the Discount Notes; provided, however, that after such
acceleration but before a judgment or decree based on such acceleration is
obtained by the Trustee, the holders of a majority in aggregate principal amount
at maturity of outstanding Discount Notes may, under certain circumstances,
rescind and annul such acceleration if all existing Events of Default, other
than nonpayment of accelerated Accreted Value, principal, premium, if any, or
interest that has become due solely because of the acceleration, have been cured
or waived as provided in the Indenture. In
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case an Event of Default resulting from certain events of bankruptcy, insolvency
or reorganization shall occur, the Accreted Value or principal and all premium,
if any, and interest amount with respect to all of the Discount Notes shall be
due and payable immediately without any declaration or other act on the part of
the Trustee or the holders of the Discount Notes.
The holders of a majority in principal amount at maturity of the Discount
Notes then outstanding shall have the right to waive any existing default or
compliance with any provision of the Indenture or the Discount Notes and to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, subject to certain limitations specified in the
Indenture.
No holder of any Discount Note will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
such holder shall have previously given to the Trustee written notice of a
continuing Event of Default and unless also the holders of at least 25% in
aggregate principal amount at maturity of the outstanding Discount Notes shall
have made written request and offered indemnity satisfactory to the Trustee to
institute such proceeding as a trustee, and unless the Trustee shall not have
received from the holders of a majority in aggregate principal amount of the
outstanding Discount Notes a direction inconsistent with such request and shall
have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted on such Discount Note on or after
the respective due dates expressed in such Discount Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Discount Note Issuers may elect either (a)
to defease and be discharged from any and all obligations with respect to the
Discount Notes (except for the obligations to register the transfer or exchange
of such Discount Notes, to replace temporary or mutilated, destroyed, lost or
stolen Discount Notes, to maintain an office or agency in respect of the
Discount Notes and to hold monies for payment in trust) ("defeasance") or (b) to
be released from their obligations with respect to the Discount Notes under
certain covenants contained in the Indenture and described above under "Certain
Covenants" ("covenant defeasance"), upon the deposit with the Trustee (or other
qualifying trustee), in trust for such purpose of money and/or U.S. Government
Obligations (as defined in the Indenture) which through the payment of principal
at maturity and interest in accordance with their terms will provide money, in
an amount sufficient to pay the principal at maturity of, premium, if any, and
interest on the Discount Notes, on the scheduled due dates therefor or on a
selected date of redemption in accordance with the terms of the Indenture. Such
a trust may only be established if, among other things, the Discount Note
Issuers have delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) (i) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company Act
of 1940, as amended, and (ii) describing either a private ruling concerning the
Discount Notes or a published ruling of the Internal Revenue Service, to the
effect that holders of the Discount Notes or persons in their positions will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit, defeasance and discharge and will be subject to federal income tax
on the same amount and in the same manner and at the same times, as would have
been the case if such deposit, defeasance and discharge had not occurred.
MODIFICATION OF INDENTURE
From time to time, the Discount Note Issuers and the Trustee may, without
the consent of holders of the Discount Notes, amend the Indenture or the
Discount Notes or supplement the Indenture for certain specified purposes,
including providing for uncertificated Discount Notes in addition to
certificated Discount Notes, and curing any ambiguity, defect or inconsistency,
or making any other change that does not adversely affect the rights of any
holder. The Indenture contains provisions permitting the Discount Note Issuers
and the Trustee, with the consent of holders of at least a majority in principal
amount at maturity of the outstanding Discount Notes, to modify or supplement
the Indenture or the Discount Notes, except that no such modification shall,
without the consent of each holder affected thereby, (i) reduce the amount of
Discount Notes whose holders must consent to an amendment, supplement, or waiver
to the Indenture or the Discount Notes, (ii) reduce the rate of or change the
time for payment of interest on any Note, (iii) reduce the Accreted Value or
principal at
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maturity of or premium on or change the stated maturity of any Note, (iv) make
any Discount Note payable in money other than that stated in the Discount Note
or change the place of payment from New York, New York, (v) change the amount or
time of any payment required by the Discount Notes or reduce the premium payable
upon any redemption of Discount Notes, or change the time before which no such
redemption may be made, (vi) waive a default in the payment of the principal of,
interest on, or redemption payment with respect to any Note, (vii) take any
other action otherwise prohibited by the Indenture to be taken without the
consent of each holder affected thereby or (viii) affect the ranking of the
Discount Notes in a manner adverse to the Holders.
REPORTS TO HOLDERS
So long as the Discount Note Issuers are subject to the periodic reporting
requirements of the Exchange Act, they will continue to furnish the information
required thereby to the Commission and to the holders of the Discount Notes. The
Indenture will provide that even if the Company is entitled under the Exchange
Act not to furnish such information to the Commission or to the holders of the
Discount Notes, it will nonetheless continue to furnish such information to the
Commission and holders of the Discount Notes.
COMPLIANCE CERTIFICATE
The Discount Note Issuers will deliver to the Trustee on or before 120 days
after the end of the Discount Note Issuers' fiscal year and on or before 50 days
after the end of each of the first, second and third fiscal quarters in each
year an Officers' Certificate stating whether or not the signers know of any
Default or Event of Default that has occurred. If they do, the certificate will
describe the Default or Event of Default and its status.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Discount Notes. The Indenture provides that, except during the
continuance of an Event of Default, the Trustee will perform only such duties as
are specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. The Trustee is also acting as trustee under the indenture relating
to the Senior Subordinated Notes.
TRANSFER AND EXCHANGE
Holders of the Discount Notes may transfer or exchange the Discount Notes
in accordance with the Indenture. The Registrar under such Indenture may require
a holder, among other things, to furnish appropriate endorsements and transfer
documents, and to pay any taxes and fees required by law or permitted by the
Indentures. The Registrar is not required to transfer or exchange any Discount
Note selected for redemption. Also, the Registrar is not required to transfer or
exchange any Discount Note for a period of 15 days before selection of the
Discount Notes to be redeemed.
The registered holder of a Discount Note may be treated as the owner of it
for all purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Accreted Value" means, as of any date prior to November 15, 2002, an
amount per $1,000 principal amount at maturity of Discount Notes that is equal
to the sum of (a) $561.16 and (b) the portion of the excess of the principal
amount at maturity of each Discount Note over $561.16 which shall have been
amortized on a daily basis and compounded semi-annually on each May 15 and
November 15 at the rate of
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11 7/8% per annum from the Issue Date through the date of determination computed
on the basis of a 360-day year of twelve 30-day months; and, as of any date on
or after November 15, 2002, the Accreted Value of each Discount Note shall mean
the aggregate principal amount at maturity of such Note.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the Purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means the sale, transfer or other disposition in any single
transaction or series of related transactions having a fair market value in
excess of $2,000,000 of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Discount Note Issuers, (b) all or substantially all
of the assets of the Discount Note Issuers, (c) real property or (d) all or
substantially all of the assets of a division, line of business or comparable
business segment of the Discount Note Issuers, provided that Asset Sales shall
not include (i) the contribution of any assets to a joint venture, partnership
or other Person (which may be a Subsidiary) to the extent such contribution
constitutes a Permitted Investment (other than by operation of clause (iv) of
the definition thereof).
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Discount Note Issuers from such Asset Sale (including cash
received as consideration for the assumption of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (a) provision for
all income or other taxes (including taxes required to be distributed under the
partnership agreement of the Company) measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of
appropriate amounts to be provided by the Discount Note Issuers as a reserve, in
accordance with GAAP, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Discount Note Issuers after
such Asset Sale, including, without limitation, severance, healthcare, pension
and other postemployment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other non-cash consideration received by the Discount Note Issuers from such
Asset Sale or other disposition upon the liquidation or conversion of such notes
or noncash consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by the Board of Directors of
the Company) and (ii) the present value of the total obligations (discounted at
a rate of 10%, compounded annually) of the lessee for rental payments during the
remaining term of the lease included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (iii) (a) or (iii) (b), and that have not been the basis
for an Excess Proceeds Offer in accordance with clause (iii) (c), of the first
paragraph of "Certain Covenants -- Limitation on Certain Asset Sales."
"Board of Directors" means (i) in the case of a Person that is a limited
partnership, the board of directors of its corporate general partner or any
committee authorized to act therefor (or, if the general partner is itself a
limited partnership, the board of directors of such general partner's corporate
general partner or any committee authorized to act therefor), (ii) in the case
of a Person that is a corporation, the board of directors of such Person or any
committee authorized to act therefor and (iii) in the case of any other Person,
the board
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of directors, management committee or similar governing body or any authorized
committee thereof responsible for the management of the business and affairs of
such Person.
"Capital" means TWP Capital Corp., a Delaware corporation and one of the
Discount Note Issuers.
"Capital II" means TWP Capital Corp. II, a Delaware corporation and a
Wholly-Owned Subsidiary of TWP.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into or exercisable for any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
A "Change of Control" means the occurrence of one or more of the following
events: (i) any Person (including a Person's Affiliates and associates), other
than a Permitted Holder, becomes the beneficial owner (as defined under Rule
13d-3 or any successor rule or regulation promulgated under the Exchange Act) of
50% or more of the total voting or economic power of the Common Stock of the
Company or TCC, (ii) any Person (including a Person's Affiliates and
associates), other than a Permitted Holder, becomes the beneficial owner of more
than 33 1/3% of the total voting power of the Common Stock of the Company or
TCC, and the Permitted Holders beneficially own, in the aggregate, a lesser
percentage of the total voting power of the Common Stock of the Company or TCC,
as the case may be, than such other Person and do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company, (iii) the Company ceases to
directly own 99% of the total voting and economic power of the Common Stock of
TWP, (iv) the admission of any Person as a general partner of the Company after
which TCC, together with one or more Permitted Holders, do not have the sole
power, directly or indirectly, to take all of the actions they are entitled or
required, to take under the partnership agreement of the Company as in effect on
the Issue Date, (v) there shall be consummated any consolidation or merger of
either Discount Note Issuer in which such Discount Note Issuer is not the
continuing or surviving corporation or pursuant to which the Common Stock of
such Discount Note Issuer would be converted into cash, securities or other
property, other than a merger or consolidation of such Discount Note Issuer in
which the beneficial owners of the Common Stock of such Discount Note Issuer
outstanding immediately prior to the consolidation or merger hold, directly or
indirectly, at least a majority of the Common Stock of the surviving corporation
immediately after such consolidation or merger, or (v) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of TCC (together with any new directors whose election by
such Board of Directors or whose nomination for election by the shareholders of
TCC has been approved by a majority of the directors then still in office who
either were directors at the beginning of such period or whose election or
recommendation for election was previously so approved) cease to constitute a
majority of the Board of Directors of TCC.
"CIBC Merchant Fund" means the CIBC WG Argosy Merchant Fund 2, L.L.C.
"CIVC" means Continental Illinois Venture Corporation.
"Commodity Hedge Agreement" shall mean any option, hedge or other similar
agreement or arrangement designed to protect against fluctuations in commodity
or materials prices.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Subsidiaries on a consolidated basis
(including,
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but not limited to, Redeemable Dividends, whether paid or accrued, on Preferred
Stock of Subsidiaries, imputed interest included in Capitalized Lease
Obligations, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, the net costs
associated with hedging obligations, amortization of other financing fees and
expenses, the interest portion of any deferred payment obligation, amortization
of discount or premium, if any, and all other non-cash interest expense (other
than interest amortized to cost of sales)) plus, without duplication, all net
capitalized interest for such period and all interest incurred or paid under any
guarantee of Indebtedness (including a guarantee of principal, interest or any
combination thereof) of any Person, plus the amount of all dividends or
distributions paid on Disqualified Stock (other than dividends paid or payable
in shares of Capital Stock of the Company), less the amortization of deferred
financing costs.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP, plus,
in the case of the Company, payments by the Company to the Equity Compensation
Trust for the benefit of the beneficiaries thereof, minus Permitted Tax
Distributions (to the extent such Permitted Tax Distributions are made);
provided, however, that (a) the Net Income of any Person (the "other Person") in
which the Person in question or any of its Subsidiaries has less than a 100%
interest (which interest does not cause the net income of such other Person to
be consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) the Net
Income of any Subsidiary of the Person in question (other than TWP, if the
Person in question is the Company) that is subject to any restriction or
limitation on the payment of dividends or the making of other distributions
(other than pursuant to the Discount Notes or the Indenture) shall be excluded
to the extent of such restriction or limitation, (c) (i) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition and (ii) any net gain (but not loss) resulting from
an Asset Sale by the Person in question or any of its Subsidiaries other than in
the ordinary course of business shall be excluded and (d) extraordinary, unusual
and non-recurring gains and losses (including any related tax effects on the
Discount Note Issuers) shall be excluded.
"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholder's equity of such Person less the amount of such
stockholder's equity attributable to Disqualified Capital Stock of such Person
and its Subsidiaries, as determined in accordance with GAAP.
"Default" means any condition or event that is, or with the passing of time
or giving of any notice expressly required under the Indenture (or both), would
be, an Event of Default.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Discount Notes, for cash or securities
constituting Indebtedness; provided that Capital Stock of the Company that is
held by a current or former employee of the Company subject to a put option
and/or a call option with the Company triggered by the termination of such
employee's employment with the Company and/or the Company's performance shall
not be deemed to be Disqualified Capital Stock solely by virtue of such call
option and/or put option. Without limitation of the foregoing, Disqualified
Capital Stock shall be deemed to include (i) any Preferred Stock of a Restricted
Subsidiary of the Company and (ii) any Preferred Stock of the Company, with
respect to either of which, under the terms of such Preferred Stock, by
agreement or otherwise, such Restricted Subsidiary or the Company is obligated
to pay current dividends or distributions in cash (other than Permitted Tax
Distributions) during the period prior to the maturity date of the Discount
Notes; provided, however, that Preferred Stock of the Company or any Restricted
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer to be made for such Preferred Stock in the event of a
change of control of the Company or such Restricted Subsidiary, which provisions
have substantially the same effect as the provisions of the Indenture described
under "Change of Control," shall not be deemed to be Disqualified Capital Stock
solely by virtue of such provisions.
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"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, plus (vii) without duplication, Permitted Tax
Distributions, plus (viii) cash payments of expenses arising in connection with
the Recapitalization, minus (b) all non-cash items increasing Consolidated Net
Income for such period, all for such Person and its Subsidiaries determined in
accordance with GAAP, except that with respect to the Discount Note Issuers each
of the foregoing items shall be determined on a consolidated basis with respect
to the Discount Note Issuers and their Restricted Subsidiaries only; provided,
however, that, for purposes of calculating EBITDA during any fiscal quarter,
cash income from a particular Investment (other than in TWP or in any Subsidiary
which under GAAP is consolidated) of such Person shall be included only (x) if
cash income has been received by such Person with respect to such Investment or
(y) if the cash income derived from such Investment is attributable to Temporary
Cash Investments.
"Equity Compensation Trust" means the Company's Equity Compensation Trust
for the benefit of certain of its employees, established pursuant to the Equity
Compensation Trust Agreement, dated as of November 4, 1993, as amended by an
agreement dated as of October 1, 1997 between the Company and the trustees
thereof, and any successor trust with terms substantially similar thereto (with
an additional requirement of continued employment status).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"First Union" means First Union Corporation.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurrable" and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables or liabilities arising from advance payments or
customer deposits for goods and services sold by the Company in the ordinary
course of business, and other accrued liabilities arising in the ordinary course
of business) if and to the extent any of the foregoing indebtedness would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the
property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed (provided,
however, that if such obligation or obligations shall not have been assumed, the
amount of such indebtedness shall be deemed to be the lesser of the principal
amount of the obligation or the fair market value of the pledged property or
assets), (iii) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor), (iv) all obligations for the
reimbursement of any obligor on
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any letter of credit, banker's acceptance or similar credit transaction
(provided that in the case of any such letters of credit, the items for which
such letters of credit provide credit support are those of other Persons which
would be included within this definition for such other Persons), (v) in the
case of the Discount Note Issuers, Disqualified Capital Stock of the Discount
Note Issuers or any Restricted Subsidiary thereof, and (vi) obligations of any
such Person under any Interest Rate Agreement applicable to any of the foregoing
(if and to the extent such Interest Rate Agreement obligations would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP and (ii) that Indebtedness shall not
include any liability for federal, state, local or other taxes. Notwithstanding
any other provision of the foregoing definition, any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business shall not be deemed to be "Indebtedness" of the Company or
any Restricted Subsidiary for purposes of this definition. Furthermore,
guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Individual Investors" means the Management Investors and the former
Chairman of the Company.
"Interest Rate Agreement" shall mean any interest or foreign currency rate
swap, cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Discount Note Issuers
in connection with an acquisition of assets which is otherwise permitted by the
terms of the Indenture), loan or capital contribution to (by means of transfers
of property to others, payments for property or services for the account or use
of others or otherwise), the purchase of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities of, the acquisition,
by purchase or otherwise, of all or substantially all of the business or assets
or stock or other evidence of beneficial ownership of, any Person or the making
of any investment in any Person. Investments shall exclude extensions of trade
credit on commercially reasonable terms in accordance with normal trade
practices.
"Issue Date" means the date the Discount Notes are first issued by the
Discount Note Issuers and authenticated by the Trustee under the Indenture.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement (other than advance payments or customer deposits for goods and
services sold by the Company in the ordinary course of business), security
interest, lien, charge, easement, encumbrance, preference, priority, or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including without limitation, any
Capitalized Lease Obligation, conditional sales, or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Management Subordinated Notes" means notes issued to current or former
employees of the Company in accordance with the terms of the Executive
Agreements between the Company, TWP or TCC and such current or former employees
in existence on the Issue Date or pursuant to agreements between the Company and
then current or former employees with substantially similar terms regarding such
issuance entered into after the Issue Date.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by a
Discount Note Issuer, the aggregate net proceeds received by such Discount Note
Issuer, after payment of expenses, commissions and
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the like incurred in connection therewith, whether such proceeds are in cash or
in property (valued at the fair market value thereof, as determined in good
faith by the Board of Directors of such Discount Note Issuer, at the time of
receipt) and (b) in the case of any exchange, exercise, conversion or surrender
of outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less all
expenses incurred by the Company in connection therewith).
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture and delivered to the Trustee.
"Permitted Asset Swap" means any transfer of properties or assets by the
Company or any of its Subsidiaries in which 90% of the consideration received by
the transferor consists of properties or assets (other than cash) that will be
used in the business of the transferor; provided that (i) the aggregate fair
market value (as determined in good faith by the Board of Directors of the
Company) of the property or assets being transferred by the Company or such
Subsidiary is not greater than the aggregate fair market value (as determined in
good faith by the Board of Directors) of the property or assets received by the
Company or such Subsidiary in such exchange and (ii) the aggregate fair market
value (as determined in good faith by the Board of Directors) of all property or
assets transferred by the Company and any of its Subsidiaries (A) in connection
with any single transfer or series of related transfers shall not exceed $2.0
million and (B) in connection with all such transfers following the Issue Date
shall not exceed $5.0 million in the aggregate.
"Permitted Holders" means, collectively, (i) the Company and TCC, (ii) THL,
CIVC, CIBC Merchant Fund, First Union and any Affiliate of (including any equity
fund advised by) any of the foregoing (other than any portfolio company with
operating assets) and (iii) the Individual Investors, each of the spouses,
children (adoptive or biological) or other lineal descendants of the Individual
Investors, the probate estate of any such individual and any trust, so long as
one or more of the foregoing individuals retains substantially all of the
controlling or beneficial interest thereunder.
"Permitted Indebtedness" means:
(i) Indebtedness (A) of any Restricted Subsidiary (1) arising under or
in connection with the Senior Credit Facility in an amount, when taken
together with the amount of any outstanding Indebtedness described in
clause (B) below, not to exceed $125.0 million, which amount shall be
reduced by any mandatory prepayments actually made thereunder required as a
result of any Asset Sale or similar sale of assets (to the extent, in the
case of payments of revolving credit indebtedness, that the corresponding
commitments have been permanently reduced) and any scheduled payments
actually made thereunder or (2) that constitutes Acquisition Debt (as
defined in the Senior Credit Facility) under the Senior Credit Facility to
the extent such Indebtedness permanently reduces the aggregate commitments
available under the Senior Credit Facility and (B) of the Company or
Capital (as co-borrowers with TWP) that has been reinstated under the
Senior Credit Facility as a result of the failure of any assets to be
transferred to TransWestern in the Asset Drop-Down, but only to the extent
of the value of the assets not so transferred and only for so long as the
representations in the Senior Credit Facility relating thereto remain
untrue;
(ii) Indebtedness under the Discount Notes;
(iii) Indebtedness under the Senior Subordinated Notes and the
guarantees thereof;
(iv) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
(v) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(vi) Interest Rate Agreements;
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(vii) Refinancing Indebtedness;
(viii) Indebtedness under Commodity Hedge Agreements entered into in
the ordinary course of business consistent with reasonable business
requirements and not for speculation;
(ix) Indebtedness consisting of guarantees made in the ordinary course
of business by the Company or its Subsidiaries of obligations of the
Discount Note Issuers or any of their Subsidiaries, which obligations are
otherwise permitted under the Indenture;
(x) contingent obligations of the Company or its Subsidiaries in
respect of customary indemnification and purchase price adjustment
obligations incurred in connection with an Asset Sale; provided that the
maximum assumable liability in respect of all such obligations shall at no
time exceed the gross proceeds actually received by the Company and its
Subsidiaries in connection with such Asset Sale;
(xi) Purchase Money Indebtedness and Capitalized Lease Obligations of
the Company and its Subsidiaries incurred to acquire property in the
ordinary course of business and any refinancings, renewals or replacements
of any such Purchase Money Indebtedness or Capitalized Lease Obligation
(subject to the limitations on the principal amount thereof set forth in
this clause (x)), the principal amount of which Purchase Money Indebtedness
and Capitalized Lease Obligations shall not in the aggregate at any one
time outstanding exceed 5% of the Company's consolidated total assets
stated in accordance with GAAP as of the end of the last preceding fiscal
quarter for which financial statements are available;
(xii) the Management Subordinated Notes; and
(xiii) additional Indebtedness of the Company or any of its
Subsidiaries (other than Indebtedness specified in clauses (i) through (xi)
above) not to exceed $5.0 million in the aggregate at any one time
outstanding.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company, (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof or (c) such business or assets are owned by
the Company or a Restricted Subsidiary;
(iv) an Investment that is made by the Company in the form of any
stock, bonds, notes, debentures, partnership or joint venture interests or
other securities that are issued by a third party to either or both of the
Discount Note Issuers solely as partial consideration for the consummation
of an Asset Sale that is otherwise permitted under the covenant described
under "Limitation on Sale of Assets";
(v) Investments consisting of (a) purchases and acquisitions of
inventory, supplies, materials and equipment, or (b) licenses or leases of
intellectual property and other assets, in each case in the ordinary course
of business;
(vi) Investments consisting of (a) loans and advances to employees for
reasonable travel, relocation and business expenses in the ordinary course
of business not to exceed $1.0 million in the aggregate at any one time
outstanding, (b) loans to employees of the Company for the sole purpose of
purchasing equity of the Company, (c) extensions of trade credit in the
ordinary course of business, and (d) prepaid expenses incurred in the
ordinary course of business;
(vii) without duplication, Investments consisting of Indebtedness
permitted pursuant to clause (v) under the definition of Permitted
Indebtedness;
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(viii) Investments existing on the date of the Indenture;
(ix) Investments of the Company under Interest Rate Agreements;
(x) Investments under Commodity Hedge Agreements entered into in the
ordinary course of business consistent with reasonable business
requirements and not for speculation;
(xi) Investments consisting of endorsements for collection or deposit
in the ordinary course of business; and
(xii) Investments (other than Investments specified in clauses (i)
through (xi) above) in an aggregate amount, as valued at the time each such
Investment is made, not exceeding $5.0 million for all such Investments
from and after the Issue Date; provided that the amount available for
Investments to be made pursuant to this clause (xii) shall be increased
from time to time to the extent any return on capital is received by the
Company or a Restricted Subsidiary on an Investment previously made in
reliance on this clause (xii).
"Permitted Liens" means (i) Liens on any shares of stock of any corporation
existing at the time such corporation becomes a Restricted Subsidiary of the
Company; provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company, (ii) Liens securing Refinancing Indebtedness; provided that any such
Lien does not extend to or cover any Property, shares or debt other than the
Property, shares or debt securing the Indebtedness so refunded, refinanced or
extended, (iii) Liens in favor of the Discount Note Issuers or any of their
Restricted Subsidiaries, (iv) Liens securing industrial revenue bonds, (v) Liens
to secure Purchase Money Indebtedness and Capitalized Lease Obligations that are
permitted under clause (xi) of the definition of "Permitted Indebtedness";
provided that (a) with respect to any Purchase Money Indebtedness, any such Lien
is created solely for the purpose of securing Indebtedness representing, or
incurred to finance, refinance or refund, the cost (including sales and excise
taxes, installation and delivery charges and other direct costs of, and other
direct expenses paid or charged in connection with, such purchase or
construction) of such Property, (b) with respect to any Purchase Money
Indebtedness, the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such costs, and (c) such Lien does not extend to or cover any
Property other than the item of Property that is the subject of such Purchase
Money Indebtedness or Capitalized Lease Obligation, as the case may be, and any
improvements on such item, (vi) statutory liens or landlords, carriers',
warehouseman's, mechanics, suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor, (vii) Liens for taxes, assessments or governmental charges that
are being contested in good faith by appropriate proceedings, (viii) Liens
existing on the Issue Date; (ix) any extensions, substitutions, replacements or
renewals of the foregoing, (x) Liens incurred in the ordinary course of business
in connection with worker's compensation, unemployment insurance or other forms
of government insurance or benefits, or to secure the performance of letters of
credit, bids, tenders, statutory obligations, surety and appeal bonds, leases,
government contracts and other similar obligations (other than obligations for
borrowed money) entered into in the ordinary course of business, (xi) any
attachment or judgment Lien not constituting an Event of Default under the
Indenture that is being contested in good faith by appropriate proceedings and
for which adequate reserves have been established in accordance with GAAP (if so
required), (xii) Liens arising from the filing, for notice purposes only of
financing statements in respect of operating leases, (xiii) Liens arising by
operation of law in favor of depositary banks and collecting banks, incurred in
the ordinary course of business, (xiv) Liens consisting of restrictions on the
transfer of securities pursuant to applicable federal and state securities laws,
(xv) interests of lessors and licensors under leases and licenses to which the
Discount Note Issuers is a party, (xvi) with respect to any real property
occupied by the Company, all easements, rights of way, licenses and similar
encumbrances on or defects of title that do not materially impair the use of
such property for its intended purposes and (xvii) Liens on assets of the
Company or Capital not transferred to TransWestern in the Asset Drop-Down that
have been reinstated under the Senior Credit Facility, but only to the extent of
the value of
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the assets not so transferred and only for so long as the representations in the
Senior Credit Facility relating thereto shall remain untrue.
"Permitted Tax Distributions" means distributions by the Company or TWP to
their respective partners or members from time to time in an amount
approximately equal to the income tax liability of such partners or members of
the Company or TWP, as the case may be, resulting from the taxable income of the
Company or TWP, as the case may be (after taking into account, to the extent
they may reduce such tax liability, all of the prior tax losses of the Company
or TWP, as the case may be, to the extent such losses have not previously been
deemed to reduce the taxable income of the Company or TWP, as the case may be,
and thereby reduce distributions for taxes in accordance herewith); such
distribution for taxes shall be based on the approximate highest combined tax
rate that applies to any one of the partners or members of the Company or TWP,
as the case may be.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Equity Offering" means a public offering by the Company, Capital,
TWP, Capital II or TCC of shares of its Common Stock (however designated and
whether voting or non-voting) and any and all rights, warrants or options to
acquire such Common Stock, provided, however, that in connection with any such
Public Equity Offering the net proceeds of such Public Equity Offering are
contributed to the Company as common equity.
"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance (within 90 days from incurrence) the cost (including the cost of
construction) of an item of Property acquired in the ordinary course of
business, the principal amount of which Indebtedness does not exceed the sum of
(i) 100% of such cost and (ii) reasonable fees and expenses of such Person
incurred in connection therewith.
"Recapitalization" means the transactions described in the Recapitalization
Agreement.
"Recapitalization Agreement" means the Securities Purchase and Redemption
Agreement dated August 27, 1997 by and among the Company, TCC, TWP
Recapitalization Corp., THL and certain limited partners of the Company and TCC,
as amended as of September 30, 1997.
"Redeemable Dividend" means, for any dividend or distribution (other than
Permitted Tax Distributions) with regard to Disqualified Capital Stock, the
quotient of the dividend or distribution divided by the difference between one
and the maximum statutory federal income tax rate (expressed as a decimal number
between 1 and 0) then applicable to the issuer of such Disqualified Capital
Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted
Subsidiaries pursuant to the terms of the Indenture, but only to the extent that
(i) the Refinancing Indebtedness is subordinated to the Discount Notes to at
least the same extent as the Indebtedness being refunded, refinanced or
extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature
either (a) no earlier than the Indebtedness being refunded, refinanced or
extended, or (b) after the maturity date of the Discount Notes, (iii) the
portion, if any, of the Refinancing Indebtedness that is scheduled to mature on
or prior to the maturity date of the Discount Notes has a weighted average life
to maturity at the time such Refinancing Indebtedness is incurred that is equal
to or greater than the weighted average life to maturity of the portion of the
Indebtedness being refunded, refinanced or extended that is scheduled to mature
on or prior to the maturity date of the Discount Notes, (iv) such Refinancing
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Indebtedness is in an aggregate principal amount that is equal to or less than
the sum of (a) the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended, (b) the amount of accrued
and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness, and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended, except that the Company
may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness
of any Wholly-Owned Subsidiary of the Company.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Discount Note Issuers or any Restricted Subsidiary of the Discount Note
Issuers or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of the Discount Note Issuers or any
Restricted Subsidiary of the Discount Note Issuers (other than (x) dividends or
distributions payable solely in Capital Stock (other than Disqualified Capital
Stock) or in options, warrants or other rights to purchase Capital Stock (other
than Disqualified Capital Stock), (y) Permitted Tax Distributions and (z) in the
case of Restricted Subsidiaries of the Company, dividends or distributions
payable to the Company or to a Wholly-Owned Subsidiary of the Company), (ii) the
purchase, redemption or other acquisition or retirement for value of any Capital
Stock of the Company or any of its Restricted Subsidiaries (other than Capital
Stock owned by the Company or a Wholly-Owned Subsidiary of the Company,
excluding Disqualified Stock), (iii) the making of any principal payment on, or
the purchase, defeasance, repurchase, redemption or other acquisition or
retirement for value, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund payment, of any Indebtedness which is subordinated in
right of payment to the Discount Notes other than subordinated Indebtedness
acquired in anticipation of satisfying a scheduled sinking fund obligation,
principal installment or final maturity (in each case due within one year of the
date of acquisition), (iv) without limiting the generality of the foregoing
clause (iii), the making of any principal or interest payment on the Management
Subordinated Notes, (v) the making of any payments to the Equity Compensation
Trust, (vi) the making of any Investment or guarantee of any Investment in any
Person other than a Permitted Investment, (vii) any designation of a Restricted
Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the
Discount Note Issuers therein and (viii) forgiveness of any Indebtedness of an
Affiliate of the Discount Note Issuers (other than a Restricted Subsidiary) to
the Discount Note Issuers or a Restricted Subsidiary. For purposes of
determining the amount expended for Restricted Payments, cash distributed or
invested shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value determined by the Company's Board of
Directors. In no event shall the term "Restricted Payment" include any payment
from TWP to the Company (in its capacity as a member of TWP).
"Restricted Subsidiary" means TWP and any other Subsidiary of the Company
other than an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Unrestricted Subsidiary or any Person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), the Discount Note Issuers could have incurred at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the "Limitation on Additional Indebtedness" covenant.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal Property, which Property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means the Credit Agreement, dated as of October 1,
1997, among TWP, Capital II, the lenders listed therein and Canadian Imperial
Bank of Commerce, as administrative agent, and First Union National Bank, as
documentation agent, as amended and restated as of November 6, 1997, together
with the documents related thereto (including, without limitation, any guarantee
agreements and
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security documents), in each case as such agreements may be amended (including
any amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including adding Subsidiaries of TWP as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Senior Subordinated Notes" means the 9 5/8% Senior Subordinated Notes due
2007 of TWP and Capital II.
"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
first-named Person or any of its Subsidiaries; or (ii) in the case of a
partnership, limited liability company, joint venture, association or other
business entity, with respect to which such first named Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise or if in accordance with
GAAP such entity is consolidated with the first-named Person for financial
statement purposes.
"TCC" means TransWestern Communications Company, Inc., a Delaware
corporation, which is the general partner of the Company and the managing member
of TWP.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500.0 million and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"THL" means Thomas H. Lee Equity Fund III, L.P.
"TWP" means TransWestern Publishing Company LLC, a Delaware limited
liability company.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company; provided that a Subsidiary organized or acquired after
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in compliance with the covenant set forth under "Limitation on
Restricted Payments" and with the indenture relating to the Senior Subordinated
Notes. The Trustee shall be given prompt notice by the Company of each
resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
"Wholly-Owned Subsidiary" of a specified Person means any Subsidiary (or,
if such specified Person is the Company, a Restricted Subsidiary), all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by such Person. Notwithstanding the
foregoing, TWP will be deemed a Wholly-Owned Subsidiary of the Company so long
as the Company owns at least 99% of the total voting and economic power of the
Common Stock of TWP.
BOOK-ENTRY; DELIVERY AND FORM
Exchange Discount Notes initially will be represented by one or more notes
in registered, global form without interest coupons (collectively, the "Global
Discount Note"). The Global Discount Note will be deposited upon issuance with
the Trustee, as custodian for The Depository Trust Company ("DTC"), in New
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York, New York, and registered in the name of DTC or its nominee, in each case
for credit to an account of a direct or indirect participant as described below.
Except as set forth below, the Global Discount Note may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Discount Note may not be
exchanged for Discount Notes in certificated form except in the limited
circumstances described below.
The Discount Notes may be presented for registration of transfer and
exchange at the offices of the Registrar.
DTC has advised the Discount Note Issuers that DTC is a limited-purpose
trust company created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in those securities between the Participants through
electronic book-entry changes in accounts of the Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interest and transfer of ownership interest
of each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and the Indirect Participants.
DTC has also advised the Discount Note Issuers that pursuant to procedures
established by it, (i) upon deposit of the Global Discount Note, DTC will credit
the accounts of Participants designated by the exchanging holders with portions
of the principal amount of the Global Discount Note and (ii) ownership of such
interests in the Global Discount Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interests in the Global
Discount Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in the Global Discount Note to such persons may be
limited to that extent. Because DTC can act only on behalf of the Participants,
which in turn act on behalf of the Indirect Participants and certain banks, the
ability of a person having beneficial interests in the Global Discount Note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interests in the Global Discount Note
will not have Discount Notes registered in their names, will not receive
physical delivery of Discount Notes in certificated form and will not be
considered the registered owners or holders thereof under the Indenture for any
purpose.
Payments in respect of the Accreted Value or principal of (and premium, if
any) and interest on the Global Discount Note registered in the name of DTC or
its nominee will be payable to DTC or its nominee in its capacity as the
registered holder under the Indenture. Under the terms of the Discount Note
Indenture, the Discount Note Issuers and the Trustee will treat the persons in
whose names the Discount Notes, including the Global Discount Note, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, none of the Discount
Note Issuers or the Trustee nor any agent of the Discount Note Issuers or the
Trustee has or will have any responsibility or liability for (i) any aspect or
accuracy of DTC's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Discount Note, or for maintaining, supervising or reviewing any of DTC's
records or any Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Discount Note, or (ii) any other
matter relating to the actions and practices of DTC or any of the Participants
or the Indirect Participants.
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DTC has advised the Discount Note Issuers that its current practice, upon
receipt of any payment in respect of securities such as the Discount Notes
(including Accreted Value or principal and interest), is to credit the accounts
of the relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the relevant security as shown on the records of DTC. Payments by
the Participants and the Indirect Participants to the beneficial owners of
Discount Notes will be governed by standing instructions and customary practices
and will not be the responsibility of DTC, the Trustee or the Discount Note
Issuers. Neither the Discount Note Issuers nor the Trustee will be liable for
any delay by DTC or any of the Participants in identifying the beneficial owners
of the Discount Notes, and the Discount Note Issuers and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the Global Discount Note for all
purposes.
Interests in the Global Discount Note will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and the Participants. Transfers between Participants
in DTC will be effected in accordance with DTC's procedures and will be settled
in same-day funds.
DTC has advised the Discount Note Issuers that it will take any action
permitted to be taken by a holder of Discount Notes only at the direction of one
or more Participants to whose account with DTC interests in the Global Discount
Note are credited and only in respect of such portion of the aggregate principal
amount of the Discount Notes as to which such Participant or Participants has or
have given such direction. However, if any of the events described under
"--Exchange of Book Entry Discount Notes for Certificated Discount Notes"
occurs, DTC reserves the right to exchange the Global Discount Note for Discount
Notes in certificated form and to distribute such Discount Notes to its
Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Discount Note among accountholders in DTC it is under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Discount Note Issuers or
the Trustee nor any agent of the Discount Note Issuers or the Trustee will have
any responsibility for the performance by DTC or its respective participants,
indirect participants or accountholders of their respective obligations under
the rules and procedures governing their operations.
Exchange of Book-Entry Discount Notes for Certificated Discount Notes
The Global Discount Note is exchangeable for definitive Discount Notes in
registered certificated form if (i) DTC (x) notifies the Discount Note Issuers
that it is unwilling or unable to continue as depository for the Global Discount
Note and the Discount Note Issuers thereupon fail to appoint a successor
depository or (y) has ceased to be a clearing agency registered under the
Exchange Act, (ii) the Discount Note Issuers, at their option, notify the
Trustee in writing that they elect to cause the issuance of the Discount Notes
in certificated form or (iii) there shall have occurred and be continuing a
Default or an Event of Default with respect to the Discount Notes. In all cases,
certificated Discount Notes delivered in exchange for the Global Discount Note
or beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of DTC (in accordance with
its customary procedures).
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of material U.S. federal income tax
consequences of the acquisition, ownership and disposition of the Discount
Notes. This discussion does not consider all aspects of U.S. federal income
taxation that may be relevant to the purchase, ownership and disposition of the
Discount Notes by a prospective investor in light of such investor's personal
circumstances. In particular, this discussion does not address the U.S. federal
income tax consequences of the acquisition, ownership and disposition of
Discount
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Notes not held as capital assets within the meaning of Section 1221 of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), or the U.S. federal
income tax consequences to investors subject to special treatment under the U.S.
federal income tax laws, such as dealers in securities or foreign currency,
tax-exempt entities, financial institutions, insurance companies, persons that
hold the Discount Notes as part of a "straddle," "hedge," "conversion
transaction" or other integrated investment, persons that have a "functional
currency" other than the U.S. dollar, and investors in pass-through entities. In
addition, this discussion does not describe any U.S. federal alternative minimum
tax consequences, and does not describe any tax consequences arising under U.S.
federal gift and estate or other U.S. federal tax laws (except to the limited
extent set forth below under "Non-U.S. Holders") or under the tax laws of any
state, local or foreign jurisdiction.
This discussion is based upon the Code, existing regulations thereunder,
and current administrative rulings and court decisions. All of the foregoing are
subject to change, possibly on a retroactive basis, and any such change could
affect the continuing validity of this discussion.
EXCHANGE OF DISCOUNT NOTES
The Discount Note Issuers believe that the exchange of Old Discount Notes
for Exchange Discount Notes pursuant to the Discount Note Exchange Offer will
not be treated as an "exchange" for federal income tax purposes because the
Exchange Discount Notes will not be considered to differ materially in kind or
extent from the Old Discount Notes. Rather, the Exchange Discount Notes received
by a holder will be treated as a continuation of the Old Discount Notes in the
hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging Old Discount Notes for Exchange Discount
Notes pursuant to the Discount Note Exchange Offer.
Persons considering the exchange of Old Discount Notes should consult their
own tax advisors concerning the application of U.S. federal income, estate and
other tax laws, as well as the laws of any state, local or foreign taxing
jurisdiction, to their particular situations.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Discount Note that is (i) a citizen or
resident (as defined in Section 7701(b)(1) of the Code) of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or therein, (iii) an estate the
income of which is subject to U.S. federal income tax regardless of its source,
or (iv) a trust if a court within the United States is able to exercise primary
supervision over the trust's administration and one or more United States
persons have the authority to control all its substantial decisions (a "U.S.
Holder"). Certain U.S. federal income tax consequences relevant to a holder
other than a U.S. Holder are discussed separately below.
ORIGINAL ISSUE DISCOUNT ON THE DISCOUNT NOTES
The Discount Notes were issued with original issue discount ("OID"), and
U.S. Holders of the Discount Notes (including cash basis holders) will be
required to include such OID in income as interest income on a constant yield
basis, generally in advance of the receipt of the cash payments to which such
income is attributable and generally in increasing amounts until November 15,
2002.
The total amount of OID with respect to a Discount Note will be equal to
the excess of the "stated redemption price at maturity" of such Discount Note
over its "issue price". The "stated redemption price at maturity" of a Discount
Note will be the sum of all payments (other than payments of Penalty Interest,
as defined below), whether denominated as interest or principal, required to be
made on such Discount Note other than payments of "qualified stated interest".
Qualified stated interest is stated interest that is unconditionally payable at
least annually at a single fixed rate that appropriately takes into account the
length of the interval between payments. Because interest is not payable on the
Discount Notes until November 15, 2002, none of the interest payments on a
Discount Note will constitute qualified stated interest and all such
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payments will be included in the Discount Note's stated redemption price at
maturity. The "issue price" of a Discount Note will be the first price to the
public (not including bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters or wholesalers) at which a substantial
portion of the Discount Notes are initially sold.
The amount of OID required to be included in a U.S. Holder's income with
respect to a Discount Note for any taxable year (regardless of whether such
holder uses the cash or accrual method of accounting) is the sum of the daily
portions of OID with respect to the Discount Note for each day during the
taxable year or portion thereof in which such holder holds such Discount Note. A
daily portion is determined by allocating to each day in any "accrual period" a
pro rata portion of the OID allocable to that accrual period. Accrual periods
with respect to a Discount Note may be of any length selected by the holder and
may vary in length over the term of the Discount Note as long as (i) no accrual
period is longer than one year and (ii) each scheduled payment of interest or
principal on the Discount Note occurs on either the first or final day of an
accrual period. The amount of OID allocable to each accrual period will be the
product of the adjusted issue price of the Discount Note at the beginning of
that accrual period and the yield to maturity of such Discount Note (determined
on the basis of a compounding assumption that reflects the length of the accrual
period). The adjusted issue price of a Discount Note at the beginning of an
accrual period will be its original issue price, increased by all previously
accrued OID (disregarding any reduction on account of acquisition premium,
described below) and reduced by the amount of all previous cash payments (other
than payments of Penalty Interest, described below) on the Discount Note. The
yield to maturity is the interest rate, expressed as a constant annual interest
rate, that when used in computing the present value of all payments of principal
and interest (other than payments of Penalty Interest, described below) to be
paid in connection with a Discount Note produces an amount equal to the issue
price of the Discount Note.
Treatment of Additional Discount Notes. The issuance of additional notes
("Additional Discount Notes") in lieu of cash interest is not treated as a
payment of interest. Instead, the underlying Discount Note and any Additional
Discount Notes that may be issued thereon are treated as a single debt
instrument under the OID rules. Moreover, because the terms of an Additional
Discount Note and the underlying Discount Note are identical so that the two are
fungible in all respects, the issuance of an Additional Discount Note should be
treated simply as a division of the underlying Discount Note, so that a U.S.
Holder's tax basis and adjusted issue price in the underlying Discount Note
should be allocated between the underlying Discount Note and any Additional
Discount Notes in proportion to their relative principal amounts. That is, upon
the issuance of an Additional Discount Note with respect to a Discount Note, the
underlying Discount Note and the Additional Discount Note derived therefrom are
treated as initially having the same adjusted issue price and inherent amount of
OID per dollar of principal amount. The underlying Discount Note and the
Additional Discount Note derived therefrom also would be treated as having the
same yield to maturity. Similar treatment would be applied when new Additional
Discount Notes were issued with respect to outstanding Additional Discount
Notes.
The Discount Note Issuers will provide certain information to the IRS, and
will furnish annually to record holders of the Discount Notes information with
respect to OID accruing during the calendar year. Because this information will
be based upon the adjusted issue price of the Discount Note as if the holder
were the original holder of the instrument who purchased it at the original
price, holders who purchase the Discount Notes for an amount other than the
original issue price will be required to determine for themselves the amount of
OID with respect to the Discount Notes they hold.
ACQUISITION OR BOND PREMIUM AND MARKET DISCOUNT
Acquisition Premium. A U.S. Holder who purchases a Discount Note for an
amount that is greater than its adjusted issue price as of the purchase date
will be considered to have purchased such Discount Note at an "acquisition
premium". The amount of OID that such holder must include in its gross income
with respect to such Discount Note for any taxable year is generally reduced by
the portion of such acquisition premium properly allocable to such year.
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Bond Premium. If a U.S. Holder purchases a Discount Note and immediately
after the purchase the adjusted basis of the Discount Note exceeds the sum of
all amounts payable on the instrument after the purchase date (other than
qualified stated interest), the Discount Note has "bond premium". A U.S. Holder
may elect to amortize such bond premium over the remaining term of such Discount
Note (or, if it results in a smaller amount of amortizable bond premium, until
an earlier call date).
If bond premium is amortized, the amount of interest that must be included
in the U.S. Holder's income for each period ending on an interest payment date
or at the stated maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the Discount Note's yield to maturity.
If such an election to amortize bond premium is not made, a U.S. Holder must
include the full amount of each interest payment in income in accordance with
its regular method of accounting and will receive a tax benefit from the premium
only in computing such U.S. Holder's gain or loss upon the sale or other
disposition or payment of the principal amount of the Discount Note.
An election to amortize premium will apply to amortizable bond premium on
all Discount Notes and other bonds, the interest on which is includable in the
U.S. Holder's gross income, held at the beginning of the U.S. Holder's first
taxable year to which the election applies or that are thereafter acquired and
may be revoked only with the consent of the IRS.
Market Discount. If a U.S. Holder purchases a Discount Note for an amount
that is less than its "revised issue price" as of the purchase date, the amount
of the difference generally will be treated as "market discount," unless such
difference is less than a specified de minimis amount. The Code provides that
the revised issue price of a Discount Note equals its issue price plus the
amount of OID includable in the income of all holders for periods prior to the
purchase date (disregarding any deduction for acquisition premium) reduced by
the amount of all prior cash payments (other than payments of Penalty Interest,
described below) on the Discount Notes. Subject to a de minimis exception, a
U.S. Holder will be required to treat any gain recognized on the sale, exchange,
redemption, retirement or other disposition of the Discount Notes as ordinary
income to the extent of the accrued market discount that has not previously been
included in income. In addition, a U.S. Holder may be required to defer, until
the maturity date of the Discount Note or its earlier disposition in a taxable
transaction, the deduction of a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Discount Note.
Any market discount will be considered to accrue on a straight line basis
during the period from the date of acquisition to the maturity date of the
Discount Note, unless the holder elects to accrue market discount on a constant
interest method. A U.S. Holder of a Discount Note may elect to include market
discount in income currently as it accrues (under either the straight line or
constant interest method). This election to include market discount currently,
once made, applies to all market discount obligations acquired in or after the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS. If a U.S. Holder of Discount Notes makes such an
election, the foregoing rules with respect to the recognition of ordinary income
on sales and other dispositions of such instruments and with respect to the
deferral of interest deductions on debt incurred or maintained to purchase or
carry such debt instruments would not apply.
ELECTION TO TREAT ALL INTEREST AS OID
A U.S. Holder of a Discount Note may elect, subject to certain limitations,
to include all interest that accrues on the Discount Note in gross income on a
constant yield basis. For purposes of this election, interest includes stated
interest, OID, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium or acquisition premium.
In applying the constant yield method to a Discount Note with respect to
which this election has been made, the issue price of the Discount Note will
equal the holder's basis in the Discount Note immediately after its acquisition,
the issue date of the Discount Note will be the date of its acquisition by the
holder, and no payments on the Discount Note will be treated as payments of
qualified stated interest. The election generally will apply only to the
Discount Note with respect to which it is made and may not be revoked without
the consent of the IRS.
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If the election to apply the constant yield method to all interest on a
Discount Note is made with respect to a Discount Note on which there is market
discount, the electing holder will be treated as having made the election
described above under "Acquisition or Bond Premium and Market Discount -- Market
Discount" to include market discount in income currently over the life of all
debt instruments held or thereafter acquired by such holder.
EXCHANGE DISCOUNT NOTES
Neither an exchange of Discount Notes for Exchange Discount Notes of the
Discount Note Issuers with terms identical to those of the Discount Notes nor
the filing of a registration statement with respect to the resale of the
Discount Notes should be a taxable event to holders of Discount Notes, and
holders should not recognize any taxable gain or loss or any interest income as
a result of such an exchange or such a filing. The Issuers are obligated to pay
additional interest ("Penalty Interest") to the holder under certain
circumstances described under "The Discount Note Exchange Offer -- Purpose and
Effect of the Discount Note Exchange Offer" above. Any such payments should be
treated for tax purposes as interest, taxable to holders as such payments become
fixed and payable.
SALE, EXCHANGE AND RETIREMENT OF DISCOUNT NOTES
A holder's adjusted tax basis in a Discount Note will, in general, equal
the holder's cost for the Discount Note, increased by any amounts included in
income as OID, market discount or de minimis market discount which the holder
has previously elected to accrue in gross income on an annual basis and reduced
by any amortized premium which the holder has previously elected to offset
against interest on the Discount Note and any cash payments (other than payments
of Penalty Interest) in respect of the Discount Note. Upon the sale, exchange,
redemption, retirement or other disposition of a Discount Note, a holder
generally will recognize gain or loss equal to the difference between the amount
realized on such sale, exchange, redemption or retirement and the holder's tax
basis in the Discount Note. Except as described above regarding market discount,
gain or loss recognized by a holder on the sale, exchange, redemption or
retirement of a Discount Note will be capital gain or loss and will, in the case
of individuals, be long-term capital gain or loss subject to a maximum rate of
20% if the Discount Note has been held for more than eighteen months at the time
of such disposition. An individual will be taxed on his or her net capital gain
at a rate of 28% for property held for 18 months or less but more than one year.
Special rules (and generally lower maximum rates) apply for individuals in lower
tax brackets.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a U.S. Holder of a Discount Note may be subject, under
certain circumstances, to information reporting and or backup withholding at a
31% rate with respect to cash payments in respect of interest on, or the gross
proceeds from disposition of, a Discount Note. This withholding applies only if
a U.S. Holder (i) fails to furnish its social security or other taxpayer
identification number ("TIN") within a reasonable time after a request therefor,
(ii) furnishes an incorrect TIN, (iii) fails to report interest or dividends
properly, or (iv) fails, under certain circumstances, to provide a certified
statement, signed under penalties of perjury, that the TIN provided is its
correct number and that it is not subject to backup withholding. Any amount
withheld from a payment to a U.S. Holder under the backup withholding rules is
allowable as a credit (and may entitle such holder to a refund) against such
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS. Certain persons are exempt from backup
withholding, including corporations and financial institutions. Holders of
Discount Notes should consult their tax advisors as to their qualification for
exemption from withholding and the procedure for obtaining such exemption.
NON-U.S. HOLDERS
The following discussion is limited to certain U.S. federal income and
estate tax consequences relevant to a holder of a Discount Note that is not a
U.S. Holder (a "Non-U.S. Holder").
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This discussion does not deal with all aspects of U.S. federal income and
estate taxation that may be relevant to the purchase, ownership or disposition
of the Discount Notes by any particular Non-U.S. Holder in light of such
holder's personal circumstances, including holding the Discount Notes through a
partnership. For example, persons who are partners in foreign partnerships or
beneficiaries of foreign trusts or estates and who are subject to U.S. federal
income tax because of their own status, such as United States residence or
foreign persons engaged in a trade or business in the United States, may be
subject to U.S. federal income tax even though the entity is not subject to
income tax on disposition of its Discount Note.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of a Discount Note will be considered "U.S. trade
or business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business and (ii) in the case of a qualified resident
of a country having an applicable income tax treaty with the United States
containing a permanent establishment provision, attributable to a U.S. permanent
establishment (or to a fixed base) in the United States.
STATED INTEREST AND OID
Generally, any interest and OID, if any, actually paid to a Non-U.S. Holder
of a Discount Note that is not U.S. trade or business income will not be subject
to U.S. federal income tax (or withholding of tax) if such amounts qualify as
"portfolio interest". Interest and OID on the Discount Notes will qualify as
portfolio interest if (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total capital or profits interests in the
Company and is not a "controlled foreign corporation" with respect to which
either of the Discount Note Issuers is a "related person" within the meaning of
Section 881(c)(3)(C) of the Code or (ii) either (a) the beneficial owner, under
penalties of perjury, certifies that the beneficial owner is not a U.S. person
and such certificate provides the beneficial owner's name and address or (b) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") certifies, under penalties of perjury, that such
statement has been received from the beneficial owner by it or by another
financial institution and furnishes the Discount Note Issuers or their agent
with a copy thereof.
The gross amount of payments to a Non-U.S. Holder of interest and OID, if
any, that do not qualify for the portfolio interest exception and that are not
U.S. trade or business income will be subject to U.S. withholding tax at the
rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate
withholding. U.S. trade or business income will be taxed at regular U.S. federal
income tax rates rather than the 30% gross withholding tax rate and, if the
Non-U.S. Holder is a foreign corporation, may be subject to a branch profits tax
equal to 30% of its "effectively connected earnings and profits," as adjusted
for certain items, unless it qualifies for a lower rate under an applicable
treaty. To claim the benefit of a tax treaty or to claim exemption from
withholding because the income is U.S. trade or business income, the Non-U.S.
Holder must provide a properly executed Form 1001 or 4224 (or such successor
forms as the IRS designates), as applicable, prior to payment of interest. These
forms must be periodically updated. Under regulations effective as of January 1,
1999, the Forms 1001 and 4224 may be replaced by Form W-8. Also under
regulations effective as of January 1, 1999, a Non-U.S. Holder who is claiming
the benefits of a tax treaty may be required to obtain a U.S. taxpayer
identification number and to provide certain documentary evidence issued by
foreign governmental authorities to prove residence in the foreign country.
Certain special procedures are provided in the regulations for payments through
qualified intermediaries.
SALE, EXCHANGE OR REDEMPTION OF DISCOUNT NOTES
Except as described below and subject to the discussion concerning backup
withholding, gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a Discount Note generally will not be subject to U.S. federal
income tax, unless (i) such gain is U.S. trade or business income, (ii) subject
to certain exceptions, the Non-U.S. Holder is an individual who holds the
Discount Note as a capital asset and is present in the United States for 183
days or more in the taxable year of the disposition or (iii) the Non-U.S. Holder
is subject to certain provisions applicable to certain U.S. expatriated persons.
133
<PAGE> 139
FEDERAL ESTATE TAX
Discount Notes held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his or her death will not be subject to U.S. federal
estate tax, provided that any interest on the Discount Notes would have
qualified as portfolio interest if received by such individual at the time of
his or her death.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Discount Note Issuers must report annually to the IRS and to each
Non-U.S. Holder any interest and OID, if any, that is subject to U.S.
withholding tax or that is exempt from withholding pursuant to a tax treaty or
the portfolio interest exception. Copies of these information returns also may
be made available, under the provisions of a specific treaty or agreement, to
the tax authorities of the country in which the Non-U.S. Holder resides.
The regulations provide that backup withholding and information reporting
will not apply to payments of principal on the Discount Notes by the Company to
a Non-U.S. Holder if such holder certifies as to its non-U.S. status under
penalties of perjury or otherwise establishes an exemption (provided that
neither the Discount Note Issuers nor their paying agent has actual knowledge
that the Holder is a U.S. Holder or that the conditions of any other exemption
are not, in fact, satisfied).
The payment of the proceeds from the disposition of Discount Notes to or
through the United States office of any broker, U.S. or foreign, will be subject
to information reporting and possible backup withholding unless the owner
certifies as to its non-U.S. status under penalties of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the holder is a U.S. Holder or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the proceeds from the
disposition of a Discount Note to or through a non-U.S. office of a non-U.S.
broker that is not a "U.S. related person" will not be subject to information
reporting or backup withholding. (For this purpose, a "U.S. related person" is
(i) a "controlled foreign corporation" for U.S. federal income tax purposes or
(ii) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
U.S. trade or business.)
In the case of the payment of proceeds from the disposition of Discount
Notes to or through a non-U.S. office of a broker that is either a U.S. person
or a U.S. related person, the regulations require information reporting on the
payment unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. Holder).
Regulations effective as of January 1, 1999 provide similar rules but, in
the case of payment of proceeds inside the United States, may require an
additional certification that the beneficial owner has not and does not expect
to be present in the United States for a period of 183 days or more during the
year. Each Non-U.S. Holder should consult such Holder's own tax advisor to
determine the applicability of these regulations to its particular situation.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Discount Notes for
its own account pursuant to the Discount Note Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Discount Notes. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in connection with the
resale of Exchange Discount Notes received in exchange for Old Discount Notes
where such Old Discount Notes were acquired as a result
134
<PAGE> 140
of market-making activities or other trading activities. The Discount Note
Issuers have agreed that for a period of 180 days after the Expiration Date,
they will make this Prospectus, as amended or supplemented, available to any
Participating Broker-Dealer for use in connection with any such resale. In
addition, until , 1998 (90 days after the commencement of the
Discount Note Exchange Offer), all dealers effecting transactions in the
Exchange Discount Notes may be required to deliver a prospectus.
The Discount Note Issuers will not receive any proceeds from any sales of
the Exchange Discount Notes by Participating Broker Dealers. Exchange Discount
Notes received by Participating Broker-Dealers for their own account pursuant to
the Discount Note Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Discount Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Exchange Discount
Notes. Any Participating Broker-Dealer that resells the Exchange Discount Notes
that were received by it for its own account pursuant to the Discount Note
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Discount Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of Exchange
Discount Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Discount Note
Issuers will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Exchange Discount
Notes will be passed upon for the Issuers by Kirkland & Ellis, Chicago, Illinois
(a partnership which includes professional corporations). Certain partners of
Kirkland & Ellis are also partners of KLANS Associates, a partnership that
invested in the Partnership and TCC in connection with the 1993 Acquisition. In
the Recapitalization, KLANS Associates received $2.1 million for the redemption
of all of its holdings of Partnership interests and for the sale of all of its
holdings of TCC common stock.
EXPERTS
The consolidated financial statements of TransWestern Holdings L.P. at
April 30, 1996 and 1997 and for each of the three years in the period ended
April 30, 1997 included in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
135
<PAGE> 141
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TRANSWESTERN HOLDINGS L.P.
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Consolidated Balance Sheets as of April 30, 1996 and 1997 and October 31, 1997
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for each of the three years in the period ended
April 30, 1997 and the six months ended October 31, 1996 and 1997 (unaudited)....... F-4
Consolidated Statements of Changes in Partnership Deficit for each of three years in
the period ended April 30, 1997 and for the six months ended October 31, 1997
(unaudited)......................................................................... F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
April 30, 1997 and the six months ended October 31, 1996 and 1997 (unaudited)....... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 142
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
TransWestern Holdings L.P.
We have audited the accompanying consolidated balance sheets of
TransWestern Holdings L.P. as of April 30, 1996 and 1997 and the related
consolidated statements of operations, changes in partnership deficit and cash
flows for each of the three years in the period ended April 30, 1997. These
consolidated financial statements are the responsibility of Holdings'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TransWestern
Holdings L.P. at April 30, 1996 and 1997 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
April 30, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
June 6, 1997, except for "Organization, Business
Activity and Basis of Presentation" under Note 1,
as to which the date is November 6, 1997
F-2
<PAGE> 143
TRANSWESTERN HOLDINGS L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30,
--------------------- OCTOBER 31,
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 1,320 $ 1,254 $ 2,223
Trade receivables (less allowance for doubtful accounts
of $5,314 in 1996 and $7,626 in 1997 ($7,771 at
October 31, 1997 (unaudited))........................ 21,449 23,279 17,230
Deferred directory costs................................ 5,667 6,412 8,417
Other current assets.................................... 765 518 475
-------- -------- --------
Total current assets...................................... 29,201 31,463 28,345
Property, equipment and leasehold improvements, net....... 2,759 2,840 2,881
Acquired intangibles, net................................. 12,867 12,093 9,281
Other assets, primarily debt issuance costs, net.......... 2,596 1,835 8,246
-------- -------- --------
$ 47,423 $ 48,231 $ 48,753
======== ======== ========
LIABILITIES AND PARTNERSHIP DEFICIT
Current liabilities:
Accounts payable........................................ $ 3,191 $ 3,901 $ 2,925
Salaries and benefits payable........................... 3,757 4,112 2,498
Other accrued liabilities............................... 1,636 1,503 4,753
Amount due general partner.............................. 754 805 --
Customer deposits....................................... 9,281 10,197 14,752
Current portion, long-term debt......................... 8,494 10,921 2,555
-------- -------- --------
Total current liabilities................................. 27,113 31,439 27,483
Long-term debt............................................ 75,916 67,514 173,875
Partnership deficit:
General Partner......................................... (564) (517) (2,234)
Limited Partners........................................ (55,042) (50,205) (150,371)
-------- -------- --------
Total partnership deficit................................. (55,606) (50,722) (152,605)
-------- -------- --------
$ 47,423 $ 48,231 $ 48,753
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 144
TRANSWESTERN HOLDINGS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED APRIL 30, OCTOBER 31,
--------------------------- -----------------
1995 1996 1997 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues..................................... $69,845 $77,731 $91,414 $38,050 $38,254
Cost of sales.................................... 16,956 18,202 19,500 8,996 9,172
------- ------- ------- ------- -------
Gross profit................................... 52,889 59,529 71,914 29,054 29,082
Operating expenses:
Sales and marketing............................ 27,671 29,919 36,640 15,888 17,114
General and administrative..................... 13,279 14,276 16,821 7,870 7,893
Contributions to equity compensation plan...... 525 796 -- -- 5,543
------- ------- ------- ------- -------
Total operating expenses......................... 41,475 44,991 53,461 23,758 30,550
------- ------- ------- ------- -------
Income (loss) from operations.................... 11,414 14,538 18,453 5,296 (1,468)
Other income (expense), net...................... 470 375 48 18 (107)
Interest expense................................. (4,345) (6,630) (7,816) (4,029) (4,333)
------- ------- ------- ------- -------
(3,875) (6,255) (7,768) (4,011) (4,440)
------- ------- ------- ------- -------
Income (loss) before extraordinary item.......... 7,539 8,283 10,685 1,285 (5,908)
Extraordinary (loss)............................. (392) (1,368) -- -- (1,391)
------- ------- ------- ------- -------
Net income (loss)................................ $ 7,147 $ 6,915 $10,685 $ 1,285 $(7,299)
======= ======= ======= ======= =======
Net income (loss) allocated to General Partner
units.......................................... $ 71 $ 69 $ 107 $ 13 $ (124)
======= ======= ======= ======= =======
Net income (loss) allocated to Limited Partner
units.......................................... $ 7,076 $ 6,846 $10,578 $ 1,272 $(7,175)
======= ======= ======= ======= =======
Net income (loss) per General Partner unit....... $ 7.24 $ 7.04 $ 10.92 $ 1.33 $(12.65)
======= ======= ======= ======= =======
Net income (loss) per Limited Partner unit....... $ 1.78 $ 1.72 $ 2.65 $ .32 $ (2.82)
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 145
TRANSWESTERN HOLDINGS L.P.
STATEMENTS OF CHANGES IN CONSOLIDATED PARTNERSHIP DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- --------- ---------
<S> <C> <C> <C>
Balance at April 30, 1994................................. $ 45 $ 4,413 $ 4,458
Net income.............................................. 71 7,076 7,147
Distributions to partners............................... (343) (33,983) (34,326)
------ -------- ---------
Balance at April 30, 1995................................. (227) (22,494) (22,721)
Net income.............................................. 69 6,846 6,915
Distributions to partners............................... (406) (39,394) (39,800)
------ -------- ---------
Balance at April 30, 1996................................. (564) (55,042) (55,606)
Net income.............................................. 106 10,579 10,685
Distributions to partners............................... (59) (5,742) (5,801)
------ -------- ---------
Balance at April 30, 1997................................. (517) (50,205) (50,722)
Net (loss) (unaudited).................................. (124) (7,175) (7,299)
Contributions from partners (unaudited)................. 1,458 84,298 85,756
Equity transaction costs (unaudited).................... (66) (3,793) (3,859)
Distributions to partners (unaudited)................... (2,985) (173,496) (176,481)
------ -------- ---------
Balance at October 31, 1997 (unaudited)................... $(2,234) $(150,371) $(152,605)
====== ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 146
TRANSWESTERN HOLDINGS, L.P.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED APRIL 30, OCTOBER 31,
------------------------------ -------------------
1995 1996 1997 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................... $ 7,147 $ 6,915 $ 10,685 $ 1,285 $ (7,299)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Extraordinary item........................ 353 1,368 -- -- 1,391
Depreciation and amortization............. 4,593 4,691 6,399 3,122 3,274
Amortization of deferred debt issuance
costs.................................. 488 804 703 371 358
Provision for doubtful accounts........... 6,429 7,069 8,920 3,653 3,747
Changes in operating assets and
liabilities net of effects from
purchase of directories:
Trade receivables...................... (2,810) (684) (4,142) 1,796 5,903
Write-off of doubtful accounts......... (6,155) (8,231) (7,287) (3,302) (3,878)
Recoveries of doubtful accounts........ 437 660 679 332 277
Deferred directory costs............... 600 97 (302) (1,316) (2,005)
Other current assets................... 269 (158) 247 174 42
Accounts payable....................... 967 (96) 710 (734) (976)
Accrued liabilities.................... 1,667 1,038 (1,136) (1,838) (660)
Accrued interest, non current.......... -- (1,054) 69 (17) 1,516
Customer deposits...................... 623 672 (243) 2,146 4,555
-------- -------- -------- -------- --------
Net cash provided by operating activities... 14,608 13,091 15,302 5,672 6,245
INVESTING ACTIVITIES
Purchase of property, equipment and
leasehold improvements.................... (496) (484) (1,034) (259) (580)
Increase in other assets.................... (2,342) (2,631) -- -- (8,182)
Payment for purchase of directories......... -- (5,229) (2,558) (2,558) --
-------- -------- -------- -------- --------
Net cash used for investing activities...... (2,838) (8,344) (3,592) (2,817) (8,762)
FINANCING ACTIVITIES
Proceeds from long-term debt................ 50,000 87,300 24,000 14,000 187,373
Repayments of long-term debt................ (27,224) (51,861) (29,975) (14,075) (89,303)
Equity transaction costs.................... -- -- -- -- (3,859)
Contributions from partner.................. -- -- -- -- 85,756
Partnership distributions................... (34,326) (39,800) (5,801) (2,800) (176,481)
-------- -------- -------- -------- --------
Net cash provided by (used for) financing
activities................................ (11,550) (4,361) (11,776) (2,875) 3,486
-------- -------- -------- -------- --------
Net increase (decrease) in cash............. 220 386 (66) (20) 969
Cash at beginning of period................. 714 934 1,320 1,320 1,254
-------- -------- -------- -------- --------
Cash at end of period....................... $ 934 $ 1,320 $ 1,254 $ 1,300 $ 2,223
======== ======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid for interest...................... $ 3,066 $ 7,223 $ 7,131 $ 3,674 $ 2,459
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 147
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS, INFORMATION SUBSEQUENT TO APRIL 30, 1997
AND
FOR THE SIX MONTH PERIODS ENDED OCTOBER 31, 1996 AND 1997 ARE UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Business Activities and Basis of Presentation
TransWestern Publishing Company, L.P. (the "Partnership") was formed in
1993 to acquire the business of TransWestern Publishing from US West Marketing
Resources Group, Inc. TransWestern Publishing was a division of US West prior to
May 1993.
In November 1997, the Partnership changed its name to TransWestern Holdings
L.P. ("Holdings") and formed and contributed substantially all of its assets to
TransWestern Publishing Company LLC ("TransWestern" or the "Company"). The
Partnership contributed substantially all of its assets to TransWestern and
TransWestern assumed or guaranteed all of the liabilities of the Partnership. As
a result, Holdings' only assets are all of the TransWestern membership interests
and all of Capital's capital stock. All of the operations that were previously
conducted by the Partnership are now being conducted by TransWestern. Holdings
has formed TWP Capital Corp. ("Capital") as a wholly-owned subsidiary and the
Company has formed TWP Capital Corp. II ("Capital II") as a wholly-owned
subsidiary. Neither Capital nor Capital II have any significant assets or
operations.
The general partner of Holdings is TransWestern Communications Company,
Inc. (TCC) which holds approximately 2.0% of Holdings outstanding partnership
units. TCC has no significant assets other than its investment in Holdings and
has no operations.
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 consolidated financial statements present the
historical consolidated financial position and results of operations of
Holdings, Capital, TransWestern and Capital II.
TransWestern publishes and distributes local yellow page directories in
twelve states.
Cash and cash equivalents
Holdings considers all highly liquid investments with an original maturity
of three months or less at the date of acquisition to be cash equivalents.
Holdings evaluates the financial strength of the institutions at which
significant investments are made and believes the related credit risk is limited
to an acceptable level.
Revenue Recognition, Deferred Directory Costs and Customer Deposits
Revenues from the sale of advertising placed in each directory are
recognized upon the distribution of directories in their individual market
areas. Advance payments received for directory advertising are shown as customer
deposits in the accompanying consolidated 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. Holdings published and recognized revenue for 106,
118 and 128 directories in fiscal 1995, 1996 and 1997, respectively.
Concentration of Credit Risk
Credit is extended based upon customer collection history and generally a
deposit is required. Holdings 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.
F-7
<PAGE> 148
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A provision for doubtful accounts based on historical experience is
recorded at the time revenue is recognized for individual directories. The
estimated provision for doubtful accounts as a percentage of net revenues
equaled 9.2%, 9.1% and 9.8% of net revenues in fiscal 1995, 1996 and 1997,
respectively. Actual write-offs are taken against the allowance when management
determines that an account is uncollectible. In general, management makes this
determination when an account has declared bankruptcy, has gone out of business
or fails to renew for the following year's directory.
Fair Value of Financial Instruments
In accordance with requirements of Statement of Financial Accounting
Standards No. 107, Disclosures about Fair Value of Financial Instruments, the
following methods and assumptions were used by the Company in estimating the
fair value disclosures:
Cash and Short-Term Receivables
The carrying amounts approximate fair values because of short maturities of
these instruments.
Long-Term Debt
Management believes that the carrying value of Holdings' long-term debt
materially approximates its fair value as all debt outstanding at April 30, 1997
and October 31, 1997 is variable rate debt which is tied to standard indices
which adjust over relatively short periods (one to six months). These rates are
similar to current rates offered to Holdings for debt of similar maturity.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are carried at cost, less
depreciation and amortization. Depreciation is computed using the straight-line
method over the assets' estimated useful lives which range from three to seven
years. Leasehold improvements are amortized over the shorter of their estimated
useful lives or the lease period.
Acquired Intangibles
Acquired intangibles in the accompanying balance sheets are carried at cost
and consist primarily of customer lists acquired in connection with acquisitions
of similar businesses. Holdings adopted Statement of Financial Accounting
Standard No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" on May 1, 1996. In accordance with this
Standard, Holdings reviews the carrying value of acquired intangibles for
evidence of impairment periodically through comparison of the undiscounted cash
flows derived from publication of acquired directories to the carrying value of
related intangibles.
Acquired intangibles are being amortized over their estimated economic
lives of five years for the customer base and three years for the covenants not
to compete.
Debt Issuance Costs
Debt issuance costs are being amortized over the term of the related debt
using the weighted-average declining balance method (which approximates the
interest method). Amortization is included in interest expense in the
accompanying statements of income.
F-8
<PAGE> 149
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
No provision has been made in the accompanying statements of income for
federal and state income taxes, except for the California minimum franchise tax,
as any taxable income or loss of the Partnership prior to the formation of
TransWestern was included in the income tax returns of the Partnership's
partners.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The accompanying consolidated financial statements and related notes for
the six month periods ended October 31, 1996 and 1997 are unaudited but include
all adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair statement of consolidated financial
position, results of operations and cash flows for these interim periods. The
consolidated results of operations for the six months ended October 31, 1997 are
not necessarily indicative of operating results to be expected for the full
fiscal year.
2. DIRECTORY ACQUISITIONS
During fiscal 1996 and 1997, Holdings completed acquisitions of certain
tangible and intangible assets from companies which publish yellow page
directories in California, Massachusetts, New York, Indiana, Kentucky and
Tennessee. These transactions were accounted for as purchases and accordingly
the purchase price was allocated to the tangible and intangible assets acquired
based on their respective fair values at the date of acquisition as follows:
<TABLE>
<CAPTION>
APRIL 30,
-----------------
1996 1997
------ ------
<S> <C> <C>
Deferred directory costs................................... $ 671 $ 443
Customer base.............................................. 6,615 4,620
Other...................................................... 421 56
------ ------
Total assets acquired...................................... $7,707 $5,119
====== ======
</TABLE>
In fiscal 1997, Holdings purchased certain tangible and intangible assets
totaling $5,119 (including related liabilities totaling $535) of Alliance Media,
Inc. for cash of $2,558 and recorded other obligations totaling $2,026. The
obligations represent the realized contribution margin contingent upon the
operating results (as defined in the purchase agreement) of certain directories
acquired and certain acquisition related expenses. Management believes the
contingent payments due under the 1997 acquisition agreement are reasonably
assured.
F-9
<PAGE> 150
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assuming that the acquisition of Alliance Media, Inc. had occurred on the
first day of Holdings' fiscal years ended April 30, 1996 and 1997, pro forma
consolidated condensed results of operations would be as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL
30,
-------------------
1996 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Revenues................................................. $82,180 $91,414
Net income............................................... 7,110 9,651
</TABLE>
These results give effect to a pro forma consolidated adjustment for the
amortization of acquired intangibles.
In fiscal 1996, Holdings purchased certain tangible and intangible assets,
totaling $7,707 (including related liabilities totaling $611) of J&J Marketing
Services, Inc. and Golden State Directory Corporation for cash of $5,229, notes
payable totaling $1,010 (Note 4) and other amounts due totaling $857.
Assuming that the acquisitions of J&J Marketing Services, Inc. and Golden
State Directory Corporation had occurred on the first day of Holdings' fiscal
year ended April 30, 1996 pro forma consolidated condensed results of operations
would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
1996
-----------
(UNAUDITED)
<S> <C>
Revenues......................................................... $81,595
Net income....................................................... 7,008
</TABLE>
These results give effect to pro forma consolidated adjustments for the
amortization of acquired intangibles and additional interest expense on related
debt.
3. CONSOLIDATED FINANCIAL STATEMENT DETAILS
Property, Equipment and Leasehold Improvements
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
------------------- -----------
1996 1997 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer and office equipment....................... $ 3,337 $ 4,335 $ 4,794
Furniture and fixtures.............................. 1,340 1,370 1,471
Leasehold improvements.............................. 227 233 254
------- ------- -------
4,904 5,938 6,519
Less accumulated depreciation and amortization...... (2,145) (3,098) (3,638)
------- ------- -------
$ 2,759 $ 2,840 $ 2,881
======= ======= =======
</TABLE>
F-10
<PAGE> 151
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquired Intangibles
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
--------------------- -----------
1996 1997 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Customer base..................................... $ 23,073 $ 27,693 $ 27,587
Covenant not to compete........................... 1,200 -- --
------- ------- -------
24,273 27,693 27,587
Less accumulated amortization..................... (11,406) (15,600) (18,306)
------- ------- -------
$ 12,867 $ 12,093 $ 9,281
======= ======= =======
</TABLE>
Other Assets
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
------------------- -----------
1996 1997 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Debt issuance costs................................. $ 2,883 $ 2,827 $ 8,434
Other............................................... 214 264 271
------- ------- -------
3,097 3,091 8,705
Less accumulated amortization....................... (501) (1,256) (459)
------- ------- -------
$ 2,596 $ 1,835 $ 8,246
======= ======= =======
</TABLE>
4. FINANCING ARRANGEMENTS
Long-term financing arrangements consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Senior term loan................................................. $76,100 $68,100
Revolving loan................................................... 7,300 9,400
Other notes payable.............................................. 1,010 935
------- -------
84,410 78,435
Less current portion............................................. 8,494 10,921
------- -------
$75,916 $67,514
======= =======
</TABLE>
In November 1995, Holdings entered into a $95.0 million credit agreement
with a group of banks in which First Union National Bank of North Carolina is
the administrative agent. Under the terms of this agreement, Holdings borrowed
$80.0 million under a senior term note and initially borrowed $5.0 million under
a $15.0 million (maximum) revolving credit facility. Proceeds from the term note
and the revolving credit facility were used to repay principal and interest
outstanding under the then existing term note and revolving credit facilities of
$40.5 million, repay principal and accrued interest of $5.8 million on the
Junior Subordinated Note (as defined below), make a distribution to the general
and limited partners totaling $36.4 million and $2.3 million for working capital
purposes. In connection with the repayment of the previous term notes and
revolving credit facilities, unamortized debt issue costs of $392 and $1,368
were written off and recorded in the accompanying consolidated 1995 and 1996
income statements as extraordinary items.
F-11
<PAGE> 152
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments on the senior term note are due quarterly through
maturity, April 30, 2002. The revolving credit agreement also expires on April
30, 2002. Borrowings under this agreement rank senior to all other indebtedness
of the Partnership and are secured by all of Holdings' assets.
Annual maturities under the long-term financing arrangements as of April
30, 1997 are as follows:
<TABLE>
<CAPTION>
REVOLVING
SENIOR LOAN AND
TERM LOAN OTHER TOTAL
--------- ---------- -------
<S> <C> <C> <C>
1998................................................. $ 9,986 $ 935 $10,921
1999................................................. 11,984 -- 11,984
2000................................................. 15,480 -- 15,480
2001................................................. 17,977 -- 17,977
2002................................................. 12,673 9,400 22,073
------- ------- -------
$68,100 $ 10,335 $78,435
======= ======= =======
</TABLE>
Holdings may prepay any or all of the outstanding borrowings under the term
or revolving credit notes, in minimum increments of $50, without penalty. The
agreement requires that excess cash flows (as defined) and net cash proceeds
from the sale of assets, issuance of debt or partnership equity (in excess of
prescribed amounts) shall be used to repay term or revolving credit borrowings.
Such mandatory prepayments shall first be applied to the outstanding term note
balance with any excess being applied to the revolving credit note balance.
Under the terms of the agreement, Holdings can elect to have the interest
rate on borrowings tied to either of two indices: the administrative agent's
prime rate based on the Alternative Base Rate (ABR) (as defined) plus a margin
of 1.75 percentage points, or the administrative agent's LIBOR base rate (as
defined) plus a margin of 2.75 percentage points. The margin applicable for ABR
and LIBOR loans is subject to adjustment based on the ratio of Holdings' total
indebtedness to EBITDA. The ABR margin ranges from 1.25% to 1.75% and the LIBOR
margin ranges from 2.25% to 2.75%.
Interest tied to LIBOR may be based on one, three or six month interest
rate periods. At April 30, 1997, all outstanding term loan borrowings of $68.1
million were tied to a one month LIBOR period and the total interest rate in
effect was 8.4375%. Borrowings under the revolving credit facility at April 30,
1997 consisted of $7.0 million under a one month LIBOR period (total interest
rate of 8.4375%) and $2.4 million under an ABR rate (interest rate of 10.25%).
Interest on loans tied to the ABR is payable quarterly, interest on debt tied to
one month and three month LIBOR periods is payable at the end of the respective
period and interest on six month LIBOR periods is payable at three month
intervals. Holdings is also required to pay a quarterly fee of 0.5% of the
average daily available balance outstanding under the revolving credit facility.
Additionally, Holdings is also required to pay a annual fee of $75 to the
administrative agent which Holdings accrues for ratably over the twelve month
period.
Under the terms of the term loan agreement, Holdings is required to have
interest rate protection for at least 50% of the initial balance of the term
loan. In December 1996, Holdings entered into interest rate swap agreements with
two banks which are effective through October 30, 1998. Interest rate coverage
under these agreements is tied to the one month LIBOR rate relative to a fixed
"Swap Reset Rate" (equal to 5.375%). Under these agreements, if the one month
LIBOR rate is greater than the "Swap Reset Rate," Holdings will receive an
amount equal to the interest rate differential multiplied by the "Notional
Amount" (the "Notional Amount" at April 30, 1997 equaled $61.0 million). The
"Notional Amount" decreases by approximately $3.0 million per quarter through
March 1998.
F-12
<PAGE> 153
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the LIBOR rate is less than the "Swap Reset Rate," Holdings would owe
the banks an amount calculated in a similar manner. As of April 30, 1997,
amounts paid or received by Holdings under the interest rate swap agreements
were not significant.
In addition to the interest rate swap agreements, at April 30, 1997,
Holdings has nine months remaining under an interest rate cap contract entered
into in 1996 and to date amounts paid or received by Holdings under the interest
rate cap agreement were not significant.
Terms of the credit agreements include certain financial covenants,
including minimum annual EBITDA (earnings before interest, taxes, depreciation
and amortization, as defined), a leverage ratio, an interest coverage ratio, and
a fixed charge coverage ratio. These covenants also limit capital expenditures
and indebtedness of Holdings as well as restricting distributions to the
partners. As of April 30, 1997 and October 31, 1997 Holdings was in compliance
with these covenants.
In conjunction with the November 1996 refinancing, Holdings retired all
indebtedness associated with a $4.5 million 12% Junior Subordinated Note.
In connection with the acquisition of certain assets from other directory
companies in fiscal 1996 (Note 2) Holdings issued two 7% notes payable totaling
$1,010, of which $935 remains outstanding at April 30, 1997. The outstanding
balance is due in fiscal 1998.
In connection with a recapitalization transaction (the "Recapitalization")
completed in October 1997 (Note 9) Holdings entered into a Senior Credit
Facility and a Senior Subordinated Facility under which Holdings may borrow up
to $200 million. A portion of the $182.7 million borrowed under these facilities
in connection with the Recapitalization was used to repay approximately $75.6
million of existing indebtedness.
In November 1997, Holdings issued approximately $32.5 million of 11 7/8%
Senior Discount Notes. Such Notes have an aggregate principal amount at maturity
in 2008 of $57,916,000. Approximately $31.3 million of proceeds raised from the
Notes was used to repurchase preferred limited partnership units from the
holders of such units.
5. PARTNERSHIP DEFICIT
As of April 30, 1996 and 1997, the Partnership's general partner equity
consisted of 9,800 authorized, issued and outstanding units with such units
representing a 1.0% interest in the limited partnership. Also as of April 30,
1996 and 1997, limited partner equity of the Partnership consisted of 3,968,236
authorized, issued and outstanding Class A Common units and 314,290 authorized
Class E Incentive units, of which 299,698 were issued and outstanding. In May
1995, the Class E units were authorized as performance-based equity units issued
principally to senior management. The value of these units on the date of
issuance were determined to not be material. These units vest at a rate of 20%
per year for five years and as of April 30, 1997, 20% of these units had vested.
The Class E Incentive units will become Common units and share in the allocation
of partnership earnings and distributions upon achievement of certain financial
milestones (as defined in the Partnership Agreement dated May 13, 1993, as
amended). As of April 1997, none of the Class E Incentive units were eligible to
share in the allocation of earnings or distributions as such milestones had not
been achieved.
As of October 31, 1997, the general partner's equity consisted of 9,800
authorized, issued and outstanding units with such units representing a 1.7%
interest in Holdings. Also as of October 31, 1997, the limited partner's equity
in Holdings consisted of 1,270,456 authorized, issued and outstanding Preferred
units, 1,270,456 authorized, issued and outstanding Class A Common units and
10,000 authorized, issued and outstanding Class B Common units. The Preferred
units are entitled to a preferred yield of 12.0% per annum, compounded
quarterly, and an amount equal to the original investment in such Preferred
units (net of any prior repayments of Preferred units) plus any accrued and
unpaid preferred yield (collectively the "Preference
F-13
<PAGE> 154
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amount") on any liquidation or other distribution by Holdings. Partners holding
Class A units are entitled to share in any remaining proceeds of any liquidation
or other distribution by Holdings pro rata according to the number of Class A
units held by such partner. Holders of Class B units will also be entitled to
share in a percentage of any such distributions, but only if the holders of the
Preferred units and the Class A units have achieved specific levels of return on
their investment (the "Target IRR's") as defined in the Partnership Agreement
(as amended).
In November 1997, Holdings redeemed approximately 610,800 Preferred units
with approximately $31.3 million of proceeds raised through the issuance of
11 7/8% Senior Discount Notes which mature in 2008.
Holdings made distributions to Common unit holders for income taxes
totaling $3,250, $3,400 and $5,801 in fiscal 1995, 1996 and 1997, respectively
and $2,100 in the six months ended October 31, 1997. Holdings also made
distributions in connection with recapitalization transactions completed in
fiscal 1995 and 1996 and in the six months ended October 31, 1997 which totaled
$31,076, $36,400 and $174,381, respectively. Other than tax distributions,
Holdings is restricted under the terms of its senior lending agreements from
making additional partnership distributions.
6. BENEFIT PLANS
401(k) and Profit Sharing Plan
Substantially all of Holdings' employees are covered by a 401(k) and profit
sharing retirement plan. Employees can make contributions to the plan up to the
maximum amount allowed by federal tax code regulations. Holdings may match the
employee contributions, up to a limitation of 83% of the first 6% of annual
earnings per participant. Holdings may also make annual discretionary profit
sharing contributions. Contributions to the plan for the years ended April 30,
1995, 1996 and 1997 were approximately $608, $761 and $761, respectively.
Equity Compensation Plan
During fiscal 1994, Holdings established the TransWestern Publishing
Company, L.P. Equity Compensation Plan (the "Plan"). The Plan provides select
key full-time employees with deferred compensation benefits for income tax
purposes. Special distributions to the Plan are recorded as expense in the
accompanying statements of income when declared by the Board of Directors.
Special distributions are calculated pro rata in connection with
refinancing transactions as if the Plan held a total of approximately 87,000
common and Class E equity incentive units. Distributions to the Plan related to
refinancing transactions completed in fiscal 1995, 1996 and in the six-months
ended October 31, 1997 totaled $525, $796 and $5,543, respectively. Employees
receiving units in the Plan are eligible to receive a ratable per unit share of
cash distributions from the Plan, if and when declared by the Plan
Administrators.
Generally, the Plan Administrators intend to distribute to employee unit
holders all assets contributed to the Plan within three years of the date of
contribution. In fiscal 1997, the Plan Administrators paid distributions
totaling $411 and at April 30, 1997 there was no undistributed equity trust
proceeds.
7. LEASE COMMITMENTS
Holdings leases office facilities in several cities throughout the United
States under operating leases with remaining terms ranging from one to six
years. Total rent expense for the years ended April 30, 1995, 1996 and
F-14
<PAGE> 155
TRANSWESTERN HOLDINGS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, was $1,711, $1,750 and $1,866, respectively. Future minimum lease
payments, under these leases are as follows for fiscal years ending April 30:
<TABLE>
<S> <C>
1998................................................ $1,428
1999................................................ 1,301
2000................................................ 1,002
2001................................................ 827
2002................................................ 558
Thereafter.......................................... 627
------
$5,743
======
</TABLE>
8. RELATED PARTY TRANSACTION
The General Partner advanced $694 and $4 in fiscal 1996 and 1997,
respectively, to Holdings for working capital purposes. Holdings accrues
interest on these advances at the established senior term loan rate (see Note
4). As of April 30, 1997, $805, including accrued interest of $124, was due the
General Partner. The amount due to the General Partner is payable upon demand by
the General Partner.
9. SUBSEQUENT EVENTS (UNAUDITED)
In October 1997, the Partnership completed the $312,700 Recapitalization.
In the Recapitalization, new investors including Thomas H. Lee Equity Fund III,
L.P. and its affiliates along with other investors, existing limited partners of
the Partnership and the Partnership's senior managers invested new and
continuing capital of $130,009 in the Partnership and TransWestern
Communications Company, Inc. (which is the general partner of the Partnership).
The proceeds of the equity investment together with approximately $182,700 of
senior and senior subordinated debt financing were used (i) for $224,500 of
consideration paid to redeem a portion of the limited partnership interests from
existing limited partners, (ii) to repay $75,600 outstanding under credit
facilities in existence since 1995, (iii) to pay $10,600 of fees and expenses
associated with the Recapitalization and (iv) for $2.0 million for general
corporate purposes, including working capital.
The Recapitalization was financed with (i) the $130,009 equity investment,
(ii) borrowings of $107,700 under a $125,000 (maximum) variable interest rate
Senior Credit Facility and (iii) borrowings of $75,000 under a Senior
Subordinated Facility. The assets and liabilities of Holdings are stated at
historical cost and were not revalued to fair market value at the date of the
Recapitalization. As a result of the Recapitalization, Thomas H. Lee Equity Fund
III, L.P. and its affiliates will collectively own approximately 59% of the
equity of the Partnership.
In November 1997, the Partnership changed its name to TransWestern Holdings
L.P. and formed and contributed substantially all of its assets to TransWestern.
TransWestern assumed or guaranteed all of the liabilities of the Partnership. As
a result, Holdings only assets are all of the TransWestern membership interests
and all of Capital's capital stock. All of the operations that were previously
conducted by the Partnership are now being conducted by TransWestern. Holdings
formed Capital as a wholly-owned subsidiary. Neither Capital nor Capital II has
any significant assets or operations.
The Partnership intends to utilize the proceeds of an offering by
TransWestern of $100,000 of unsecured notes to repay the $75,000 Senior
Subordinated Facility and to pay down the balance outstanding under the
revolving Senior Credit Facility. See "Description of the Notes" beginning on
page 69 of this Prospectus for a description of the terms of the $100,000
unsecured notes. Subsequent to the Recapitalization, Holdings commenced an
offering of $32,500 initial aggregate principal amount of unsecured senior
discount notes, the net proceeds of which will be used to redeem approximately
$31,300 of preferred units of Holdings.
F-15
<PAGE> 156
============================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERS
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE DISCOUNT NOTE ISSUERS OR THE INITIAL PURCHASERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE DISCOUNT NOTE ISSUERS SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information....................... i
Summary..................................... 1
Risk Factors................................ 14
The Discount Note Issuers................... 22
The Transactions............................ 23
The Principal Investors..................... 26
Use of Proceeds............................. 27
Capitalization.............................. 28
Unaudited Pro Forma Consolidated Financial
Data...................................... 29
Selected Historical Consolidated Financial
and Other Data............................ 36
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 38
Business.................................... 47
Management.................................. 54
Security Ownership of Certain Beneficial
Owners and Management..................... 59
Certain Transactions........................ 61
Limited Partnership Agreement............... 65
Limited Liability Company Agreement......... 66
Description of Senior Credit Facility....... 67
Description of the Notes.................... 69
The Discount Note Exchange Offer............ 95
Description of the Discount Notes........... 103
Certain U.S. Federal Income Tax
Considerations............................ 128
Plan of Distribution........................ 134
Legal Matters............................... 135
Experts..................................... 135
Index to Consolidated Financial
Statements................................ F-1
</TABLE>
============================================================
============================================================
$57,916,000
TRANSWESTERN HOLDINGS L.P.
TWP CAPITAL CORP.
OFFER TO EXCHANGE THEIR 11 7/8% SERIES B SENIOR DISCOUNT NOTES DUE 2008 FOR ANY
AND ALL OF THEIR OUTSTANDING 11 7/8% SENIOR DISCOUNT
NOTES DUE 2008
-----------------
PROSPECTUS
-----------------
FEBRUARY , 1998
============================================================
<PAGE> 157
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Holdings. Holdings is a limited partnership organized under the laws of
the State of Delaware. Section 17-108 of the Delaware Revised Uniform Limited
Partnership Act (the "Act") provides that, subject to such standards and
restrictions, if any, as are set forth in its limited partnership agreement, a
limited partnership may, and shall have the power to, indemnify and hold
harmless any member or general partner or other person from and against any and
all claims and demands whatsoever.
Section 5.10 of Holdings' Third Amended and Restated Agreement of Limited
Partnership provides, among other things, that Holdings shall indemnify and hold
harmless TCC and each affiliate, officer, director, controlling person, partner,
employee or shareholder of TCC ("Indemnified Person") from and against any and
all losses, claims, damages, liabilities, expenses (including reasonable legal
fees and expenses), judgments, fines, settlements and other amounts relating to
any and all claims, demands, actions, suits or proceedings, whether civil,
criminal, administrative or investigative, which relate to TCC's status or
activities as the general partner or to Holdings' property, business or affairs
("Claims"). An Indemnified Person's expenses paid or incurred in defending
itself against any Claim shall be reimbursed as paid or incurred.
Holdings may maintain insurance, at its expense, to protect any person
against any expense, liability or loss, to the extent that Holdings would have
the power to indemnify such person against such expense, liability or loss under
the Act.
Holdings intends to obtain insurance policies covering all of its directors
and officers against certain liabilities for actions taken in such capacities,
including liabilities under the Securities Act of 1933.
Capital. Capital is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware, inter alia
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he or she reasonably believed to be
or not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his or
her conduct was illegal. A Delaware corporation may indemnify any persons who
are, were or are threatened to be made, party to any threatened, pending or
completed action or suit by or in the right of the corporation by reasons of the
fact that such person was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the corporation's best
interests, provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged to be liable to
the corporation. Where an officer, director, employee or agent is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him or her against the expenses which such officer or
director has actually and reasonably incurred.
Capital's Certificate of Incorporation provides that to the fullest extent
permitted by the General Corporation Law of the State of Delaware as the same
exists or may hereafter be amended, a director of Capital shall not be liable to
Capital or its stockholders for monetary damages for a breach of fiduciary duty
as a director.
II-1
<PAGE> 158
Article V of the By-laws of Capital ("Article V") provides, among other
things, that each person who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she,
or a person of whom he or she is the legal representative, is or was a director
or officer, of the corporation or is or was serving at the request of Capital as
a director, officer, employee, fiduciary, or agent of another corporation or of
a partnership, joint venture, trust or other enterprise, shall be indemnified
and held harmless by Capital to the fullest extent which it is empowered to do
so by the General Corporation Law of the State of Delaware, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits Capital to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding) and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, Capital shall
indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of Capital.
Article V also provides that persons who are not covered by the foregoing
provisions of Article V and who are or were employees or agents of Capital, or
who are or were serving at the request of Capital as employees or agents of
another corporation, partnership, joint venture, trust or other enterprise, may
be indemnified to the extent authorized at any time or from time to time by the
board of directors.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him or her and incurred by him or her in
any such capacity, arising out of his or her status as such, whether or not the
corporation would otherwise have the power to indemnify him or her under Section
145.
Article V further provides that Capital may purchase and maintain insurance
on its behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of Capital or was serving at the request of
Capital as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,
whether or not Capital would have the power to indemnify such person against
such liability under Article V.
All of Capital's directors and officers will be covered by insurance
policies intended to be obtained by Capital against certain liabilities for
actions taken in such capacities, including liabilities under the Securities Act
of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
See Index to Exhibits.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions, are inapplicable or not material, or the
information called for thereby is otherwise included in the financial
statements and therefore has been omitted.
II-2
<PAGE> 159
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) The undersigned registrants hereby undertake as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuers undertake that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(5) The registrants undertake that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrants pursuant to the provisions described
under Item 20 or otherwise, the registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrants of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(6) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-3
<PAGE> 160
(7) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(8) The undersigned registrants hereby undertake to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(9) The undersigned registrants hereby undertake to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-4
<PAGE> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TransWestern
Holdings L.P. has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
City of San Diego, State of California, on the 2nd day of February, 1998.
TRANSWESTERN HOLDINGS L.P.
By: TransWestern Communications
Company, Inc.
--------------------------------------
(General Partner)
By: /s/ LAURENCE H. BLOCH
------------------------------------
Name: Laurence H. Bloch
Title: Vice President, Secretary
* * * * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement and power of attorney has
been signed below by the following persons in the capacities indicated on the
2nd day of February, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- --------------------------------------------- ----------------------------------------------
<C> <S>
* President and Chief Executive Officer and
- --------------------------------------------- Director of TCC (Principal Executive
Ricardo Puente Officer)
* Chairman and Secretary and Director of TCC
- ---------------------------------------------
Laurence H. Bloch
* Vice President, Chief Financial Officer and
- --------------------------------------------- Assistant Secretary (Principal Financial and
Joan M. Fiorito Accounting Officer)
* Director of TCC
- ---------------------------------------------
C. Hunter Boll
* Director of TCC
- ---------------------------------------------
Terrence M. Mullen
* Director of TCC
- ---------------------------------------------
Christopher J. Perry
* Director of TCC
- ---------------------------------------------
Scott A. Schoen
* Director of TCC
- ---------------------------------------------
Marcus D. Wedner
</TABLE>
II-5
<PAGE> 162
* The undersigned, by signing her name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement on behalf of the above named
officers and directors of the Company pursuant to the Power of Attorney
executed by such officers and directors and previously filed with the
Securities and Exchange Commission.
<TABLE>
<C> <S>
/s/ JOAN M. FIORITO
- ---------------------------------------------
Joan M. Fiorito, Attorney in Fact
</TABLE>
II-6
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, TWP Capital
Corp. has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in City of
San Diego, State of California, on the 2nd day of February, 1998.
TWP CAPITAL CORP.
By: /s/ LAURENCE H. BLOCH
------------------------------------
Name: Laurence H. Bloch
Title: President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the day of February, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ LAURENCE H. BLOCH President, Secretary and Director (Principal
- --------------------------------------------- Executive Officer)
Laurence H. Bloch
/s/ JOAN M. FIORITO Vice President and Assistant Secretary
- --------------------------------------------- (Principal Financial and Accounting Officer)
Joan M. Fiorito
</TABLE>
II-7
<PAGE> 164
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ ----------------------------------------------------------------------------------
<C> <S>
2.1 Securities Purchase and Redemption Agreement, dated August 27, 1997, as amended,
by and among Holdings, TCC, TWP Recapitalization Corp., THL and certain limited
partners of Holdings.+*
2.2 Contribution and Assumption Agreement, dated November 6, 1997, by and among
Holdings and TransWestern.(1)
2.3 Assignment and Assumption Agreement, dated November 6, 1997, by and among Holdings
and TransWestern.(1)
2.4 Bill of Sale, dated November 6, 1997, by and among Holdings and TransWestern.(1)
3.1 Certificate of Limited Partnership of Holdings.*
3.2 Certificate of Incorporation of Capital.*
3.3 By-Laws of Capital.*
3.4 Third Amended and Restated Agreement of Limited Partnership, as amended, of
Holdings.*
3.5 Certificate of Incorporation of TCC.*
3.6 By-Laws of TCC.*
4.1 Indenture, dated as of November 12, 1997, by and between the Discount Note Issuers
and Wilmington Trust Company, as Trustee.(1)
4.2 Form of 11 7/8% Senior Discount Notes due 2008.*
4.3 Securities Purchase Agreement, dated as of November 6, 1997, by and among the
Discount Note Issuers, TransWestern, TCC, and the Initial Purchasers.(1)
4.4 Registration Rights Agreement, dated as of November 12, 1997, by and among the
Discount Note Issuers and the Initial Purchasers.(1)
5.1 Opinion of Kirkland & Ellis.
10.1 Management Agreement, dated as of October 1, 1997, by and between Holdings
(formerly known as TransWestern Publishing Company, L.P.) and Thomas H. Lee
Company.*
10.2 Investors Agreement, dated as of October 1, 1997, by and between Holdings
(formerly known as TransWestern Publishing Company, L.P.), TCC and the limited
partners of Holdings.+*
10.3 Registration Agreement, dated as of October 1, 1997, by and between Holdings
(formerly known as TransWestern Publishing Company, L.P.), TCC and the limited
partners of Holdings.*
10.4 Form of Executive Agreement between Holdings (formerly known as TransWestern
Publishing Company, L.P.), TCC and each Management Investor.(1)
10.5 Employment Agreement, dated as of October 1, 1997, by and between Laurence H.
Bloch and TransWestern.(1)
10.6 Employment Agreement, dated as of October 1, 1997, by and between Ricardo Puente
and TransWestern.(1)
10.7 Assumption Agreement and Amended and Restated Credit Agreement, dated as of
November 6, 1997, among the Company, the lenders listed therein and Canadian
Imperial Bank of Commerce, as administrative agent, and First Union National Bank,
as documentation agent.(1)
10.8 Securities Purchase Agreement, dated as of November 6, 1997, by and among the
Company, Holdings, TCC and the Initial Purchasers.(1)
10.9 Indenture, dated as of November 12, 1997, by and between the Company and
Wilmington Trust Company, as Trustee.(1)
10.10 Registration Rights Agreement, dated as of November 12, 1997, by and among the
Company and the Initial Purchasers.(1)
</TABLE>
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------ ----------------------------------------------------------------------------------
<C> <S>
10.11 Form of Equity Compensation Plan.
12.1 Statement regarding computation of ratios of earnings to fixed charges.*
21.1 Subsidiaries of Holdings and TransWestern.*
23.1 Consent of Ernst & Young LLP Independent Auditors.
23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1 above).
24.1 Power of Attorney (included in Part II of the Registration Statement).*
25.1 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule.*
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- ---------------
* Previously Filed.
+ Holdings agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
(1) Filed as an Exhibit to the Registration Statement on Form S-4 (Registration
No. 333-42085) filed by TransWestern Publishing Company LLC and TWP Capital
Corp. II with the Securities and Exchange Commission on December 12, 1997.
<PAGE> 1
EXHIBIT 5.1
To Call Writer Direct: [Kirkland & Ellis Letterhead]
312 861-2000
February 2, 1998
TransWestern Holdings L.P.
TWP Capital Corp.
8344 Clairemont Mesa Boulevard
San Diego, California 92111
Re: TransWestern Holdings L.P. and TWP Capital Corp.
11 7/8% Senior Discount Notes due 2008, Series B
Ladies and Gentlemen:
We are acting as special counsel to TransWestern Holdings L.P., a
Delaware limited partnership ("Holdings"), and TWP Capital Corp., a Delaware
corporation ("Capital," and together with Holdings, the "Issuers"), in
connection with the proposed registration by the Issuers of up to $57,916,000 in
aggregate principal amount at maturity of the Issuers' 11 7/8% Senior Discount
Notes due 2008, Series B (the "Exchange Discount Notes"), pursuant to a
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission (the "Commission") on December 12, 1997 under the Securities Act of
1933, as amended (the "Securities Act") (such Registration Statement, as amended
or supplemented, is hereinafter referred to as the "Registration Statement"),
for the purpose of effecting an exchange offer (the "Exchange Offer") for the
Issuers' 11 7/8% Senior Discount Notes due 2008 (the "Old Discount Notes"). The
Exchange Discount Notes are to be issued pursuant to the Indenture (the
"Indenture"), dated November 12, 1997, by and among the Issuers and Wilmington
Trust Company (the "Trustee"), in exchange for and in replacement of the
Issuers' outstanding Old Discount Notes, of which $57,916,000 in aggregate
principal amount at maturity is outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of the
Issuers, (ii) minutes and records of the corporate proceedings of the Issuers
with respect to the issuance of the Exchange Discount Notes, (iii) the
Registration Statement and exhibits thereto and
<PAGE> 2
TransWestern Holdings L.P.
TWP Capital Corp.
February 2, 1998
Page 2
(iv) the Registration Rights Agreement, dated November 12, 1997, among the
Issuers and CIBC Oppenheimer Corp. and First Union Capital Markets Corp.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto other than the Issuers, and the due authorization, execution and
delivery of all documents by the parties thereto other than the Issuers. As to
any facts material to the opinions expressed herein which we have not
independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Issuers and others.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, we are of the opinion
that:
(1) Holdings is a limited partnership existing and in good standing
under the Revised Uniform Limited Partnership Act of the State of Delaware and
Capital is a corporation existing and in good standing under the General
Corporation law of the State of Delaware.
(2) The sale and issuance of the Exchange Discount Notes has been
validly authorized by the Issuers.
(3) When, as and if (i) the Registration Statement becomes effective
pursuant to the provisions of the Securities Act, (ii) the Indenture has been
qualified pursuant to the provisions of the Trust Indenture Act of 1939, as
amended, (iii) the Old Discount Notes have been validly tendered to the Issuers,
(iv) the Exchange Discount Notes have been issued in the form and containing the
terms described in the Registration Statement, the Indenture, the resolutions of
Capital's and the General Partner of Holdings' Boards of Directors (or
authorized committee thereof) authorizing the foregoing and any legally required
consents, approvals, authorizations and other order of the
<PAGE> 3
TransWestern Holdings L.P.
TWP Capital Corp.
February 2, 1998
Page 3
Commission and any other regulatory authorities to be obtained and (v) the
Exchange Discount Notes have been authenticated by the Trustee, the Exchange
Discount Notes when issued pursuant to the Exchange Offer will be legally
issued, fully paid and nonassessable and will constitute valid and binding
obligations of the Issuers.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of New York, the
Revised Uniform Limited Partnership Act of the State of Delaware (in the case of
Holdings) and the General Corporation Law of the State of Delaware (in the case
of Capital). We advise you that issues addressed by this letter may be governed
in whole or in part by other laws, but we express no opinion as to whether any
relevant difference exists between the laws upon which our opinions are based
and any other laws which may actually govern. For purposes of the opinions in
paragraph 1, we have relied exclusively upon certificates issued by the Delaware
Secretary of State and such opinions are not intended to provide any conclusion
or assurance beyond that conveyed by such certificates. We have assumed without
investigation that there has been no relevant change or development between the
respective dates of such certificates and the date of this letter.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange
Discount Notes.
<PAGE> 4
TransWestern Holdings L.P.
TWP Capital Corp.
February 2, 1998
Page 4
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of Delaware or New York be changed by legislative action,
judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
/s/ Kirkland & Ellis
KIRKLAND & ELLIS
<PAGE> 1
EXHIBIT 10.11
TRANSWESTERN HOLDINGS L.P.
EMPLOYEE EQUITY COMPENSATION PLAN
1. Purpose of the Employee Equity Compensation Plan.
The Board of Directors (the "Board") of TransWestern Communications
Company, Inc. (the "General Partner"), the general partner of TransWestern
Holdings L.P. (the "Company") on ____________, approved the adoption of the
TransWestern Holdings L.P. Employee Equity Compensation Plan (the "Plan") and
formation of the TransWestern Holdings L.P. Employee Equity Compensation Trust
(the "Trust"). The Plan is designed as an incentive compensation program to
provide selected members of management and other key employees the opportunity
to participate in the long-term profitability and equity appreciation of the
Company. The Plan is intended to (i) attract, retain and motivate key employees
and (ii) provide incentive and reward for exceptional contribution to the
long-term success of the Company.
2. Plan Administration.
The Plan will be administered by persons (such persons being referred to
herein individually as a "Committee Member," and collectively as the "Plan
Committee") appointed by the Board. The Plan Committee will serve at the
discretion of the Board, which has the right to remove at any time (with our
without cause) any individual appointed as a Committee Member and to appoint a
successor. The initial Plan Committee will be comprised of Laurence H. Bloch,
Ricardo Puente and Joan Fiorito.
The Plan Committee will interpret the Plan, establish necessary guidelines
to further the purposes of the Plan, determine which employees of the Company
will become Participants (as defined below), determine the number of Awards (as
defined below) granted to each Participant (defined below), determine whether,
subject to Board approval, to increase the number of the Company's partnership
units (the "Partnership Units") available to be contributed to the Trust,
determine whether to increase the total number of Awards available under the
Plan, and take any other action necessary for the proper administration of the
Plan. All acts of the Plan Committee will be final and binding on all
Participants.
3. Trust Assets
Up to ____ Partnership Units will be initially available to be contributed
to the Trust. On _____________, the Company will contribute to the Trust _____
Partnership Units and all or a portion of the remaining amounts may (but will
not be obligated to) be contributed thereafter for a period of five years as
determined by the Plan Committee in its sole discretion. All Partnership Units
and all other assets held by the Trust are referred to as "Trust Assets."
<PAGE> 2
4. Awards Under the Plan.
The Plan Committee has initially established a total of _____ Awards under
the Plan ("Awards"). Awards under the Plan consist of the right to receive
distributions from the Trust on the terms, and subject to the conditions,
determined by the Plan Committee. A total of ____ (approximately __%) of the
total Awards will be granted on ___________, 1998, and the remainder may be
granted by the Plan Committee, in its sole discretion, if and when additional
Partnership Units are contributed to the Trust by the Company (including
Partnership Units related to Forfeited Awards (as defined below) which are
recontributed to the Trust by the Company).
Each Award granted to a Participant will entitle a Participant to an equal
pro rata interest in any distributions made by the Trust (other than the
distribution to the Company of Trust Assets related to Unvested Awards (as
defined below) upon termination of the Plan). The Plan Committee may issue
additional Awards to Participants only to the extent that the Company has
contributed (or recontributed) additional Partnership Units to the Trust, such
that no issuance of Awards will dilute any outstanding Awards previously granted
to any Participant.
Notwithstanding the foregoing, the Plan Committee shall not grant Awards
at any time which have a value at the time of grant, together with all Awards
granted in the preceding 12 months, in excess of $__ million.
5. Participation and Vesting.
The Plan Committee will designate from time to time in its sole discretion
members of management and other employees of the Company (other than Committee
Members) to participate in the Plan ("Participants"). Participants selected to
receive Awards in any year will be determined at the sole discretion of the Plan
Committee.
Upon termination of a Participant's employment with the Company for any
reason, whether voluntary or involuntary, such Participant will forfeit any and
all Unvested Awards ("Forfeited Awards") previously received by such Participant
and all other interests under the Plan, other than Vested Awards (as defined
below). In the event of such forfeiture, Trust Assets related to such
Participant's Forfeited Awards will revert to the Company (subject to
contribution to the Trust at the option of the Plan Committee), such Forfeited
Awards shall no longer be deemed outstanding Awards hereunder and such former
employee shall no longer be deemed a Participant for purposes of this Plan
(unless such person qualifies as an Exempt Participant, as defined below).
Awards will vest with respect to each Participant and become "Vested
Awards" upon the earlier to occur of (each, a "Vesting Event") (i) ________,
2008 and (ii) the consummation by the Company of an underwritten offering of the
Company's (or any successor's) equity securities pursuant to an effective
registration statement under the Securities Act of 1933, as amended (an "IPO"),
provided that such Participant is (y) employed by the Company on a full-time
basis at the time of the Vesting Event or (z) not employed by the Company on a
full-time basis at the time of the Vesting Event and qualifies as an Exempt
Participant. Any Awards which are not vested in accordance with the foregoing
are referred to as "Unvested Awards".
-2-
<PAGE> 3
"Exempt Participant" means any Participant (i) whose employment with the
Company terminates as a result of such Participant's death or Disability (as
defined below); (ii) which the Plan Committee determines (in its sole
discretion) will be exempted from the forfeiture provisions described above and
will therefore be entitled to have Awards become vested upon termination of
employment; or (iii) whose employment with the Company is on a part-time basis
at the date of grant of Awards and is employed by the Company on a part-time
basis at the time of the Vesting Event. "Disability" means any physical or
mental incapacitation which results in a Participant's inability to perform such
Participant's duties and responsibilities to the Company for a total of [60]
business days during any twelve-month period, as determined in good faith by the
Plan Committee.
Receipt of an Award by any Participant in any one year does not entitle
such Participant to receive an Award in any other year.
6. Records and Statements.
The Plan Committee will maintain all records of the Plan and will cause
the granting and reservation of the Awards to be reflected on the Company's
financial statements.
7. Timing and Amounts of Distributions.
Subject to Section 13 hereof, the Plan Committee will in its sole
discretion determine the amount of distributions from the Trust (whether in cash
or equity (including Partnership Units)) and the timing of all such
distributions. The Plan Committee will promptly notify the Trustees of the Trust
as to a decision to cause a distribution of the Trust Assets to Participants and
will direct Trustees to make distributions within 30 days following such notice
(each, a "Distribution Date").
Although distributions from the Trust will be made solely in the
discretion of the Plan Committee, it is the intent of the Plan Committee
generally to make distributions when cash is received by the Trust (including
upon a sale of the Company).
Subject to Section 13 hereof, all distributions to Participants and Exempt
Participants (or their estates) will be made pro rata based on the number of
Awards outstanding as of the applicable Distribution Date.
Awards held by Participants who are not full-time employees of the Company
on a Distribution Date or by Exempt Participants (or their estates) will not be
considered outstanding for any purposes whatsoever under the Plan and such
Participants will not be entitled to receive any distributions from the Trust,
unless such Awards are Vested Awards.
8. Taxes.
Participants will have no income tax upon receipt of Awards. Any
distributions (including distributions of Partnership Units upon an IPO in
accordance with Section 13) to Participants (including Exempt Participants) made
by the Trust will be taxable as ordinary income to the recipient and will be
subject to federal and state income tax withholding. The Company shall
-3-
<PAGE> 4
be entitled, if the Plan Committee deems it necessary or desirable, to withhold
from any Participant (or secure payment from the Participant in lieu of
withholding) the amount of any withholding or other tax due from the Company
with respect to any payment due in connection with distributions under the Plan.
The Company shall be entitled to withhold either cash (from the salary of
Participants) and/or shares (with a market value equal to the amount of the
required withholding).
In connection with an IPO, a Participant shall be entitled to elect to pay
cash to the Company to meet the Company's withholding obligations if such
Participant does not wish to have the Company withhold a portion of such
Participant's Partnership Units to satisfy such withholding obligations.
9. Non-Assignability
The rights of each Participant (including Exempt Participants) under the
Plan are not transferable or assignable by such Participant (except to such
Participant's heirs or estate).
10. Expenses.
The Company will pay all expenses incidental to operations of the Plan,
including the costs of record-keeping, accounting fees and legal fees incurred
pursuant to the Plan.
11. Rights to Terminate Employment.
Neither the adoption by the Company of, nor the participation of an
employee in, the Plan confers upon any employee the right to continue in the
employ of the Company or interferes in any way with the right of the Company to
terminate such employee's employment at any time, nor will it interfere in any
way with such employee's right to terminate his or her employment with the
Company at any time.
12. Amendment to the Plan.
The Company may (without the consent of any Participant) amend the Plan at
any time to comply with applicable federal or state law or for any other reason,
except that the Company shall not amend the Plan to the extent such amendment
would affect any Participant's rights with respect to Vested Awards hereunder in
a manner more adverse than such amendment affects any other Participant's rights
with respect to Vested Awards.
13. Termination of Plan.
The Plan will terminate at such date (the "Termination Date") as
determined by the Plan Committee in its sole discretion, except that (i) the
Termination Date shall be no earlier than January __, 200_ (except as provided
for in clause (ii)) and (ii) the Plan shall terminate automatically upon the
occurrence of an IPO. On the Termination Date, the Plan Committee will authorize
the Trustees (as defined in the Trust) to (i) distribute all Partnership Units
and other Trust Assets related
-4-
<PAGE> 5
to Vested Awards to the Plan Participants or their heirs and estates holding
such Vested Awards and (ii) return any Partnership Units and other Trust Assets
related to Unvested Awards to the Company.
14. Unfunded Arrangement.
The benefits to be paid pursuant to the Plan are unfunded and unsecured
and will be payable solely from the assets of the Trust, and the Participants
have no interests in the assets of the Company, the Trust, or in any account
maintained by the Company for its own convenience by virtue of the Plan. No fund
or other assets will be set aside or segregated for the benefit of any
Participant, other than pursuant to the Trust. All Trust Assets and other assets
of the Trust will be subject to the claims of the Company's creditors in the
event of the occurrence of the Company's bankruptcy or insolvency until actually
paid to Participants. Awards granted under the Plan provide each Participant a
contingent right to receive future payments under the conditions set forth in
this Plan and do not represent direct ownership of interests in the Company.
15. Governing Law.
The Plan and all rights and obligations hereunder will be construed and
enforced in accordance with the laws of the State of Delaware.
-5-
<PAGE> 6
TRANSWESTERN HOLDINGS LP
EMPLOYEE EQUITY COMPENSATION TRUST
This Trust Agreement (this "Agreement") is made this __ day of ___________
by and between TransWestern Holdings LP (the "Company"), TransWestern
Communications Company, Inc., the general partner of the Company (the "General
Partner"), and Laurence H. Bloch, Ricardo Puente and Joan Fiorito (the foregoing
individuals being referred to herein individually as a "Trustee" and
collectively as the "Trustees"). Capitalized terms used but not otherwise
defined herein shall have the meanings assigned such terms in the Plan (as
defined below).
WHEREAS, the board of directors of the General Partner (the "Board") has
adopted the TransWestern Holdings LP Employee Equity Plan, a copy of which is
attached hereto as Annex A (the "Plan"), for the benefit of its current and
future managers and such other key employees as the Plan Committee determines
should be Participants in the Plan;
WHEREAS, the Company wishes to establish a trust (the "Trust") and to
contribute to the Trust assets to be held therein, subject to the claims of the
Company's creditors in the event the Company becomes Insolvent (as defined
below), until paid to Plan Participants and their beneficiaries or returned to
the Company in such manner and at such times as shall be specified herein; and
WHEREAS, it is the intention of the Company to make a contribution to the
Trust to provide itself with a source of funds to assist it in the meeting of
its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(a) The Company hereby deposits with the Trustees ____ of its Class B
Partnership Units ("Partnership Units"; and together, with all dividends and
distributions paid with respect to such Partnership Units, and all proceeds of
the foregoing and including any assets contributed to the Trust after the date
hereof, the "Trust Assets"), which shall become the principal of the Trust to be
held, administered and disposed of by the Trustees as provided in this
Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Company is
the grantor, within the meaning of subpart E, part 1, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended (the "Code"), and
shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and, until termination of the
Trust, shall be used exclusively for the uses and the purposes of Plan
Participants and general creditors as herein set forth. Plan Participants and
their beneficiaries shall have no preferred claim on, or any beneficial
ownership
<PAGE> 7
interest in, any assets of the Trust. Any rights created under the Plan and this
Agreement shall be mere unfunded and unsecured contractual rights of Plan
Participants and their beneficiaries against the Company and provide each Plan
Participant with a contingent right to receive future payments and do not
represent direct ownership interests in the Company. The Trust Assets will be
subject to the claims of the Company's general creditors under federal and state
law in the event the Company becomes Insolvent (as defined below in Section
3(a)).
(e) The Company may, in its sole discretion and in accordance with the
Plan, make additional deposits of Partnership Units with the Trustees to augment
the principal to be held, administered and disposed of by the Trustees as
provided in this Agreement. Neither the Trustees nor any Plan Participant or
beneficiary shall have any right to compel such additional deposits.
Section 2. Payments to Plan Participants and Their Beneficiaries.
(a) If the Plan Committee determines that a payment should be made to
Participants under the Plan, then it shall deliver to the Trustees a schedule
(the "Payment Schedule") that indicates the amounts payable in respect of each
Plan Participant (and such Plan Participant's beneficiaries), that provides a
formula or other instructions acceptable to the Trustees for determining the
amounts so payable, and the time for payment of such amounts. Except as
otherwise provided herein, the Trustees shall make payments to Plan Participants
or their beneficiaries in accordance with such Payment Schedule. The Trustees
shall make provision for the reporting and withholding of any federal, state or
local taxes that may be required to be withheld with respect to the payment of
benefits pursuant to the terms of this Agreement and shall pay amounts withheld
to the appropriate taxing authorities or determine that such amounts have been
reported, withheld and paid by the Company in accordance with the Plan.
(b) In the event of any dispute as to the entitlement of a Plan
Participant or such Plan Participant's beneficiaries to benefits under the Plan,
such dispute shall be resolved by the Plan Committee, or such other party as the
Company shall designate under the Plan, which resolution shall be final and
binding on all parties and all Plan Participants.
Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Company is Insolvent.
(a) The Trustees shall cease payment of benefits to Plan Participants
and their beneficiaries if the Company is Insolvent. The Company shall be
considered "Insolvent" for purposes of this Agreement if (i) the Company is
unable to pay its debts as they become due, (ii) the Company is a debtor in and
subject to a proceeding pending under the United States Bankruptcy Code or (iii)
payment of such benefits would cause a default or event of default under any
agreement to which the Company is bound relating to borrowed money.
(b) At all times during the continuance of this Trust, the principal and
income of the Trust shall be subject to claims of general creditors of the
Company under federal and state law as set forth below.
-2-
<PAGE> 8
(i) The Board shall have the duty to inform the Trustees in
writing if the Company becomes Insolvent. If a person claiming to be a creditor
of the Company alleges in writing to the Trustees that the Company has become
Insolvent, the Trustees shall determine whether the Company is Insolvent and,
pending such determination, the Trustees shall discontinue payment of benefits
to Plan Participants and their beneficiaries.
(ii) The Trustees shall have no duty to inquire as to whether the
Company is Insolvent unless the Trustees have (A) actual knowledge that the
Company is Insolvent or (B) received notice from the Company or a person
claiming to be a creditor of the Company alleging that the Company is Insolvent.
The Trustees may in all events rely on such evidence concerning the Company's
Insolvency as may be furnished to the Trustees and that provides the Trustees
with a reasonable basis for making a determination as to whether the Company is
Insolvent.
(iii) If at any time the Trustees have determined that the Company
is Insolvent, the Trustees shall discontinue payments to Plan Participants and
their beneficiaries and shall hold all Trust Assets for the benefit of the
Company's general creditors. Nothing in this Agreement shall in any way diminish
any rights of Plan Participants or their beneficiaries to pursue their rights as
general creditors of the Company with respect to benefits due (if any) under the
Plan.
(iv) The Trustees shall resume the payments of benefits to Plan
Participants or their beneficiaries in accordance with Section 2 of this
Agreement only after the Trustees have determined that the Company is not
Insolvent (or is no longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustees
discontinue the payment of benefits from the Trust pursuant to Section 3(b) of
this Agreement and subsequently resume such payments, the first payment
following such discontinuance shall include the aggregate amount of all payments
due (if any) to Plan Participants or their beneficiaries under the terms of the
Plan for the period of such continuance, less the aggregate amount of any
payments made to Plan Participants or their beneficiaries by the Company in lieu
of the payments provided for hereunder during any such period of discontinuance.
Section 4. Payments to the Company.
Except as provided in Sections 2, 3 and 12 of this Agreement (but subject
to the terms of the Plan), the Company shall have no right or power to direct
the Trustees to return to the Company or to divert to others any Trust Assets
before all payment of benefits have been made to Plan Participants and their
beneficiaries pursuant to the terms of this Agreement and the Plan.
Section 5. Investment Authority.
The Trustees may invest in securities (including Partnership Units or
rights to acquire Partnership Units) issued by the Company or others. All rights
associated with the Trust Assets shall be exercised by the Trustees or the
person designated by the Trustees, and shall in no event be exercisable by Plan
Participants. Notwithstanding any other provision of this Agreement, the Company
shall have the right at any time, and from time to time in its sole discretion,
to substitute
-3-
<PAGE> 9
assets of equal fair market value for all or any portion of the Trust Assets.
This right is exercisable by the Company in a nonfiduciary capacity without the
approval or consent of any person in a fiduciary capacity.
Section 6. Disposition of Income.
During the term of this Trust, all of the income received by the Trust,
net of expenses and taxes, to the extent not distributed, shall be accumulated
and reinvested.
Section 7. Accounting by Trustees.
The Trustees shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific record as shall be agreed upon in writing between the
Company and the Trustees. Within thirty (30) days following the close of each
calendar year, the Trustees shall deliver to the Company a written account of
all disbursements made under the Trust during such year.
Section 8. Responsibility of Trustees.
(a) The Trustees shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided that the Trustees
shall incur no liability to any person for any action taken pursuant to a
direction, request or approval given by the Company which is contemplated by,
and in conformity with, the terms of the Plan or this Agreement and is given in
writing by the Company in the event of a dispute between the Company and another
party, the Trustees may apply to a court of competent jurisdiction to resolve
the dispute.
(b) If the Trustees undertake or defend any litigation arising in
connection with this Agreement or the Trust created hereby, or otherwise incur
any costs or expenses in connection with this Agreement or the Trust, the
Company agrees to indemnify each Trustee against the Trustee's costs, expenses
and liabilities (including, without limitation, attorneys' fees and expenses
relating thereto and to be primarily liable for such payments), unless and to
the extent it is finally determined by a court of competent jurisdiction that
such costs, expenses and liabilities resulted from the gross negligence or
willful misconduct of such Trustee.
(c) The Trustees may consult with legal counsel (who may also be counsel
for the Company generally) with respect to any of their duties or obligations
hereunder.
(d) The Trustees may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist them in
performing any of their duties or obligations hereunder.
(e) The Trustees shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein.
-4-
<PAGE> 10
(f) Notwithstanding any powers granted to the Trustees pursuant to this
Agreement or pursuant to applicable law, the Trustees shall not have any power
that could give this Trust the objective of carrying on a business and dividing
the gains therefrom, within the meaning of section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Code.
Section 9. Compensation and Expenses of Trustees.
Subject to Section 8(b), the Company shall pay all fees and expenses
incurred by the Trustees in connection with the Plan and this Agreement,
including costs of record-keeping, accounting and legal fees. No Trustee shall
be entitled to compensation for his services as a Trustee.
Section 10. Resignation and Removal of Trustees.
(a) The Board may, at any time with or without cause, remove a Trustee
by written notice to such Trustee, which removal shall be effective five (5)
days after receipt of such notice unless the Company and such Trustee agree
otherwise.
(b) A Trustee may resign at any time by written notice to the Company,
which resignation shall be effective thirty (30) days after receipt of such
notice unless the Company and such Trustee agree otherwise.
(c) Upon removal or resignation of a Trustee pursuant to Section 10(a)
or (b), the Company may, but shall not be required to, appoint a new Trustee to
replace such departing Trustee.
(d) In the event of the resignation or removal of the last remaining
Trustee and appointment of a successor Trustee, all Trust Assets subsequently
shall be transferred to the successor Trustee. The transfer shall be completed
within thirty (30) days after receipt of notice of resignation, removal or
transfer, unless the Company extends the time limit.
Section 11. Appointment of Successor Trustee.
(a) In the event of the appointment of a successor Trustee by the
Company, the appointment shall be effective when accepted in writing by the
successor Trustee, who shall have all of the rights and powers of the former
Trustee, including ownership rights in the Trust Assets. The former Trustee
shall execute any instrument necessary or reasonably requested by the Company or
the successor Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust Assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for, and
the Company shall indemnify and defend the successor Trustee from, any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time he or she becomes a
successor Trustee.
Section 12. Amendment or Termination.
-5-
<PAGE> 11
(a) This Agreement may be amended by a written instrument executed by
the Trustees and the Company.
(b) The Plan will terminate at such date (the "Termination Date") as
determined by the Plan Committee in its sole discretion, except that (i) the
Termination Date shall be no earlier than _____________, 200_ (except as
provided in clause (ii)) and (ii) the Plan shall terminate automatically upon
the consummation of an IPO. On the Termination Date, the Trustees shall be
authorized by the Plan Committee to (i) distribute all Partnership Units and
other Trust Assets related to Vested Awards to the Plan Participants or their
heirs and estates holding such Vested Awards and (ii) return any Partnership
Units and other Trust Assets related to Unvested Awards to the Company
Section 13. Miscellaneous.
(a) Any provisions of this Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to the Plan Participants and their beneficiaries
under this Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process except to a Participant's
heirs and estate.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
Section 14. Effective Date.
The effective date of this Agreement shall be ______________.
-6-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated June 6, 1997 except for "Organization, Business
Activity and Basis of Presentation" under Note 1, as to which the date is
November 6, 1997, with respect to the consolidated financial statements of
TransWestern Holdings L.P., included in the Prospectus of TransWestern Holdings
L.P., that is made a part of Amendment No. 1 to the Registration Statement (Form
S-4, No. 333-42117) of TransWestern Holdings L.P., for the offer to exchange
Series B 11 7/8% Senior Discount Notes due 2008 for any and all outstanding
11 7/8% Senior Discount Notes due 2008 of TransWestern Holdings L.P.
ERNST & YOUNG LLP
San Diego, California
February 2, 1998
<PAGE> 1
Exhibit 25.1
Registration No.333-42117
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
WILMINGTON TRUST COMPANY
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
Delaware 51-0055023
(State of incorporation) (I.R.S. employer identification no.)
</TABLE>
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of principal executive offices)
Cynthia L. Corliss
Vice President and Trust Counsel
Wilmington Trust Company
Rodney Square North
Wilmington, Delaware 19890
(302) 651-8516
(Name, address and telephone number of agent for service)
TRANSWESTERN HOLDINGS L.P.
TWP CAPITAL CORP.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 33-0560667
Delaware 33-0779058
(State of incorporation) (I.R.S. employer identification no.)
8344 Clairemont Mesa Boulevard
San Diego, California 92111
(Address of principal executive offices) (Zip Code)
</TABLE>
11 7/8% Senior Discount Notes due 2008, Series B
(Title of the indenture securities)
================================================================================
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Deposit Insurance Co. State Bank Commissioner
Five Penn Center Dover, Delaware
Suite #2901
Philadelphia, PA
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each
affiliation:
Based upon an examination of the books and records of the
trustee and upon information furnished by the obligor, the obligor
is not an affiliate of the trustee.
ITEM 3. LIST OF EXHIBITS.
List below all exhibits filed as part of this Statement of
Eligibility and Qualification.
A. Copy of the Charter of Wilmington Trust Company, which
includes the certificate of authority of Wilmington Trust
Company to commence business and the authorization of
Wilmington Trust Company to exercise corporate trust powers.
B. Copy of By-Laws of Wilmington Trust Company.
C. Consent of Wilmington Trust Company required by Section 321(b)
of Trust Indenture Act.
D. Copy of most recent Report of Condition of Wilmington Trust
Company.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Wilmington Trust Company, a corporation organized and
existing under the laws of Delaware, has duly caused this Statement of
Eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Wilmington and State of Delaware on the 17th day
of December, 1997.
WILMINGTON TRUST COMPANY
[SEAL]
Attest:/s/ Patricia A. Evans By:/s/ James P. Lawler
------------------------------- -------------------------------
Assistant Secretary Name: James P. Lawler
Title: Vice President
2
<PAGE> 3
EXHIBIT A
AMENDED CHARTER
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON MAY 9, 1987
<PAGE> 4
AMENDED CHARTER
OR
ACT OF INCORPORATION
OF
WILMINGTON TRUST COMPANY
WILMINGTON TRUST COMPANY, originally incorporated by an Act of the
General Assembly of the State of Delaware, entitled "An Act to Incorporate the
Delaware Guarantee and Trust Company", approved March 2, A.D. 1901, and the name
of which company was changed to "WILMINGTON TRUST COMPANY" by an amendment filed
in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter
or Act of Incorporation of which company has been from time to time amended and
changed by merger agreements pursuant to the corporation law for state banks and
trust companies of the State of Delaware, does hereby alter and amend its
Charter or Act of Incorporation so that the same as so altered and amended shall
in its entirety read as follows:
FIRST: - The name of this corporation is WILMINGTON TRUST COMPANY.
SECOND: - The location of its principal office in the State of
Delaware is at Rodney Square North, in the City of Wilmington,
County of New Castle; the name of its resident agent is WILMINGTON
TRUST COMPANY whose address is Rodney Square North, in said City. In
addition to such principal office, the said corporation maintains
and operates branch offices in the City of Newark, New Castle
County, Delaware, the Town of Newport, New Castle County, Delaware,
at Claymont, New Castle County, Delaware, at Greenville, New Castle
County Delaware, and at Milford Cross Roads, New Castle County,
Delaware, and shall be empowered to open, maintain and operate
branch offices at Ninth and Shipley Streets, 418 Delaware Avenue,
2120 Market Street, and 3605 Market Street, all in the City of
Wilmington, New Castle County, Delaware, and such other branch
offices or places of business as may be authorized from time to time
by the agency or agencies of the government of the State of Delaware
empowered to confer such authority.
THIRD: - (a) The nature of the business and the objects and purposes
proposed to be transacted, promoted or carried on by this
Corporation are to do any or all of the things herein mentioned as
fully and to the same extent as natural persons might or could do
and in any part of the world, viz.:
(1) To sue and be sued, complain and defend in any Court of
law or equity and to make and use a common seal, and alter
the seal at pleasure, to hold, purchase, convey, mortgage or
otherwise deal in real and personal estate and property, and
to appoint such officers and agents as the business of the
<PAGE> 5
Corporation shall require, to make by-laws not inconsistent
with the Constitution or laws of the United States or of
this State, to discount bills, notes or other evidences of
debt, to receive deposits of money, or securities for money,
to buy gold and silver bullion and foreign coins, to buy and
sell bills of exchange, and generally to use, exercise and
enjoy all the powers, rights, privileges and franchises
incident to a corporation which are proper or necessary for
the transaction of the business of the Corporation hereby
created.
(2) To insure titles to real and personal property, or any
estate or interests therein, and to guarantee the holder of
such property, real or personal, against any claim or
claims, adverse to his interest therein, and to prepare and
give certificates of title for any lands or premises in the
State of Delaware, or elsewhere.
(3) To act as factor, agent, broker or attorney in the
receipt, collection, custody, investment and management of
funds, and the purchase, sale, management and disposal of
property of all descriptions, and to prepare and execute all
papers which may be necessary or proper in such business.
(4) To prepare and draw agreements, contracts, deeds,
leases, conveyances, mortgages, bonds and legal papers of
every description, and to carry on the business of
conveyancing in all its branches.
(5) To receive upon deposit for safekeeping money, jewelry,
plate, deeds, bonds and any and all other personal property
of every sort and kind, from executors, administrators,
guardians, public officers, courts, receivers, assignees,
trustees, and from all fiduciaries, and from all other
persons and individuals, and from all corporations whether
state, municipal, corporate or private, and to rent boxes,
safes, vaults and other receptacles for such property.
(6) To act as agent or otherwise for the purpose of
registering, issuing, certificating, countersigning,
transferring or underwriting the stock, bonds or other
obligations of any corporation, association, state or
municipality, and may receive and manage any sinking fund
therefor on such terms as may be agreed upon between the two
parties, and in like manner may act as Treasurer of any
corporation or municipality.
(7) To act as Trustee under any deed of trust, mortgage,
bond or other instrument issued by any state, municipality,
body politic, corporation, association or person, either
alone or in conjunction with any other person or persons,
corporation or corporations.
2
<PAGE> 6
(8) To guarantee the validity, performance or effect of any
contract or agreement, and the fidelity of persons holding
places of responsibility or trust; to become surety for any
person, or persons, for the faithful performance of any
trust, office, duty, contract or agreement, either by itself
or in conjunction with any other person, or persons,
corporation, or corporations, or in like manner become
surety upon any bond, recognizance, obligation, judgment,
suit, order, or decree to be entered in any court of record
within the State of Delaware or elsewhere, or which may now
or hereafter be required by any law, judge, officer or court
in the State of Delaware or elsewhere.
(9) To act by any and every method of appointment as
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian, bailee, or
in any other trust capacity in the receiving, holding,
managing, and disposing of any and all estates and property,
real, personal or mixed, and to be appointed as such
trustee, trustee in bankruptcy, receiver, assignee, assignee
in bankruptcy, executor, administrator, guardian or bailee
by any persons, corporations, court, officer, or authority,
in the State of Delaware or elsewhere; and whenever this
Corporation is so appointed by any person, corporation,
court, officer or authority such trustee, trustee in
bankruptcy, receiver, assignee, assignee in bankruptcy,
executor, administrator, guardian, bailee, or in any other
trust capacity, it shall not be required to give bond with
surety, but its capital stock shall be taken and held as
security for the performance of the duties devolving upon it
by such appointment.
(10) And for its care, management and trouble, and the
exercise of any of its powers hereby given, or for the
performance of any of the duties which it may undertake or
be called upon to perform, or for the assumption of any
responsibility the said Corporation may be entitled to
receive a proper compensation.
(11) To purchase, receive, hold and own bonds, mortgages,
debentures, shares of capital stock, and other securities,
obligations, contracts and evidences of indebtedness, of any
private, public or municipal corporation within and without
the State of Delaware, or of the Government of the United
States, or of any state, territory, colony, or possession
thereof, or of any foreign government or country; to
receive, collect, receipt for, and dispose of interest,
dividends and income upon and from any of the bonds,
mortgages, debentures, notes, shares of capital stock,
securities, obligations, contracts, evidences of
indebtedness and other property held and owned by it, and to
exercise in respect of all such bonds, mortgages,
debentures, notes, shares of capital stock, securities,
obligations, contracts, evidences of indebtedness and other
property, any and all the rights, powers and privileges of
individual owners thereof, including the right to vote
thereon; to invest and deal in and
3
<PAGE> 7
with any of the moneys of the Corporation upon such
securities and in such manner as it may think fit and
proper, and from time to time to vary or realize such
investments; to issue bonds and secure the same by pledges
or deeds of trust or mortgages of or upon the whole or any
part of the property held or owned by the Corporation, and
to sell and pledge such bonds, as and when the Board of
Directors shall determine, and in the promotion of its said
corporate business of investment and to the extent
authorized by law, to lease, purchase, hold, sell, assign,
transfer, pledge, mortgage and convey real and personal
property of any name and nature and any estate or interest
therein.
(b) In furtherance of, and not in limitation, of the powers
conferred by the laws of the State of Delaware, it is hereby
expressly provided that the said Corporation shall also have the
following powers:
(1) To do any or all of the things herein set forth, to the
same extent as natural persons might or could do, and in any
part of the world.
(2) To acquire the good will, rights, property and
franchises and to undertake the whole or any part of the
assets and liabilities of any person, firm, association or
corporation, and to pay for the same in cash, stock of this
Corporation, bonds or otherwise; to hold or in any manner to
dispose of the whole or any part of the property so
purchased; to conduct in any lawful manner the whole or any
part of any business so acquired, and to exercise all the
powers necessary or convenient in and about the conduct and
management of such business.
(3) To take, hold, own, deal in, mortgage or otherwise lien,
and to lease, sell, exchange, transfer, or in any manner
whatever dispose of property, real, personal or mixed,
wherever situated.
(4) To enter into, make, perform and carry out contracts of
every kind with any person, firm, association or
corporation, and, without limit as to amount, to draw, make,
accept, endorse, discount, execute and issue promissory
notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or transferable
instruments.
(5) To have one or more offices, to carry on all or any of
its operations and businesses, without restriction to the
same extent as natural persons might or could do, to
purchase or otherwise acquire, to hold, own, to mortgage,
sell, convey or otherwise dispose of, real and personal
property, of every class and description, in any State,
District, Territory or Colony of the United States, and in
any foreign country or place.
4
<PAGE> 8
(6) It is the intention that the objects, purposes and
powers specified and clauses contained in this paragraph
shall (except where otherwise expressed in said paragraph)
be nowise limited or restricted by reference to or inference
from the terms of any other clause of this or any other
paragraph in this charter, but that the objects, purposes
and powers specified in each of the clauses of this
paragraph shall be regarded as independent objects, purposes
and powers.
FOURTH: - (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is forty-one
million (41,000,000) shares, consisting of:
(1) One million (1,000,000) shares of Preferred stock, par
value $10.00 per share (hereinafter referred to as
"Preferred Stock"); and
(2) Forty million (40,000,000) shares of Common Stock, par
value $1.00 per share (hereinafter referred to as "Common
Stock").
(b) Shares of Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board
of Directors each of said series to be distinctly designated. All
shares of any one series of Preferred Stock shall be alike in every
particular, except that there may be different dates from which
dividends, if any, thereon shall be cumulative, if made cumulative.
The voting powers and the preferences and relative, participating,
optional and other special rights of each such series, and the
qualifications, limitations or restrictions thereof, if any, may
differ from those of any and all other series at any time
outstanding; and, subject to the provisions of subparagraph 1 of
Paragraph (c) of this Article FOURTH, the Board of Directors of the
Corporation is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any
shares of a particular series of Preferred Stock, the voting powers
and the designations, preferences and relative, optional and other
special rights, and the qualifications, limitations and restrictions
of such series, including, but without limiting the generality of
the foregoing, the following:
(1) The distinctive designation of, and the number of shares
of Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
(2) The rate and times at which, and the terms and
conditions on which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference
or relation, if any, of such dividends to the dividends
payable
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on any other class or classes, or series of the same or
other class of stock and whether such dividends shall be
cumulative or non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of
such series to convert the same into or exchange the same
for, shares of any other class or classes or of any series
of the same or any other class or classes of stock of the
Corporation and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices
and the time or times at which, and the terms and conditions
on which, Preferred Stock of such series may be redeemed.
(5) The rights, if any, of the holders of Preferred Stock of
such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation.
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of
such series; and
(7) The voting powers, if any, of the holders of such series
of Preferred Stock which may, without limiting the
generality of the foregoing include the right, voting as a
series or by itself or together with other series of
Preferred Stock or all series of Preferred Stock as a class,
to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any
one or more series of Preferred Stock or under such
circumstances and on such conditions as the Board of
Directors may determine.
(c) (1) After the requirements with respect to preferential
dividends on the Preferred Stock (fixed in accordance with the
provisions of section (b) of this Article FOURTH), if any, shall
have been met and after the Corporation shall have complied with all
the requirements, if any, with respect to the setting aside of sums
as sinking funds or redemption or purchase accounts (fixed in
accordance with the provisions of section (b) of this Article
FOURTH), and subject further to any conditions which may be fixed in
accordance with the provisions of section (b) of this Article
FOURTH, then and not otherwise the holders of Common Stock shall be
entitled to receive such dividends as may be declared from time to
time by the Board of Directors.
(2) After distribution in full of the preferential amount,
if any, (fixed in accordance with the provisions of section
(b) of this Article FOURTH), to be distributed to the
holders of Preferred Stock in the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding-up, of the Corporation, the holders
of the Common Stock shall be entitled to receive all of the
remaining assets of the Corporation, tangible and
intangible,
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of whatever kind available for distribution to stockholders
ratably in proportion to the number of shares of Common
Stock held by them respectively.
(3) Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be
adopted by the Board of Directors pursuant to section (b) of
this Article FOURTH, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held on
all matters voted upon by the stockholders.
(d) No holder of any of the shares of any class or series of stock
or of options, warrants or other rights to purchase shares of any
class or series of stock or of other securities of the Corporation
shall have any preemptive right to purchase or subscribe for any
unissued stock of any class or series or any additional shares of
any class or series to be issued by reason of any increase of the
authorized capital stock of the Corporation of any class or series,
or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the
Corporation of any class or series, or carrying any right to
purchase stock of any class or series, but any such unissued stock,
additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether such holders or others,
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
(e) The relative powers, preferences and rights of each series of
Preferred Stock in relation to the relative powers, preferences and
rights of each other series of Preferred Stock shall, in each case,
be as fixed from time to time by the Board of Directors in the
resolution or resolutions adopted pursuant to authority granted in
section (b) of this Article FOURTH and the consent, by class or
series vote or otherwise, of the holders of such of the series of
Preferred Stock as are from time to time outstanding shall not be
required for the issuance by the Board of Directors of any other
series of Preferred Stock whether or not the powers, preferences and
rights of such other series shall be fixed by the Board of Directors
as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them; provided,
however, that the Board of Directors may provide in the resolution
or resolutions as to any series of Preferred Stock adopted pursuant
to section (b) of this Article FOURTH that the consent of the
holders of a majority (or such greater proportion as shall be
therein fixed) of the outstanding shares of such series voting
thereon shall be required for the issuance of any or all other
series of Preferred Stock.
(f) Subject to the provisions of section (e), shares of any series
of Preferred Stock may be issued from time to time as the Board of
Directors of the Corporation shall
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<PAGE> 11
determine and on such terms and for such consideration as shall be
fixed by the Board of Directors.
(g) Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of
Directors.
(h) The authorized amount of shares of Common Stock and of Preferred
Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote thereon.
FIFTH: - (a) The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors. The number of
directors constituting the entire Board shall be not less than five
nor more than twenty-five as fixed from time to time by vote of a
majority of the whole Board, provided, however, that the number of
directors shall not be reduced so as to shorten the term of any
director at the time in office, and provided further, that the
number of directors constituting the whole Board shall be
twenty-four until otherwise fixed by a majority of the whole Board.
(b) The Board of Directors shall be divided into three classes, as
nearly equal in number as the then total number of directors
constituting the whole Board permits, with the term of office of one
class expiring each year. At the annual meeting of stockholders in
1982, directors of the first class shall be elected to hold office
for a term expiring at the next succeeding annual meeting, directors
of the second class shall be elected to hold office for a term
expiring at the second succeeding annual meeting and directors of
the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting. Any vacancies in the Board
of Directors for any reason, and any newly created directorships
resulting from any increase in the directors, may be filled by the
Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any directors so chosen
shall hold office until the next annual election of directors. At
such election, the stockholders shall elect a successor to such
director to hold office until the next election of the class for
which such director shall have been chosen and until his successor
shall be elected and qualified. No decrease in the number of
directors shall shorten the term of any incumbent director.
(c) Notwithstanding any other provisions of this Charter or Act of
Incorporation or the By-Laws of the Corporation (and notwithstanding
the fact that some lesser percentage may be specified by law, this
Charter or Act of Incorporation or the ByLaws of the Corporation),
any director or the entire Board of Directors of the Corporation may
be removed at any time without cause, but only by the affirmative
vote of the holders of two-thirds or more of the outstanding shares
of capital stock of the Corporation entitled to vote generally in
the election of directors (considered for
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this purpose as one class) cast at a meeting of the stockholders
called for that purpose.
(d) Nominations for the election of directors may be made by the
Board of Directors or by any stockholder entitled to vote for the
election of directors. Such nominations shall be made by notice in
writing, delivered or mailed by first class United States mail,
postage prepaid, to the Secretary of the Corporation not less than
14 days nor more than 50 days prior to any meeting of the
stockholders called for the election of directors; provided,
however, that if less than 21 days' notice of the meeting is given
to stockholders, such written notice shall be delivered or mailed,
as prescribed, to the Secretary of the Corporation not later than
the close of the seventh day following the day on which notice of
the meeting was mailed to stockholders. Notice of nominations which
are proposed by the Board of Directors shall be given by the
Chairman on behalf of the Board.
(e) Each notice under subsection (d) shall set forth (i) the name,
age, business address and, if known, residence address of each
nominee proposed in such notice, (ii) the principal occupation or
employment of such nominee and (iii) the number of shares of stock
of the Corporation which are beneficially owned by each such
nominee.
(f) The Chairman of the meeting may, if the facts warrant, determine
and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
(g) No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be
taken without a meeting, and the power of stockholders to consent in
writing, without a meeting, to the taking of any action is
specifically denied.
SIXTH: - The Directors shall choose such officers, agent and
servants as may be provided in the By-Laws as they may from time to
time find necessary or proper.
SEVENTH: - The Corporation hereby created is hereby given the same
powers, rights and privileges as may be conferred upon corporations
organized under the Act entitled "An Act Providing a General
Corporation Law", approved March 10, 1899, as from time to time
amended.
EIGHTH: - This Act shall be deemed and taken to be a private Act.
NINTH: - This Corporation is to have perpetual existence.
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TENTH: - The Board of Directors, by resolution passed by a majority
of the whole Board, may designate any of their number to constitute
an Executive Committee, which Committee, to the extent provided in
said resolution, or in the By-Laws of the Company, shall have and
may exercise all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, and shall
have power to authorize the seal of the Corporation to be affixed to
all papers which may require it.
ELEVENTH: - The private property of the stockholders shall not be
liable for the payment of corporate debts to any extent whatever.
TWELFTH: - The Corporation may transact business in any part of the
world.
THIRTEENTH: - The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal the By-Laws of the Corporation
by a vote of the majority of the entire Board. The stockholders may
make, alter or repeal any By-Law whether or not adopted by them,
provided however, that any such additional By-Laws, alterations or
repeal may be adopted only by the affirmative vote of the holders of
two-thirds or more of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors
(considered for this purpose as one class).
FOURTEENTH: - Meetings of the Directors may be held outside
of the State of Delaware at such places as may be from time to time
designated by the Board, and the Directors may keep the books of the
Company outside of the State of Delaware at such places as may be
from time to time designated by them.
FIFTEENTH: - (a) In addition to any affirmative vote required by
law, and except as otherwise expressly provided in sections (b) and
(c) of this Article FIFTEENTH:
(A) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with or into (i) any
Interested Stockholder (as hereinafter defined) or (ii) any
other corporation (whether or not itself an Interested
Stockholder), which, after such merger or consolidation,
would be an Affiliate (as hereinafter defined) of an
Interested Stockholder, or
(B) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of related
transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate fair
market value of $1,000,000 or more, or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related
transactions) of any securities of the
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<PAGE> 14
Corporation or any Subsidiary to any Interested Stockholder
or any Affiliate of any Interested Stockholder in exchange
for cash, securities or other property (or a combination
thereof) having an aggregate fair market value of $1,000,000
or more, or
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation, or
(E) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any of its Subsidiaries or any similar
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested
Stockholder, or any Affiliate of any Interested Stockholder,
shall require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for the purpose of this
Article FIFTEENTH as one class ("Voting Shares"). Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that some
lesser percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
(2) The term "business combination" as used in this
Article FIFTEENTH shall mean any transaction which is
referred to any one or more of clauses (A) through (E) of
paragraph 1 of the section (a).
(b) The provisions of section (a) of this Article FIFTEENTH
shall not be applicable to any particular business
combination and such business combination shall require only
such affirmative vote as is required by law and any other
provisions of the Charter or Act of Incorporation of By-Laws
if such business combination has been approved by a majority
of the whole Board.
(c) For the purposes of this Article FIFTEENTH:
(1) A "person" shall mean any individual firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean, in respect of any business
combination, any person (other than the Corporation or any
Subsidiary) who or which as of the record date for the determination
of stockholders entitled to notice of and to vote on such business
combination, or immediately prior to the consummation of any such
transaction:
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(A) is the beneficial owner, directly or indirectly, of more
than 10% of the Voting Shares, or
(B) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of not less than 10% of the then
outstanding voting Shares, or
(C) is an assignee of or has otherwise succeeded in any
share of capital stock of the Corporation which were at any
time within two years prior thereto beneficially owned by
any Interested Stockholder, and such assignment or
succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(3) A person shall be the "beneficial owner" of any Voting Shares:
(A) which such person or any of its Affiliates and
Associates (as hereafter defined) beneficially own, directly
or indirectly, or
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock
of the Corporation.
(4) The outstanding Voting Shares shall include shares deemed owned
through application of paragraph (3) above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement,
or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" and "Associate" shall have the respective meanings
given those terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December
31, 1981.
(6) "Subsidiary" shall mean any corporation of which a majority of
any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect in December 31, 1981) is owned, directly or
indirectly, by the Corporation; provided, however, that for the
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purposes of the definition of Investment Stockholder set forth in
paragraph (2) of this section (c), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
(d) majority of the directors shall have the power and duty
to determine for the purposes of this Article FIFTEENTH on
the basis of information known to them, (1) the number of
Voting Shares beneficially owned by any person (2) whether a
person is an Affiliate or Associate of another, (3) whether
a person has an agreement, arrangement or understanding with
another as to the matters referred to in paragraph (3) of
section (c), or (4) whether the assets subject to any
business combination or the consideration received for the
issuance or transfer of securities by the Corporation, or
any Subsidiary has an aggregate fair market value of
$1,00,000 or more.
(e) Nothing contained in this Article FIFTEENTH shall be
construed to relieve any Interested Stockholder from any
fiduciary obligation imposed by law.
SIXTEENTH: Notwithstanding any other provision of this Charter or
Act of Incorporation or the By-Laws of the Corporation (and in
addition to any other vote that may be required by law, this Charter
or Act of Incorporation by the By-Laws), the affirmative vote of the
holders of at least two-thirds of the outstanding shares of the
capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter or repeal any provision of
Articles FIFTH, THIRTEENTH, FIFTEENTH or SIXTEENTH of this Charter
or Act of Incorporation.
SEVENTEENTH: (a) a Director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except to the extent such
exemption from liability or limitation thereof is not permitted
under the Delaware General Corporation Laws as the same exists or
may hereafter be amended.
(b) Any repeal or modification of the foregoing paragraph
shall not adversely affect any right or protection of a
Director of the Corporation existing hereunder with respect
to any act or omission occurring prior to the time of such
repeal or modification."
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EXHIBIT B
BY-LAWS
WILMINGTON TRUST COMPANY
WILMINGTON, DELAWARE
AS EXISTING ON JANUARY 16, 1997
<PAGE> 18
BY-LAWS OF WILMINGTON TRUST COMPANY
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. The Annual Meeting of Stockholders shall be held on the
third Thursday in April each year at the principal office at the Company or at
such other date, time, or place as may be designated by resolution by the Board
of Directors.
Section 2. Special meetings of all stockholders may be called at any
time by the Board of Directors, the Chairman of the Board or the President.
Section 3. Notice of all meetings of the stockholders shall be given
by mailing to each stockholder at least ten (10) days before said meeting, at
his last known address, a written or printed notice fixing the time and place of
such meeting.
Section 4. A majority in the amount of the capital stock of the
Company issued and outstanding on the record date, as herein determined, shall
constitute a quorum at all meetings of stockholders for the transaction of any
business, but the holders of a small number of shares may adjourn, from time to
time, without further notice, until a quorum is secured. At each annual or
special meeting of stockholders, each stockholder shall be entitled to one vote,
either in person or by proxy, for each shares of stock registered in the
stockholder's name on the books of the Company on the record date for any such
meeting as determined herein.
ARTICLE II
DIRECTORS
Section 1. The number and classification of the Board of Directors
shall be as set forth in the Charter of the Bank.
Section 2. No person who has attained the age of seventy-two (72)
years shall be nominated for election to the Board of Directors of the Company,
provided, however, that this limitation shall not apply to any person who was
serving as director of the Company on September 16, 1971.
Section 3. The class of Directors so elected shall hold office for
three years or until their successors are elected and qualified.
Section 4. The affairs and business of the Company shall be managed
and conducted by the Board of Directors.
Section 5. The Board of Directors shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members, or at the call of the Chairman of the Board of
Directors or the President.
<PAGE> 19
Section 6. Special meetings of the Board of Directors may be called
at any time by the Chairman of the Board of Directors or by the President, and
shall be called upon the written request of a majority of the directors.
Section 7. A majority of the directors elected and qualified shall
be necessary to constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
Section 8. Written notice shall be sent by mail to each director of
any special meeting of the Board of Directors, and of any change in the time or
place of any regular meeting, stating the time and place of such meeting, which
shall be mailed not less than two days before the time of holding such meeting.
Section 9. In the event of the death, resignation, removal,
inability to act, or disqualification of any director, the Board of Directors,
although less than a quorum, shall have the right to elect the successor who
shall hold office for the remainder of the full term of the class of directors
in which the vacancy occurred, and until such director's successor shall have
been duly elected and qualified.
Section 10. The Board of Directors at its first meeting after its
election by the stockholders shall appoint an Executive Committee, a Trust
Committee, an Audit Committee and a Compensation Committee, and shall elect from
its own members a Chairman of the Board of Directors and a President who may be
the same person. The Board of Directors shall also elect at such meeting a
Secretary and a Treasurer, who may be the same person, may appoint at any time
such other committees and elect or appoint such other officers as it may deem
advisable. The Board of Directors may also elect at such meeting one or more
Associate Directors.
Section 11. The Board of Directors may at any time remove, with or
without cause, any member of any Committee appointed by it or any associate
director or officer elected by it and may appoint or elect his successor.
Section 12. The Board of Directors may designate an officer to be in
charge of such of the departments or division of the Company as it may deem
advisable.
ARTICLE III
COMMITTEES
Section I. Executive Committee
(A) The Executive Committee shall be composed of not more
than nine members who shall be selected by the Board of Directors from its own
members and who shall hold office during the pleasure of the Board.
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(B) The Executive Committee shall have all the powers of
the Board of Directors when it is not in session to transact all business for
and in behalf of the Company that may be brought before it.
(C) The Executive Committee shall meet at the principal
office of the Company or elsewhere in its discretion at such times to be
determined by a majority of its members, or at the call of the Chairman of the
Executive Committee or at the call of the Chairman of the Board of Directors.
The majority of its members shall be necessary to constitute a quorum for the
transaction of business. Special meetings of the Executive Committee may be held
at any time when a quorum is present.
(D) Minutes of each meeting of the Executive Committee
shall be kept and submitted to the Board of Directors at its next meeting.
(E) The Executive Committee shall advise and superintend
all investments that may be made of the funds of the Company, and shall direct
the disposal of the same, in accordance with such rules and regulations as the
Board of Directors from time to time make.
(F) In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Company by its directors and officers as contemplated by these By-Laws any
two available members of the Executive Committee as constituted immediately
prior to such disaster shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Company in accordance
with the provisions of Article III of these By-Laws; and if less than three
members of the Trust Committee is constituted immediately prior to such disaster
shall be available for the transaction of its business, such Executive Committee
shall also be empowered to exercise all of the powers reserved to the Trust
Committee under Article III Section 2 hereof. In the event of the
unavailability, at such time, of a minimum of two members of such Executive
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs and business of the
Company in accordance with the foregoing provisions of this Section. This By-Law
shall be subject to implementation by Resolutions of the Board of Directors
presently existing or hereafter passed from time to time for that purpose, and
any provisions of these By-Laws (other than this Section) and any resolutions
which are contrary to the provisions of this Section or to the provisions of any
such implementary Resolutions shall be suspended during such a disaster period
until it shall be determined by any interim Executive Committee acting under
this section that it shall be to the advantage of the Company to resume the
conduct and management of its affairs and business under all of the other
provisions of these By-Laws.
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Section 2. Trust Committee
(A) The Trust Committee shall be composed of not more than
thirteen members who shall be selected by the Board of Directors, a majority of
whom shall be members of the Board of Directors and who shall hold office during
the pleasure of the Board.
(B) The Trust Committee shall have general supervision
over the Trust Department and the investment of trust funds, in all matters,
however, being subject to the approval of the Board of Directors.
(C) The Trust Committee shall meet at the principal office
of the Company or elsewhere in its discretion at such times to be determined by
a majority of its members or at the call of its chairman. A majority of its
members shall be necessary to constitute a quorum for the transaction of
business.
(D) Minutes of each meeting of the Trust Committee shall
be kept and promptly submitted to the Board of Directors.
(E) The Trust Committee shall have the power to appoint
Committees and/or designate officers or employees of the Company to whom
supervision over the investment of trust funds may be delegated when the Trust
Committee is not in session.
Section 3. Audit Committee
(A) The Audit Committee shall be composed of five members
who shall be selected by the Board of Directors from its own members, none of
whom shall be an officer of the Company, and shall hold office at the pleasure
of the Board.
(B) The Audit Committee shall have general supervision
over the Audit Division in all matters however subject to the approval of the
Board of Directors; it shall consider all matters brought to its attention by
the officer in charge of the Audit Division, review all reports of examination
of the Company made by any governmental agency or such independent auditor
employed for that purpose, and make such recommendations to the Board of
Directors with respect thereto or with respect to any other matters pertaining
to auditing the Company as it shall deem desirable.
(C) The Audit Committee shall meet whenever and wherever
the majority of its members shall deem it to be proper for the transaction of
its business, and a majority of its Committee shall constitute a quorum.
Section 4. Compensation Committee
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(A) The Compensation Committee shall be composed of not
more than five (5) members who shall be selected by the Board of Directors from
its own members who are not officers of the Company and who shall hold office
during the pleasure of the Board.
(B) The Compensation Committee shall in general advise
upon all matters of policy concerning the Company brought to its attention by
the management and from time to time review the management of the Company, major
organizational matters, including salaries and employee benefits and
specifically shall administer the Executive Incentive Compensation Plan.
(C) Meetings of the Compensation Committee may be called
at any time by the Chairman of the Compensation Committee, the Chairman of the
Board of Directors, or the President of the Company.
Section 5. Associate Directors
(A) Any person who has served as a director may be elected
by the Board of Directors as an associate director, to serve during the pleasure
of the Board.
(B) An associate director shall be entitled to attend all
directors meetings and participate in the discussion of all matters brought to
the Board, with the exception that he would have no right to vote. An associate
director will be eligible for appointment to Committees of the Company, with the
exception of the Executive Committee, Audit Committee and Compensation
Committee, which must be comprised solely of active directors.
Section 6. Absence or Disqualification of Any Member of a Committee
(A) In the absence or disqualification of any member of
any Committee created under Article III of the By-Laws of this Company, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absence or disqualified member.
ARTICLE IV
OFFICERS
Section 1. The Chairman of the Board of Directors shall preside at
all meetings of the Board and shall have such further authority and powers and
shall perform such duties as the Board of Directors may from time to time confer
and direct. He shall also exercise such powers and perform such duties as may
from time to time be agreed upon between himself and the President of the
Company.
5
<PAGE> 23
Section 2. The Vice Chairman of the Board. The Vice Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors at
which the Chairman of the Board shall not be present and shall have such further
authority and powers and shall perform such duties as the Board of Directors or
the Chairman of the Board may from time to time confer and direct.
Section 3. The President shall have the powers and duties pertaining
to the office of the President conferred or imposed upon him by statute or
assigned to him by the Board of Directors in the absence of the Chairman of the
Board the President shall have the powers and duties of the Chairman of the
Board.
Section 4. The Chairman of the Board of Directors or the President
as designated by the Board of Directors, shall carry into effect all legal
directions of the Executive Committee and of the Board of Directors, and shall
at all times exercise general supervision over the interest, affairs and
operations of the Company and perform all duties incident to his office.
Section 5. There may be one or more Vice Presidents, however
denominated by the Board of Directors, who may at any time perform all the
duties of the Chairman of the Board of Directors and/or the President and such
other powers and duties as may from time to time be assigned to them by the
Board of Directors, the Executive Committee, the Chairman of the Board or the
President and by the officer in charge of the department or division to which
they are assigned.
Section 6. The Secretary shall attend to the giving of notice of
meetings of the stockholders and the Board of Directors, as well as the
Committees thereof, to the keeping of accurate minutes of all such meetings and
to recording the same in the minute books of the Company. In addition to the
other notice requirements of these By-Laws and as may be practicable under the
circumstances, all such notices shall be in writing and mailed well in advance
of the scheduled date of any other meeting. He shall have custody of the
corporate seal and shall affix the same to any documents requiring such
corporate seal and to attest the same.
Section 7. The Treasurer shall have general supervision over all
assets and liabilities of the Company. He shall be custodian of and responsible
for all monies, funds and valuables of the Company and for the keeping of proper
records of the evidence of property or indebtedness and of all the transactions
of the Company. He shall have general supervision of the expenditures of the
Company and shall report to the Board of Directors at each regular meeting of
the condition of the Company, and perform such other duties as may be assigned
to him from time to time by the Board of Directors of the Executive Committee.
Section 8. There may be a Controller who shall exercise general
supervision over the internal operations of the Company, including accounting,
and shall render to the Board of Directors at appropriate times a report
relating to the general condition and internal operations of the Company.
6
<PAGE> 24
There may be one or more subordinate accounting or controller
officers however denominated, who may perform the duties of the Controller and
such duties as may be prescribed by the Controller.
Section 9. The officer designated by the Board of Directors to be in
charge of the Audit Division of the Company with such title as the Board of
Directors shall prescribe, shall report to and be directly responsible only to
the Board of Directors.
There shall be an Auditor and there may be one or more Audit
Officers, however denominated, who may perform all the duties of the Auditor and
such duties as may be prescribed by the officer in charge of the Audit Division.
Section 10. There may be one or more officers, subordinate in rank
to all Vice Presidents with such functional titles as shall be determined from
time to time by the Board of Directors, who shall ex officio hold the office
Assistant Secretary of this Company and who may perform such duties as may be
prescribed by the officer in charge of the department or division to whom they
are assigned.
Section 11. The powers and duties of all other officers of the
Company shall be those usually pertaining to their respective offices, subject
to the direction of the Board of Directors, the Executive Committee, Chairman of
the Board of Directors or the President and the officer in charge of the
department or division to which they are assigned.
ARTICLE V
STOCK AND STOCK CERTIFICATES
Section 1. Shares of stock shall be transferrable on the books of
the Company and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 2. Certificate of stock shall bear the signature of the
President or any Vice President, however denominated by the Board of Directors
and countersigned by the Secretary or Treasurer or an Assistant Secretary, and
the seal of the corporation shall be engraved thereon. Each certificate shall
recite that the stock represented thereby is transferrable only upon the books
of the Company by the holder thereof or his attorney, upon surrender of the
certificate properly endorsed. Any certificate of stock surrendered to the
Company shall be cancelled at the time of transfer, and before a new certificate
or certificates shall be issued in lieu thereof. Duplicate certificates of stock
shall be issued only upon giving such security as may be satisfactory to the
Board of Directors or the Executive Committee.
Section 3. The Board of Directors of the Company is authorized to
fix in advance a record date for the determination of the stockholders entitled
to notice of, and to vote at, any meeting of stockholders and any adjournment
thereof, or entitled to receive payment of any dividend, or to any allotment or
rights, or to exercise any rights in respect of any change,
7
<PAGE> 25
conversion or exchange of capital stock, or in connection with obtaining the
consent of stockholders for any purpose, which record date shall not be more
than 60 nor less than 10 days proceeding the date of any meeting of stockholders
or the date for the payment of any dividend, or the date for the allotment of
rights, or the date when any change or conversion or exchange of capital stock
shall go into effect, or a date in connection with obtaining such consent.
ARTICLE VI
SEAL
Section 1. The corporate seal of the Company shall be in the
following form:
Between two concentric circles the words "Wilmington
Trust Company" within the inner circle the words
"Wilmington, Delaware."
ARTICLE VII
FISCAL YEAR
Section 1. The fiscal year of the Company shall be the calendar
year.
ARTICLE VIII
EXECUTION OF INSTRUMENTS OF THE COMPANY
Section 1. The Chairman of the Board, the President or any Vice
President, however denominated by the Board of Directors, shall have full power
and authority to enter into, make, sign, execute, acknowledge and/or deliver and
the Secretary or any Assistant Secretary shall have full power and authority to
attest and affix the corporate seal of the Company to any and all deeds,
conveyances, assignments, releases, contracts, agreements, bonds, notes,
mortgages and all other instruments incident to the business of this Company or
in acting as executor, administrator, guardian, trustee, agent or in any other
fiduciary or representative capacity by any and every method of appointment or
by whatever person, corporation, court officer or authority in the State of
Delaware, or elsewhere, without any specific authority, ratification, approval
or confirmation by the Board of Directors or the Executive Committee, and any
and all such instruments shall have the same force and validity as though
expressly authorized by the Board of Directors and/or the Executive Committee.
8
<PAGE> 26
ARTICLE IX
COMPENSATION OF DIRECTORS AND MEMBERS OF COMMITTEES
Section 1. Directors and associate directors of the Company, other
than salaried officers of the Company, shall be paid such reasonable honoraria
or fees for attending meetings of the Board of Directors as the Board of
Directors may from time to time determine. Directors and associate directors who
serve as members of committees, other than salaried employees of the Company,
shall be paid such reasonable honoraria or fees for services as members of
committees as the Board of Directors shall from time to time determine and
directors and associate directors may be employed by the Company for such
special services as the Board of Directors may from time to time determine and
shall be paid for such special services so performed reasonable compensation as
may be determined by the Board of Directors.
ARTICLE X
INDEMNIFICATION
Section 1. (A) The Corporation shall indemnify and hold harmless, to
the fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding") by reason of
the fact that he, or a person for whom he is the legal representative, is or was
a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee, fiduciary or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity, including service with respect to employee
benefit plans, against all liability and loss suffered and expenses reasonably
incurred by such person. The Corporation shall indemnify a person in connection
with a proceeding initiated by such person only if the proceeding was authorized
by the Board of Directors of the Corporation.
(B) The Corporation shall pay the expenses incurred in
defending any proceeding in advance of its final disposition, provided, however,
that the payment of expenses incurred by a Director officer in his capacity as a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director or
officer is not entitled to be indemnified under this Article or otherwise.
(C) If a claim for indemnification or payment of expenses,
under this Article X is not paid in full within ninety days after a written
claim therefor has been received by the Corporation the claimant may file suit
to recover the unpaid amount of such claim and, if successful in whole or in
part, shall be entitled to be paid the expense of prosecuting such claim. In any
such action the Corporation shall have the burden of proving that the claimant
was not entitled to the requested indemnification of payment of expenses under
applicable law.
9
<PAGE> 27
(D) The rights conferred on any person by this Article X
shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the Charter or Act of
Incorporation, these By-Laws, agreement, vote of stockholders or disinterested
Directors or otherwise.
(E) Any repeal or modification of the foregoing provisions
of this Article X shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the time of
such repeal or modification.
ARTICLE XI
AMENDMENTS TO THE BY-LAWS
Section 1. These By-Laws may be altered, amended or repealed, in
whole or in part, and any new By-Law or By-Laws adopted at any regular or
special meeting of the Board of Directors by a vote of the majority of all the
members of the Board of Directors then in office.
10
<PAGE> 28
EXHIBIT C
SECTION 321(b) CONSENT
Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as
amended, Wilmington Trust Company hereby consents that reports of examinations
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon requests therefor.
WILMINGTON TRUST COMPANY
Dated: December 17, 1997 By: /s/ James P. Lawler
-------------------
Name: James P. Lawler
Title: Vice President
<PAGE> 29
EXHIBIT D
NOTICE
This form is intended to assist state nonmember banks and savings banks with
state publication requirements. It has not been approved by any state banking
authorities. Refer to your appropriate state banking authorities for your state
publication requirements.
R E P O R T O F C O N D I T I O N
Consolidating domestic subsidiaries of the
WILMINGTON TRUST COMPANY of WILMINGTON
- ------------------------------- --------------------
Name of Bank
City
in the State of DELAWARE , at the close of business on September 30, 1997.
-------------
ASSETS
<TABLE>
<CAPTION>
Thousands of dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins ...... 206,619
Interest-bearing balances ................................ 0
Held-to-maturity securities .......................................... 364,899
Available-for-sale securities ........................................ 1,038,826
Federal funds sold and securities purchased under agreements to resell 126,000
Loans and lease financing receivables:
</TABLE>
<TABLE>
<S> <C>
Loans and leases, net of unearned income .......... 3,830,772
LESS: Allowance for loan and lease losses ........ 55,936
LESS: Allocated transfer risk reserve ............ 0
</TABLE>
<TABLE>
<S> <C>
Loans and leases, net of unearned income, allowance, and reserve. 3,774,836
Assets held in trading accounts ...................................... 0
Premises and fixed assets (including capitalized leases) ............. 118,895
Other real estate owned .............................................. 1,830
Investments in unconsolidated subsidiaries and associated companies .. 34
Customers' liability to this bank on acceptances outstanding ......... 0
Intangible assets .................................................... 5,215
Other assets ......................................................... 91,240
Total assets ......................................................... 5,728,394
</TABLE>
CONTINUED ON NEXT PAGE
<PAGE> 30
LIABILITIES
<TABLE>
<S> <C>
Deposits:
In domestic offices................................................... 3,980,001
</TABLE>
<TABLE>
<S> <C>
Noninterest-bearing ............... 859,817
Interest-bearing .................. 3,120,184
</TABLE>
<TABLE>
<S> <C>
Federal funds purchased and Securities sold under agreements to repurchase 327,543
Demand notes issued to the U.S. Treasury ............................. 89,508
Trading liabilities (from Schedule RC-D) ............................. 0
Other borrowed money: ................................................ ///////
With original maturity of one year or less ............... 734,000
With original maturity of more than one year ............. 43,000
Bank's liability on acceptances executed and outstanding ............. 0
Subordinated notes and debentures .................................... 0
Other liabilities (from Schedule RC-G) ............................... 104,674
Total liabilities .................................................... 5,278,726
EQUITY CAPITAL
Perpetual preferred stock and related surplus ........................ 0
Common Stock ......................................................... 500
Surplus (exclude all surplus related to preferred stock) ............. 62,118
Undivided profits and capital reserves ............................... 380,993
Net unrealized holding gains (losses) on available-for-sale securities 6,057
Total equity capital ................................................. 449,668
Total liabilities, limited-life preferred stock, and equity capital .. 5,728,394
</TABLE>
2
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11 7/8% SENIOR DISCOUNT NOTES DUE 2008
OF
TRANSWESTERN HOLDINGS L.P.
TWP CAPITAL CORP.
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998 UNLESS EXTENDED.
TO: WILMINGTON TRUST COMPANY (THE "EXCHANGE AGENT")
By Registered or Certified Mail or Overnight Courier:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attn: Corporate Trust Operations
By Hand:
Wilmington Trust Company
c/o Harris Trust Co. of New York, as Agent
88 Pine Street, 19th Floor
Wall Street Plaza
New York, New York 10005
Attn: Corporate Trust Operations
By Facsimile:
(For Eligible Institutions only)
(302) 651-1079
Confirm by telephone:
(302) 651-8869
Kristin Long
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA A FACSIMILE NUMBER
OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
The undersigned acknowledges receipt of the Prospectus, dated ,
1998 (the "Prospectus") of TransWestern Holdings L.P. and TWP Capital Corp.
(collectively, the "Company") and the related Letter of Transmittal (the "Letter
of Transmittal"), which together describe the Company's offer (the "Exchange
Offer") to exchange $1,000 principal amount at maturity of its 11 7/8% Senior
Discount Notes due 2008, Series B (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement, for each $1,000 principal amount at
maturity of its outstanding 11 7/8% Senior Subordinated Notes due 2008 (the
"Notes"), of which $57,916,000 principal amount at maturity is outstanding. The
term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term shall mean the latest date and time to which the
Exchange Offer is extended. The term "Holder" with respect to the Exchange Offer
means any person in whose name Notes are registered on the books of the Company
or any other person who has obtained a properly completed bond power from the
registered holder. Capitalized terms used but not defined herein have the
respective meanings set forth in the Prospectus.
This Letter of Transmittal is to be used by holders of Notes if (i)
certificates representing the Notes are to be physically delivered to the
Exchange Agent herewith, (ii) tender of the Notes is to be made by book-entry
transfer to the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer -- Procedures for Tendering" by
any financial institution that is a participant in the Book-Entry Transfer
Facility and whose name appears on a security position listing as the owner of
Notes to the extent provided herein or (iii) tender of the Notes is to be made
according to the guaranteed delivery procedures described in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See
Instruction 2. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
<PAGE> 2
Notwithstanding the foregoing, valid acceptance of the terms of the
Exchange Offer may be effected by a participant in the Book-Entry Transfer
Facility tendering Notes through the Book-Entry Transfer Facility's Automated
Tender Offer Program ("ATOP") where the Exchange Agent receives an Agent's
Message prior to the Expiration Date. Accordingly, such participant must
electronically transmit its acceptance to the Book-Entry Transfer Facility
through ATOP, and then the Book-Entry Transfer Facility will edit and verify the
acceptance, execute a book-entry delivery to the Exchange Agent's account at the
Book-Entry Transfer Facility and send an Agent's Message to the Exchange Agent
for its acceptance. By tendering through ATOP, participants in the Book-Entry
Transfer Facility will expressly acknowledge receipt of this Letter of
Transmittal and agree to be bound by its terms and the Company will be able to
enforce such agreement against such Book-Entry Transfer Facility participants.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Notes must complete this
letter in its entirety.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
---------------------------------------------
Account Number:
-----------------------------------------------------------
Transaction Code Number:
---------------------------------------------------
Principal Amount at Maturity of Tendered Notes:
----------------------------
If Holders desire to tender Notes pursuant to the Exchange Offer and (i)
time will not permit this Letter of Transmittal, certificates representing
Notes, an Agent's Message or other required documents to reach the Exchange
Agent prior to the Expiration Date, or (ii) the procedures for book-entry
transfer cannot be completed prior to the Expiration Date, such Holders may
effect a tender of such Notes in accordance with the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2 below.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING (See Instruction 2):
Name of Registered or Acting Holder(s):
-----------------------------------
Window Ticket No. (if any):
-----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
------------------------
Name of Eligible Institution that Guaranteed Delivery:
---------------------
If Delivered by Book-Entry Transfer, the Account Number:
-------------------
Transaction Code Number:
----------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF 180 DAYS AFTER THE
EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO ANY
PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE
EXCHANGE NOTES.
Name:
-----------------------------------------------------------------------
Address:
--------------------------------------------------------------------
----------------------------------------------------------------------------
Attention:
------------------------------------------------------------------
2
<PAGE> 3
List below the Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the certificate numbers and principal amount
of Notes should be listed on a separate signed schedule affixed hereto.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
BOX 1
DESCRIPTION OF NOTES
- ---------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
AGGREGATE AT
PRINCIPAL MATURITY TENDERED
NAME(S) AND ADDRESS(ES) OF AMOUNT AT MATURITY (MUST BE AN
REGISTERED HOLDER(S) CERTIFICATE REPRESENTED INTEGRAL MULTIPLE
(PLEASE FILL IN, IF BLANK) NUMBER(S)* BY CERTIFICATE(S) OF $1,000)**
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
TOTAL
</TABLE>
- --------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Unless indicated in the column labeled "Principal Amount at Maturity
Tendered," any tendering Holder of Notes will be deemed to have tendered the
entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount at Maturity Represented by Certificate(s)." If
the space provided above is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount at maturity of
Notes. All other tenders must be in integral multiples of $1,000.
- --------------------------------------------------------------------------------
============================================================
<TABLE>
<S> <C>
BOX 2 BOX 3
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, AND 6) (SEE INSTRUCTIONS 4, 5, AND 6)
To be completed ONLY if certificates for Notes To be completed ONLY if certificates for Notes
in a principal amount not tendered, or in a principal amount not tendered, or
Exchange Notes issued in exchange for Notes Exchange Notes issued in exchange for Notes
accepted for exchange, are to be issued in a accepted for exchange, are to be sent to an
name other than the name appearing in Box 1 address other than the address appearing in
above. Box 1 above, or if Box 2 is filled in, to an
address other than the address appearing in
Box 2.
Issue certificate(s) to: Deliver certificate(s) to:
Name Name
------------------------------------------- -------------------------------------------
(Please Print) (Please Print)
Address Address
---------------------------------------- ---------------------------------------
------------------------------------------- -------------------------------------------
(Include Zip Code) (Include Zip Code)
(Tax Identification or Social Security Number) (Tax Identification or Social Security Number)
</TABLE>
============================================================
BOX 4
BROKER-DEALER STATUS
[ ] Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes for
its own account as a result of market-making activities or other trading
activities. If this box is checked, please send a copy of this Letter of
Transmittal to Joan M. Fiorito, Chief Financial Officer, via facsimile:
(619) 467-2872.
3
<PAGE> 4
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to Company, the principal amount of Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Notes with the
full power of substitution to (i) present such Notes and all evidences of
transfer and authenticity to, or transfer ownership of, such Notes on the
account books maintained by the Book-Entry Transfer Facility to, or upon, the
order of, the Company, (ii) deliver certificates for such Notes to the Company
and deliver all accompanying evidences of transfer and authenticity to, or upon
the order of, the Company and (iii) present such Notes for transfer on the books
of the Company and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Notes, all in accordance with the terms of the
Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Notes tendered
hereby and that the Company will acquire good, valid and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claims, when the same are acquired by the Company.
The undersigned hereby further represents that any Exchange Notes acquired in
exchange for Notes tendered hereby will have been acquired in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, that neither the undersigned nor any other such
person has any arrangement or understanding with any person to participate in
the distribution of such Exchange Notes and that neither the undersigned nor any
such other person is an "affiliate," as defined in Rule 405 under the Securities
Act, of the Company. In addition, the undersigned and any such person
acknowledge that (a) any person participating in the Exchange Offer for the
purpose of distributing the Exchange Notes must, in the absence of an exemption
therefrom, comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale of the Exchange Notes
and cannot rely on the position of the staff of the Securities and Exchange
Commission enunciated in no-action letters and (b) failure to comply with such
requirements in such instance could result in the undersigned or such person
incurring liability under the Securities Act for which the undersigned or such
person is not indemnified by the Company. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete the assignment, transfer and
purchase of the Notes tendered hereby. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in and does not
intend to engage in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer that will receive Exchange Notes for its own account in exchange
for Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a Prospectus in
connection with any resale of such Exchange Notes, however, by so acknowledging
and by delivering a Prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" the meaning of the Securities Act. Unless otherwise
notified in accordance with the instructions set forth herein in Box 4 under
"Broker-Dealer Status," the Company will assume that the undersigned is not a
Participating Broker-Dealer.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Notes when, as and if the Company has given notice
thereof to the Exchange Agent (such notice if given orally, to be confirmed in
writing).
If any Notes tendered herewith are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Notes
will be returned, without expense, to the undersigned at the address shown below
or to a different address as may be indicated herein in Box 3 under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representative, successors and assigns.
The undersigned understands that tenders of Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer, subject only to withdrawal of
such tenders on the terms set forth in the Prospectus under the caption "The
Exchange Offer -- Withdrawal of Tenders."
4
<PAGE> 5
Unless otherwise indicated in Box 2 under "Special Registration
Instructions," please issue the certificates representing the Exchange Notes
issued in exchange for the Notes accepted for exchange and any certificates for
Notes not tendered or not exchanged, in the name(s) of the registered holder of
the Notes appearing in Box 1 above. Similarly, unless otherwise indicated in Box
3 under "Special Delivery Instructions," please send the certificates, if any,
representing the Exchange Notes issued in exchange for the Notes accepted for
exchange and any certificates for Notes not tendered or not exchanged (and
accompanying documents, as appropriate) to the undersigned at the address shown
below in the undersigned's signature(s). In the event that the box entitled
"Special Registration Instructions" and the box entitled "Special Delivery
Instructions" both are completed, please issue the certificates representing the
Exchange Notes issued in exchange for the Notes accepted for exchange in the
name(s) of, and return any certificates for Notes not tendered or not exchanged
to, the person(s) so indicated. The undersigned understands that the Company has
no obligation pursuant to the "Special Registration Instructions" and "Special
Delivery Instructions" to transfer any Notes from the name of the registered
Holder(s) thereof if the Company does not accept for exchange any of the Notes
so tendered.
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available or (ii) who cannot deliver the Notes, an Agent's Message,
this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date, may tender their Notes according to
the guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 2.
The lines below must be signed by the registered holder(s) exactly as their
name(s) appear(s) on the Notes or by person(s) authorized to become registered
holder(s) by a properly completed bond power from the registered holder(s), a
copy of which must be transmitted with this Letter of Transmittal. If Notes to
which this Letter of Transmittal relate are held of record by two or more joint
holders, then all such holders must sign this Letter of Transmittal.
SIGNATURES
<TABLE>
<S> <C>
x
- -------------------------------------------------------------------------------- ---------------------
Date
x
- -------------------------------------------------------------------------------- ---------------------
Date
Area Code and Telephone Number:
----------------------------------------------
</TABLE>
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, then such person must (i) set forth his or her full
title below and (ii) submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 5.
Name(s):
---------------------------------------------------------------------
(Please Print)
Capacity:
---------------------------------------------------------------------
Address:
---------------------------------------------------------------------
(Include Zip Code)
MEDALLION SIGNATURE GUARANTEE
(If required by Instruction 5)
Certain Signatures must be Guaranteed by an Eligible Institution
Signature(s) Guaranteed by an Eligible Institution:
-------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address, Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
5
<PAGE> 6
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR NOTES OR
BOOK-ENTRY CONFIRMATIONS. Certificates representing the tendered Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account with the Book-Entry Transfer Facility), as well as a properly completed
and duly executed copy of this Letter of Transmittal (or, in the case of a
book-entry transfer, an Agent's Message), a Substitute Form W-9 and any other
documents required by this Letter of Transmittal must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of certificates for Notes and all other required documents is
at the election and sole risk of the tendering holder and delivery will be
deemed made only when actually received by the Exchange Agent. If delivery is by
mail, registered mail with return receipt requested, properly insured, is
recommended. As an alternative to delivery by mail, the holder may wish to use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. Neither the Company nor the Exchange Agent is
under an obligation to notify any tendering holder of the Company's acceptance
of tendered Notes prior to the completion of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes
but whose Notes are not immediately available and who cannot deliver their
certificates for Notes (or comply with the procedures for book-entry transfer
prior to the Expiration Date), the Letter of Transmittal and any other documents
required by the Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Notes according to the guaranteed delivery
procedures set forth below. Pursuant to such procedures:
(i) such tender must be made by or through a firm which is a member of
a registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an
office or correspondent in the United States (an "Eligible Institution");
(ii) prior to the Expiration Date, the Exchange Agent must have
received from the holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail, or hand delivery) setting forth the name and address of the holder,
the certificate number or numbers of the tendered Notes, and the principal
amount of tendered Notes and stating that the tender is being made thereby
and guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile thereof)
(or, in the case of a book-entry transfer, an Agent's Message), together
with the tendered Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account with the Book-Entry Transfer
Facility) and any other required documents will be deposited by the
Eligible Institution with the Exchange Agent; and
(iii) the certificates representing the tendered Notes in proper form
for transfer (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account with the Book-Entry Transfer Facility),
together with this Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees (or, in
the case of a book-entry transfer, an Agent's Message) and all other
documents required by the Letter of Transmittal must be received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by a Holder who attempted to
use the guaranteed delivery procedure.
3. TENDER BY HOLDER. Only a registered holder of Notes may tender such
Notes in the Exchange Offer. Any beneficial owner of Notes who is not the
registered holder and who wishes to tender should arrange with such Holder to
execute and deliver this Letter of Transmittal on such owner's behalf or must,
prior to completing and executing this Letter of Transmittal and delivering such
Notes, either make appropriate arrangements to register ownership of the Notes
in such owner's name or obtain a properly completed bond power from the
registered holder.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount at maturity. If less than the entire
principal amount at maturity of Notes is tendered, the tendering holder should
fill in the principal amount tendered in the column labeled "Principal Amount at
Maturity Tendered" of the box entitled "Description of Notes" (Box 1) above. The
entire principal amount at maturity of Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of Notes is not tendered, Notes for the principal amount at
maturity of Notes not tendered and Exchange Notes exchanged for any Notes
tendered will be sent to the holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal, as soon as practicable following the Expiration Date.
6
<PAGE> 7
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
MEDALLION GUARANTEE OF SIGNATURE. If this Letter of Transmittal is signed by the
registered holder(s) of the Notes tendered herewith, the signatures must
correspond with the name(s) as written on the face of the tendered Notes without
alteration, enlargement, or any change whatsoever.
If any of the tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any tendered
Notes are held in different names on several Notes, it will be necessary to
complete, sign, and submit as many separate copies of the Letter of Transmittal
documents as there are names in which tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder, and
Exchange Notes are to be issued and any untendered or unaccepted principal
amount of Notes are to be reissued or returned to the registered holder, then,
the registered holder need not and should not endorse any tendered Notes nor
provide a separate bond power. In any other case, the registered holder must
either properly endorse the Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal (executed exactly as the
name(s) of the registered holder(s) appear(s) on such Notes), with the
signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution unless such certificates or bond powers are signed by an Eligible
Institution.
If this Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and evidence satisfactory to the Company
of their authority to so act must be submitted with this Letter of Transmittal.
No medallion signature guarantee is required if this Letter of Transmittal
is signed by the registered holder(s) of the Notes tendered herewith and the
Exchange Notes (and any Notes not tendered or not accepted) are to be issued
directly to such registered holder(s) and neither the "Special Registration
Instructions" (Box 2) nor the "Special Delivery Instructions" (Box 3) has been
completed. In all other cases, all signatures on this Letter of Transmittal must
be guaranteed by an Eligible Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the applicable box, the name and address in which the Exchange
Notes and/or substitute Notes for principal amounts not tendered or not accepted
for exchange are to be sent, if different from the name and address or account
of the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification number or social security number of
the person named must also be indicated and the tendering holders should
complete the applicable box.
If no such instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the
registered holder of the Notes.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the sale and transfer of Notes to it or its order pursuant to the
Exchange Offer. If, however, a transfer tax is imposed for any reason other than
the transfer and sale of Notes to the Company or its order pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or on any other person) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption from
taxes therefrom is not submitted with this Letter of Transmittal, the amount of
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Notes listed in this Letter of
Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law required that a holder
of any Notes which are accepted for exchange must provide the Company (as payor)
with its correct taxpayer identification number ("TIN"), which, in the case of a
holder who is an individual, is his or her social security number. If the
Company is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by Internal Revenue Service. (If withholding results in an
over-payment of taxes, a refund may be obtained.) Certain holders (including,
among other, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report a interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Notes are registered in more than one name or are not in the name of the
actual owner, see the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for information on which TIN to
report.
7
<PAGE> 8
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of tendered Notes will be determined
by the Company, in its sole discretion, which determination will be final and
binding. The Company reserves the right to reject any and all Notes not validly
tendered or any Notes, the Company's acceptance of which would, in the opinion
of the Company or its counsel, be unlawful. The Company also reserves the right
to waive any conditions of the Exchange Offer or defects or irregularities in
tenders of Notes as to any ineligibility of any holder who seeks to tender Notes
in the Exchange Offer. The interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) by the Company shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Notes must be cured
within such time as the Company shall determine. The Company will use reasonable
efforts to give notification of defects or irregularities with respect to
tenders of Notes, but shall not incur any liability for failure to give such
notification.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive, or modify specified conditions in the Exchange Offer in the case of any
tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes will be accepted.
12. MUTILATED, LOST, STOLEN, OR DESTROYED NOTES. Any tendering holder whose
Notes have been mutilated, lost, stolen, or destroyed should contact the
Exchange Agent at the address indicated above for further instruction.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for information
and for additional copies of the Prospectus may be directed to the Exchange
Agent at the address set forth on the first page of this Letter of Transmittal.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF
NOTES. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Notes as soon as practicable after
the Expiration Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted tendered Notes when, as and if the Company has given
notice thereof to the Exchange Agent (such notice if given orally, to be
confirmed in writing). If any tendered Notes are not exchanged pursuant to the
Exchange Offer for any reason, such unexchanged Notes will be returned, without
expense, to the undersigned at the address shown above or at a different address
as may be indicated under "Special Delivery Instructions."
8
<PAGE> 9
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
- --------------------------------------------------------------------------------
PAYER'S NAME: TRANSWESTERN HOLDINGS L.P.
TWP CAPITAL CORP.
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Part 1 -- PLEASE PROVIDE YOUR TAXPAYER SOCIAL SECURITY NUMBER
IDENTIFICATION NUMBER ("TIN") IN THE THE BOX OR TIN
AT RIGHT AND CERTIFY BY SIGNING AND DATING
BELOW ____ / ____ / ____
------------------------------------------------------------------------------------------
Part 2 -- Check the box if you are NOT subject to backup withholding under the provisions
of Section 3408(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified
that you are subject to backup withholding as a result of failure to report all interest or
dividends or (2) the Internal Revenue Service has notified you that you are no longer
subject to backup withholding. [ ]
------------------------------------------------------------------------------------------
CERTIFICATION -- UNDER THE PENALTIES OF
PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT, AND
COMPLETE.
PART 3
SUBSTITUTE SIGNATURE DATE AWAITING TIN [ ]
FORM W-9
------------------------------------------------------------------------------------------
Name (if joint names, list first and circle the name of the person or entity whose number
you enter in Part I below. See instructions if your name has changed.)
DEPARTMENT OF THE TREASURY
------------------------------------------------------------------------------------------
INTERNAL REVENUE SERVICE Address
------------------------------------------------------------------------------------------
City, State and ZIP Code
PAYER'S REQUEST FOR TAXPAYER
------------------------------------------------------------------------------------------
IDENTIFICATION NUMBER (TIN) List account number(s) here (optional)
</TABLE>
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
9
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
TRANSWESTERN HOLDINGS L.P.
TWP CAPITAL CORP.
11 7/8% SENIOR DISCOUNT NOTES DUE 2008
This form must be used by a holder of 11 7/8% Senior Discount Notes due
2008 (the "Notes") of TransWestern Holdings L.P. and TWP Capital Corp.
(collectively, the "Company"), who wishes to tender Notes to the Exchange Agent
pursuant to the guaranteed delivery procedures described in the section of the
Prospectus entitled "The Exchange Offer -- Guaranteed Delivery Procedures," and
in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Notes pursuant to such guaranteed delivery procedures must ensure that
the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date of the Exchange Offer. Capitalized terms not defined herein have
the meanings ascribed to them in the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TO: WILMINGTON TRUST COMPANY (THE "EXCHANGE AGENT")
<TABLE>
<S> <C>
By Registered or Certified Mail or Overnight By Hand:
Courier: Wilmington Trust Company
Wilmington Trust Company c/o Harris Trust Co. of New York, as Agent
Rodney Square North 88 Pine Street, 19th Floor
1100 North Market Street Wall Street Plaza
Wilmington, Delaware 19890 New York, New York 10005
Attn: Corporate Trust Operations Attn: Corporate Trust Operations
</TABLE>
By Facsimile:
(For Eligible Institutions Only)
(302) 651-1079
Confirm by telephone:
(302) 651-8869
Kristin Long
DELIVERY OF THIS FORM TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE, OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
<PAGE> 2
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount at
maturity of Notes set forth below pursuant to the guaranteed delivery procedures
set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR ACCOUNT AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL AMOUNT
NUMBER OF THE BOOK-ENTRY FACILITY AT MATURITY REPRESENTED AT MATURITY TENDERED
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
==============================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or
Authorized Signatory:
----------------------------------------------- Date:
-----------------------------------------------
Address:
----------------------------------------------- -----------------------------------------------
----------------------------------------------- -----------------------------------------------
Name of Registered Holder(s):
-----------------------------------------------
-----------------------------------------------
Area Code and Telephone No.:
----------------------------------------------- -----------------------
-----------------------------------------------
</TABLE>
================================================================================
This Notice of Guaranteed Delivery must be signed by the Holder(s)
exactly as their name(s) appear on certificates for Notes or on a security
position listing as the owner of Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
Please print name(s) and address(es)
Name(s):
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Capacity:
------------------------------------------------------------------------------
Address(es):
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 3
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., or is a commercial bank or trust company having an office or
correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, guarantees that either the Notes
tendered hereby in proper form for transfer (or confirmation of the
book-entry transfer of such Notes into the Exchange Agent's account at
Book-Entry Transfer Facility as described in the Prospectus under the
caption "The Exchange Offer -- Guaranteed Delivery Procedures"), together
with a properly completed Letter of Transmittal (or facsimile thereof)
(or, in the case of a book-entry transfer, an Agent's Message) and any
other required documents will be received by the Exchange Agent by 5:00
p.m., New York City time, on the third New York Stock Exchange trading day
following the Expiration Date.
<TABLE>
<S> <C>
Name of Firm:
----------------------------- AUTHORIZED SIGNATURE
Address: Name:
---------------------------------- ---------------------
Area Code and Telephone Number: Title:
----------- ---------------------
Date: __ , 1998
</TABLE>
- --------------------------------------------------------------------------------
DO NOT SEND NOTES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes referred
to herein, the signature must correspond with the name(s) written on the face of
the Notes without alteration, enlargement, or any change whatsoever. If this
Notice of Guaranteed Delivery is signed by a participant of the Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of Notes, the signature must correspond with the name shown on the security
position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the Notes or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Requests for information
and additional copies of the Prospectus may be directed to the Exchange Agent at
the address set forth on the first page of this Notice of Guaranteed Delivery.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
3
<PAGE> 1
EXHIBIT 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
TRANSWESTERN HOLDINGS L.P.
TWP CAPITAL CORP.
11 7/8% SENIOR DISCOUNT NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
, 1998 (the "Prospectus"), of TransWestern Holdings L.P. and TWP
Capital Corp. (collectively, the "Company"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Company's offer (the "Exchange Offer") to exchange $1,000 principal amount at
maturity of its 11 7/8% Senior Discount Notes due 2008, Series B (the "Exchange
Notes"), for each $1,000 principal amount at maturity of its outstanding 11 7/8%
Senior Discount Notes due 2008 (the "Notes"). Capitalized terms used but not
defined herein have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Notes held by you for the account of the
undersigned.
The aggregate face amount at maturity of the Notes held by you for the
account of the undersigned is (FILL IN AMOUNT):
$ of the 11 7/8% Senior Discount Notes due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[ ] TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT AT MATURITY OF NOTES TO BE
TENDERED):
$
[ ] NOT TO TENDER any Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (fill in state)
, (ii) the undersigned is acquiring the Exchange Notes in the
ordinary course of business of the undersigned, (iii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes, (iv) the undersigned acknowledges that any person participating in the
Exchange Offer for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
of 1933, as amended (the "Act"), in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Securities and Exchange Commission set forth in no-
action letters that are discussed in the section of the Prospectus entitled "The
Exchange Offer -- Resale of the Exchange Discount Notes," and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the Act, of the
Company; (b) to agree, on behalf of the undersigned, as set forth in the Letter
of Transmittal; and (c) to take such other action as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such
Notes.
PLEASE NOTE: THE COMPANY HAS AGREED THAT, FOR A PERIOD OF 180 DAYS AFTER THE
EXPIRATION DATE, IT WILL MAKE COPIES OF THE PROSPECTUS AVAILABLE TO ANY
PARTICIPATING BROKER-DEALER FOR USE IN CONNECTION WITH RESALES OF THE EXCHANGE
NOTES.
<PAGE> 2
- --------------------------------------------------------------------------------
[ ] Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other
trading activities. IF THIS BOX IS CHECKED, PLEASE SEND A COPY OF
THESE INSTRUCTIONS TO JOAN M. FIORITO, CHIEF FINANCIAL OFFICER, VIA
FACSIMILE: (619) 467-2872.
================================================================================
SIGN HERE
Name of beneficial owner(s):
----------------------------------------------
Signature(s):
-------------------------------------------------------------
Name (please print):
------------------------------------------------------
Address:
------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Telephone number:
---------------------------------------------------------
Taxpayer Identification or Social Security Number:
------------------------
Date:
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
