AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ADVANSTAR COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
NEW YORK 7389 59-2757389
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
------------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------------
545 BOYLSTON STREET, 9TH FLOOR
BOSTON, MA 02116
(617) 267-6500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DAVID W. MONTGOMERY
VICE PRESIDENT-FINANCE, CHIEF FINANCIAL OFFICER & SECRETARY
ADVANSTAR COMMUNICATIONS INC.
131 WEST FIRST STREET
DULUTH, MN 55802
(218) 723-9200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
RICHARD TRUESDELL, JR., ESQ.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 450-4000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
12% Series B Senior Subordinated
Notes Due 2011.................... $160,000,000 100% $160,000,000 $40,000
Guarantees.......................... -- -- -- --(2)
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Pursuant to Rule 457(n), no registration fee is payable with respect to the
guarantees.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
STATE OR OTHER
JURISDICTION OF PRIMARY STANDARD
INCORPORATION OR INDUSTRIAL I.R.S. EMPLOYER
REGISTRANT ORGANIZATION CLASSIFICATION NUMBER IDENTIFICATION NUMBER
Men's Apparel Guild in California, Inc.......... California 7389 95-1588605
Applied Business Telecommunications Inc......... California 7389 94-2896012
------------------------------
EXPLANATORY NOTE
This Registration Statement covers the registration of an aggregate
principal amount of $160,000,000 of new 12% Senior Subordinated Notes due 2011
of Advanstar Communications Inc. that may be exchanged for equal principal
amounts of Advanstar's outstanding 12% Series A Senior Subordinated Notes due
2011. This Registration Statement also covers the registration of the new notes
for resale by Credit Suisse First Boston Corporation in market-making
transactions. The complete prospectus relating to the exchange offer follows
immediately after this Explanatory Note. Following the prospectus are certain
pages of the prospectus relating solely to market-making transactions, including
an alternate front cover page, Table of Contents, a section entitled "Risk
Factors--There is no existing trading market for the notes, which could make it
difficult for you to sell your notes at an acceptable price or at all." to be
used in lieu of the section entitled "Risk Factors--Risks Relating to the
Notes--No public trading market for the notes exists which could result in an
illiquid trading market and/or lower sales price for your notes," an alternate
"Use of Proceeds" section and an alternate "Plan of Distribution" section. In
addition, the market-making prospectus will not include the following captions
(or the information set forth under those captions) in the exchange offer
prospectus: "Summary--The Exchange Offer" and "Material United States Tax
Consequences of the Exchange Offer." All other sections of the exchange offer
prospectus will be included in the market-making prospectus.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (SUBJECT TO COMPLETION)
Dated April 20, 2001
[LOGO]
OFFER TO EXCHANGE
12% SERIES A SENIOR SUBORDINATED NOTES DUE 2011
FOR
12% SERIES B SENIOR SUBORDINATED NOTES DUE 2011
------------------
We are offering to exchange up to $160,000,000 of our new 12% Series B
Senior Subordinated Notes Due 2011 for up to $160,000,000 of our existing 12%
Series A Senior Subordinated Notes Due 2011. The terms of the new notes are
identical in all material respects to the terms of the old notes, except that
the new notes have been registered under the Securities Act, and the transfer
restrictions and registration rights relating to the old notes do not apply to
the new notes.
To exchange your old notes for new notes:
- you are required to make the representations described on page 110 to us;
- you must complete and send the letter of transmittal that accompanies this
prospectus to the exchange agent, Wells Fargo Bank Minnesota, N.A., by
5:00 p.m., New York time, on , 2001; and
- you should read the section called "The Exchange Offer" for further
information on how to exchange your old notes for new notes
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF RISK FACTORS THAT
SHOULD BE CONSIDERED BY YOU PRIOR TO TENDERING YOUR OLD NOTES IN THE EXCHANGE
OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN THE
EXCHANGE OFFER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 2001
TABLE OF CONTENTS
PAGE
--------
PROSPECTUS SUMMARY..................... 1
RISK FACTORS........................... 9
THE ACQUISITION AND RELATED
FINANCINGS........................... 17
USE OF PROCEEDS........................ 21
CAPITALIZATION......................... 21
NOTE ON INDUSTRY AND MARKET DATA....... 22
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA....................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 25
BUSINESS............................... 36
MANAGEMENT............................. 51
EXECUTIVE COMPENSATION................. 53
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT..... 59
PAGE
----
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS......................... 60
DESCRIPTION OF CERTAIN INDEBTEDNESS.... 62
DESCRIPTION OF NOTES................... 66
THE EXCHANGE OFFER..................... 104
MATERIAL UNITED STATES TAX CONSEQUENCES
OF THE EXCHANGE OFFER................ 110
PLAN OF DISTRIBUTION................... 111
LEGAL MATTERS.......................... 112
EXPERTS................................ 112
AVAILABLE INFORMATION.................. 112
INDEX TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.... P-1
INDEX TO FINANCIAL STATEMENTS.......... F-1
------------------------
The names of events, publications and services used in this prospectus are
trademarks, trade names and service marks of Advanstar Communications Inc., its
subsidiaries or its joint ventures. Names of companies and associations used in
this prospectus are trademarks or trade names of the respective organizations.
In this prospectus, "Advanstar," the "Company," "we," "us" or "our" refer to
Advanstar Communications Inc. and its subsidiaries, except where the context
makes clear that the reference is only to Advanstar Communications Inc. itself
and not its subsidiaries.
i
SUMMARY
THIS SUMMARY HIGHLIGHTS THE MORE DETAILED INFORMATION IN THIS PROSPECTUS AND
YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY. WHEN WE REFER TO "PRO FORMA"
FINANCIAL RESULTS OR "ADJUSTED" FINANCIAL RESULTS, WE MEAN THE FINANCIAL RESULTS
OF ADVANSTAR AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AS IF THE TRANSACTIONS
DESCRIBED IN THE PRO FORMA FINANCIAL STATEMENTS INCLUDED IN THIS PROSPECTUS,
INCLUDING THE ACQUISITION AND THE RELATED FINANCINGS, HAD OCCURRED AT THE
BEGINNING OF THE RELEVANT TIME PERIOD OR AS OF THE RELEVANT DATE. WHEN WE REFER
TO "COMBINED" FINANCIAL RESULTS, WE MEAN THE CONSOLIDATED FINANCIAL DATA FOR THE
PERIOD JANUARY 1, 2000 TO OCTOBER 11, 2000 COMBINED WITH THE CONSOLIDATED
FINANCIAL DATA FOR THE PERIOD OCTOBER 12, 2000 THROUGH DECEMBER 31, 2000. THE
CONSOLIDATED FINANCIAL DATA FOR THE COMBINED YEAR ENDED DECEMBER 31, 2000 HAS
BEEN DERIVED FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE
PREDECESSOR AND ADVANSTAR AND HAS NOT BEEN AUDITED AND DOES NOT COMPLY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THE ACQUISITION OF ADVANSTAR, INC.,
OUR DIRECT PARENT COMPANY, BY DLJ MERCHANT BANKING PARTNERS III, L.P. AND
RELATED FUNDS, AND THE RESULTING CHANGE IN BASIS OF ACCOUNTING HAD NO IMPACT ON
REVENUES OR EBITDA, AND THEREFORE MANAGEMENT BELIEVES THAT THE PRESENTATION OF
COMBINED INFORMATION IS IMPORTANT BECAUSE IT PROVIDES A COMPARABLE BASIS TO
ANALYZE OPERATING REVENUE AND EBITDA FOR 2000, 1999 AND 1998.
THE EXCHANGE OFFER
SECURITIES OFFERED........................ We are offering up to $160,000,000 aggregate principal
amount of 12% Senior Subordinated Series B Notes due
2011, which have been registered under the Securities
Act.
THE EXCHANGE OFFER........................ We are offering to issue the new notes in exchange for a
like principal amount of your old notes. We are offering
to issue the new notes to satisfy our obligations
contained in the registration rights agreement entered
into when the old notes were sold in transactions
permitted by Rule 144A under the Securities Act and
therefore not registered with the SEC. For procedures
for tendering, see "The Exchange Offer."
TENDERS, EXPIRATION DATE,
WITHDRAWAL.............................. The exchange offer will expire at 5:00 p.m. New York
City time on , 2001 unless it is extended. If you
decide to exchange your old notes for new notes, you
must acknowledge that you are not engaging in, and do
not intend to engage in, a distribution of the new
notes. If you decide to tender your old notes in the
exchange offer, you may withdraw them at any time prior
to , 2001. If we decide for any reason not to
accept any old notes for exchange, your old notes will
be returned to you without expense to you promptly after
the exchange offer expires.
FEDERAL INCOME TAX CONSEQUENCES........... Your exchange of old notes for new notes in the exchange
offer will not result in any income, gain or loss to you
for Federal income tax purposes. See "Material United
States Federal Income Tax Consequences of the Exchange
Offer."
USE OF PROCEEDS........................... We will not receive any proceeds from the issuance of
the new notes in the exchange offer.
1
EXCHANGE AGENT............................ Wells Fargo Bank Minnesota, N.A. is the exchange agent
for the exchange offer.
FAILURE TO TENDER YOUR OLD NOTES.......... If you fail to tender your old notes in the exchange
offer, you will not have any further rights under the
registration rights agreement, including any right to
require us to register your old notes or to pay you
liquidated damages.
YOU WILL BE ABLE TO RESELL THE SECURITIES WITHOUT REGISTERING THEM WITH THE SEC
IF YOU MEET THE REQUIREMENTS DESCRIBED BELOW
Based on interpretations by the SEC's staff in no-action letters issued to
third parties, we believe that new notes issued in exchange for old notes in the
exchange offer may be offered for resale, resold or otherwise transferred by you
without registering the new notes under the Securities Act or delivering a
prospectus, unless you are a broker-dealer receiving securities for your own
account, so long as:
- you are not one of our "affiliates", which is defined in Rule 405 of the
Securities Act;
- you acquire the new notes in the ordinary course of your business;
- you do not have any arrangement or understanding with any person to
participate in the distribution of the new notes; and
- you are not engaged in, and do not intend to engage in, a distribution of
the new notes.
If you are an affiliate of Advanstar or you are engaged in, intend to engage
in or have any arrangement or understanding with respect to, the distribution of
new securities acquired in the exchange offer, you (1) should not rely on our
interpretations of the position of the SEC's staff and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
If you are a broker-dealer and receive new securities for your own account
in the exchange offer:
- you must represent that you do not have any arrangement with us or any of
our affiliates to distribute the new notes;
- you must acknowledge that you will deliver a prospectus in connection with
any resale of the new notes you receive from us in the exchange offer; the
letter of transmittal states that by so acknowledging and by delivering a
prospectus, you will not be deemed to admit that you are an "underwriter"
within the meaning of the Securities Act; and
- you may use this prospectus, as it may be amended or supplemented from
time to time, in connection with the resale of new notes received in
exchange for old notes acquired by you as a result of market-making or
other trading activities.
For a period of 90 days after the expiration of the exchange offer, we will
make this prospectus available to any broker-dealer for use in connection with
any resale described above.
2
SUMMARY DESCRIPTION OF THE SECURITIES
THE TERMS OF THE NEW NOTES AND THE OLD NOTES ARE IDENTICAL IN ALL MATERIAL
RESPECTS, EXCEPT THAT THE NEW NOTES HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT, AND THE TRANSFER RESTRICTIONS AND REGISTRATIONS RIGHTS RELATING TO OLD
NOTES DO NOT APPLY TO THE NEW NOTES.
MATURITY DATE............................. February 15, 2011.
INTEREST PAYMENT DATES.................... Every February 15 and August 15, beginning August 15,
2001.
RANKING................................... The notes and the guarantees will rank:
- junior to all of our and the guarantors' existing
and future senior indebtedness and secured
indebtedness, including any borrowings under our
new credit facility;
- equally with any of our and the guarantors' future
senior subordinated indebtedness, including trade
payables;
- senior to any of our and the guarantors' future
subordinated indebtedness; and
- effectively junior to all of the liabilities of
our subsidiaries that have not guaranteed the notes.
At December 31, 2000, on a pro forma basis, the notes
and the guarantees would have ranked junior to:
- $370.0 million of senior indebtedness and
- $18.0 million of liabilities, including trade
payables but excluding intercompany obligations, of
our non-guarantor subsidiaries.
OPTIONAL REDEMPTION....................... We may redeem any of the notes at any time on or after
February 15, 2006, in whole or in part, in cash at the
redemption prices described in this prospectus, plus
accrued and unpaid interest to the date of redemption.
In addition, on or before February 15, 2004, we may
redeem up to 35% of the aggregate principal amount of
notes originally issued at a redemption price of 112%
with the proceeds of public equity offerings within 90
days of the closing of a public equity offering. We may
make that redemption only if, after the redemption, at
least 65% of the aggregate principal amount of notes
originally issued remains outstanding.
CHANGE OF CONTROL......................... Upon a change of control, as defined in "Description of
Notes," we will have the option, at any time prior to
February 15, 2006, to redeem all of the notes at a
redemption price equal to 100% of their principal amount
plus the "applicable premium," as defined in
"Description of Notes," together with accrued and unpaid
interest. If a change of control occurs and we do not
exercise our option to redeem
3
the notes, we will be required to make an offer to
purchase the notes. The purchase price will equal 101%
of the principal amount of the notes on the date of
purchase, plus accrued and unpaid interest to the date
of repurchase.
SUBSIDIARY GUARANTEES..................... The notes will be jointly and severally guaranteed on an
unsecured, senior subordinated basis by all of our
existing and future domestic restricted subsidiaries.
CERTAIN COVENANTS......................... The terms of the notes restrict our ability and the
ability of our restricted subsidiaries to:
- incur additional indebtedness;
- create liens;
- engage in sale-leaseback transactions;
- pay dividends or make other equity distributions;
- purchase or redeem capital stock;
- make investments;
- sell assets;
- engage in transactions with affiliates; or
- effect a consolidation or merger.
However, these limitations will be subject to a number
of important qualifications and exceptions. In
particular, many of our joint ventures are not
"subsidiaries" under the indenture, although they are
consolidated subsidiaries for accounting purposes.
USE OF PROCEEDS........................... We will not receive any proceeds from the issuance of
the new notes in the exchange offer.
4
OUR COMPANY
OVERVIEW
We are a leading worldwide provider of integrated, business-to-business, or
"B-to-B," marketing communications products and services for targeted industry
sectors, principally through trade shows and conferences and through controlled
circulation trade, business and professional magazines. We also provide a broad
range of other marketing services products, including classified advertising,
direct mail services, reprints, database marketing, directories, guides and
reference books. We are one of the largest U.S. trade show operators based upon
total square footage and number of shows in 2000 and the fifth largest B-to-B
trade publisher in the United States as measured by advertising pages in 2000.
Our pro forma revenues, EBITDA and Adjusted EBITDA for the combined year ended
December 31, 2000, totaled $377.5 million, $99.7 million and $97.3 million,
respectively.
PRODUCTS AND SERVICES
We offer our customers a comprehensive array of B-to-B communications
products and services to reach their existing and prospective buyers on a
cost-effective basis.
TRADE SHOWS
We are one of the largest trade show operators in the United States based on
total square footage and number of shows in 2000. As of December 31, 2000, we
owned and managed 92 trade shows and 16 standalone conferences for business,
professional and consumer audiences worldwide, most of which were among the
leading events in their respective markets based on square footage.
TRADE PUBLICATIONS
As of December 31, 2000, we published 72 specialized business magazines and
professional journals and 36 directories and other publications. Approximately
76% of our 59 magazines and journals for which competitive data is available
ranked either #1 or #2 in their respective markets, based on the number of
advertising pages in the twelve months ended December 31, 2000.
MARKETING SERVICES
Within each industry cluster, we provide a comprehensive set of marketing
communications products, services and support geared to the particular
industry's marketing and customer needs. These services include direct mail and
database marketing programs, reprint services, reference books and other
services to facilitate our clients' B-to-B marketing and communications
programs.
In addition to our trade shows, trade publications, and marketing services,
we are working with Advanstar.com, which is also a subsidiary of our parent but
not an obligor of the notes, to use the Internet increasingly to deliver our
integrated B-to-B marketing communications products and services to our
customers.
COMPETITIVE STRENGTHS
We believe that the following factors contribute to our strong competitive
position:
- Market Leadership
- Industry-Focused Integrated Marketing
- Diverse Customer Base
- Attractive EBITDA Margins and Modest Ongoing Capital Expenditure
Requirements
- Experienced and Motivated Management Team
For more complete information on our competitive strengths, you should read
the section called "Business--Competitive Strengths."
5
BUSINESS STRATEGY
Our objective is to increase profitability by solidifying our position as a
leading provider of comprehensive one stop B-to-B marketing communications
products and services. In order to achieve this objective, we operate our
business based on the following strategies:
- Operate Leading Trade Shows and Publish Leading Magazines in Attractive
Niche Markets
- Utilize Industry Cluster Strategy to Drive Growth
- Maximize Share of Customers' Total Marketing Expenditures
- Launch New Products and Services Within Existing Clusters
- Identify and Consummate Strategic Acquisitions
For more complete information on our business strategies, you should read
the section called "Business--Business Strategies."
RISK FACTORS
See "Risk Factors" for a discussion of various risks associated with an
investment in the notes.
THE ACQUISITION AND RELATED FINANCINGS
Advanstar, Inc., our direct parent company, was acquired by DLJ Merchant
Banking Partners III, L.P., affiliated funds and members of our executive
management team in October 2000 for consideration of approximately
$917.6 million, including assumed debt and debt repaid at closing. The
acquisition was financed with:
(1) $415.0 million of term loans under our new credit facility,
(2) $50.0 million received by Advanstar, Inc., from the sale to DLJ
Investment Partners II, L.P. and related funds, of units, consisting of discount
notes of Advanstar, Inc. and warrants to purchase stock in our ultimate parent
company, Advanstar Holdings Corp. or "Holdings",
(3) $291.0 million received by Holdings from the sale of its common stock to
the DLJ Merchant Banking funds and
(4) the rollover of common stock valued at $11.6 million held by our
executive management team and other existing stockholders.
The assumed debt included $150.0 million of 9 1/4% senior subordinated
notes. We were required to make an offer to purchase those notes at 101% of
principal amount as a result of the change of control caused by the acquisition.
All of the notes were tendered, and we entered into a bridge financing to fund
the purchase of those notes. In February 2001, we issued $160.0 million of the
old notes and our parent company, Advanstar, Inc., issued an additional
$35.0 million of units, identical to those it sold in October, in a separate
offering. Advanstar, Inc. then contributed the proceeds to us as a capital
contribution. In this prospectus, we refer to the units issued by our parent
company as the parent company units. We used the net proceeds from the offering
of the old notes and the capital contribution from Advanstar, Inc., together
with some of our available cash, to repay and terminate the bridge financing and
to repay $45.0 million of term loan borrowings under our new credit facility.
See "The Acquisition and Related Financings."
------------------------
Our principal executive offices are located at 545 Boylston Street, 9th
floor, Boston, MA and our telephone number is (617) 267-6500.
6
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL DATA
The table below includes summary historical, unaudited combined and
unaudited pro forma financial data for Advanstar Communications Inc. and its
predecessor for each of the periods indicated. The summary historical
consolidated financial data for the years ended December 31, 1997, 1998 and
1999, and for the period from January 1, 2000 through October 11, 2000 have been
derived from the audited consolidated financial statements of the predecessor
for such periods. The consolidated financial data of Advanstar for the period
October 12, 2000 through December 31, 2000 have been derived from the audited
consolidated financial statements of Advanstar. The consolidated financial data
for the combined year ended December 31, 2000 has been derived from the audited
consolidated financial statements of the predecessor and Advanstar and has not
been audited and does not comply with generally accepted accounting principles.
The summary unaudited pro forma consolidated financial data is derived from our
historical financial data and gives effect to the transactions described in
"Unaudited Pro Forma Condensed Consolidated Financial Statements" included
elsewhere in this prospectus. The summary unaudited pro forma financial data is
presented for illustrative purposes only and is not necessarily indicative of
our financial position or results of operations if those transactions had
actually occurred on those dates, and is not necessarily indicative of our
future results of operations or financial position. You should read the
information contained in this table in conjunction with "The Acquisition and
Related Financings," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Unaudited Pro Forma Condensed Consolidated Financial Statements"
and our financial statements and the notes to those statements included
elsewhere in this prospectus.
PREDECESSOR ADVANSTAR
------------------------------------------------- ---------------------------------------------
FOR THE PERIOD FOR THE PERIOD
YEAR ENDED FROM JANUARY 1, FROM OCTOBER 12,
DECEMBER 31, 2000 THROUGH 2000 THROUGH PRO FORMA
------------------------------- OCTOBER 11, DECEMBER 31, COMBINED DECEMBER 31,
1997 1998 1999 2000 2000 2000 2000
--------- -------- -------- --------------- ---------------- ----------- ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Revenue....................... $187,656 $259,825 $328,372 $314,045 $ 63,434 $377,479 $377,479
Cost of production and
selling..................... 126,103 168,543 205,105 187,849 47,296 235,145 235,126
General and administrative
expenses.................... 30,714 36,557 43,646 41,290 11,519 52,809 50,489
Stock option compensation
expense (benefit) (1)....... -- 3,397 3,925 (2,485) -- (2,485) (2,485)
Amortization of goodwill and
intangible assets........... 24,326 48,752 49,214 35,133 12,711 47,844 55,758
-------- -------- -------- -------- -------- -------- --------
Operating income.............. 6,513 2,576 26,482 52,258 (8,092) 44,166 38,591
Other income (expense):
Interest expense.............. (15,117) (27,862) (39,888) (38,161) (13,765) (51,926) (58,549)
Other income (expense), net... 292 (1,926) (198) (2,394) 215 (2,179) (2,179)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and minority
interest.................... (8,312) (27,212) (13,604) 11,703 (21,642) (9,939) (22,137)
Provision (benefit) for income
taxes....................... 583 1,264 (11,431) 11,190 (4,772) 6,418 4,673
Minority interest in income
(loss) of subsidiaries...... -- (40) (1,588) 1,003 (125) 878 (219)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
Operations.................. ($ 8,895) ($28,436) ($ 585) ($ 490) ($16,745) ($17,235) ($26,591)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (2).................... $ 34,039 $ 53,828 $ 78,478 $ 96,311 $ 99,747
Adjusted EBITDA (3)........... 34,039 57,225 82,403 93,826 97,262
Adjusted EBITDA margin........ 18.1% 22.0% 25.1% 24.9% 25.8%
Capital expenditures.......... $ 2,260 $ 4,154 $ 9,722 $ 11,882 $ 11,882
Ratio of Adjusted EBITDA to
cash Interest expense....... 1.8 x 1.7 x
Ratio of net debt to Adjusted
EBITDA (4).................. 5.8 x 5.4 x
7
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL DATA
AS OF DECEMBER 31, 2000
(IN THOUSANDS)
--------------------------
HISTORICAL AS ADJUSTED
----------- ------------
BALANCE SHEET DATA:
Cash and cash equivalents........................................................................... $ 17,675 $ 1,006
Working capital (5)................................................................................. (62,601) (53,332)
Total assets........................................................................................ 957,205 946,158
Total debt.......................................................................................... 565,000 530,000
Total stockholder's equity.......................................................................... 265,011 294,745
- ------------------------------
(1) We account for stock-based compensation using the intrinsic value method. As
a result, we measure compensation cost as the difference between the
exercise price of the options and the fair value of the shares underlying
the options at the end of the period. Our results for the period from
January 1, 2000 through October 11, 2000 were favorably impacted by
compensation benefits due to a decrease in the fair value of the shares
underlying the options. We will no longer recognize this type of
compensation expense thereafter as a result of a change in benefit plans.
(2) "EBITDA" is defined as operating income (loss) plus depreciation and
amortization less amounts attributable to minority interest. EBITDA is a key
financial measure but should not be construed as an alternative to operating
income or cash flows from operating activities (as determined in accordance
with generally accepted accounting principles). We believe that EBITDA is a
useful supplement to net income and other income statement data in
understanding cash flows generated from operations that are available for
taxes, debt service and capital expenditures. However, our method of
computation may not be comparable to other similarly titled measures of
other companies.
The following table demonstrates our calculation of EBITDA for each period
presented.
PREDECESSOR ADVANSTAR
------------------------------------------------ ---------------------------------------------
FOR THE PERIOD FOR THE PERIOD
YEAR ENDED FROM JANUARY 1, FROM OCTOBER 12,
DECEMBER 31, 2000 THROUGH 2000 THROUGH PRO FORMA
------------------------------ OCTOBER 11, DECEMBER 31, COMBINED DECEMBER 31,
1997 1998 1999 2000 2000 2000 2000
-------- -------- -------- --------------- ---------------- ----------- ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
Operating income............... $ 6,513 $ 2,576 $26,482 $52,258 ($8,092) $44,166 $38,591
Depreciation and
amortization................. 27,526 51,823 53,258 39,653 14,447 54,100 62,014
Minority interest (Excluding
depreciation and
amortization)................ -- (571) (1,262) (1,991) 36 (1,955) (858)
------- ------- ------- ------- ------- ------- -------
EBITDA......................... $34,039 $53,828 $78,478 $89,920 $ 6,391 $96,311 $99,747
======= ======= ======= ======= ======= ======= =======
(3) "Adjusted EBITDA" is defined as EBITDA plus stock option compensation
expense, or less any stock option compensation benefit. We believe that
Adjusted EBITDA is a useful supplement to net income and other income
statement data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures, as it
excludes stock option compensation expense which, in all historical periods,
was a non-cash expense. See Note 1 above for a discussion of the impact of
our stock-based compensation expense (benefit) on our Adjusted EBITDA.
(4) Net debt equals total debt less cash and cash equivalents.
(5) Working capital is defined as current assets, excluding cash, less current
liabilities, excluding the current portion of long term debt.
8
RISK FACTORS
IN ADDITION TO THE OTHER MATTERS DESCRIBED IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN INVESTMENT IN THE
NOTES.
RISKS RELATING TO OUR DEBT
WE HAVE A SIGNIFICANT AMOUNT OF DEBT, WHICH COULD LIMIT OUR ABILITY TO
REMAIN COMPETITIVE OR GROW OUR BUSINESS
We incurred a significant amount of indebtedness in connection with the
acquisition. The level of our indebtedness could have important consequences,
including:
- limiting cash flow available for general corporate purposes, including
capital expenditures and acquisitions, because a substantial portion of
our cash flow from operations must be dedicated to servicing our debt;
- limiting our ability to obtain additional debt financing in the future for
working capital, capital expenditures or acquisitions;
- limiting our flexibility in reacting to competitive and other changes in
our industry and economic conditions generally; and
- exposing us to risks inherent in interest rate fluctuations because some
of our borrowings will be at variable rates of interest, which could
result in higher interest expense in the event of increases in interest
rates.
On a pro forma basis, as of December 31, 2000, we had (a) total indebtedness
of approximately $530.0 million and (b) approximately $76.8 million of
borrowings available under our new credit facility, subject to customary
conditions. In addition, subject to the restrictions in our new credit facility
and the indenture, we may incur significant additional indebtedness, which may
be secured, from time to time.
The following chart shows several important credit statistics and is
presented on a pro forma basis:
AS OF DECEMBER 31, 2000
------------------------
(DOLLARS IN MILLIONS)
Total indebtedness...................................... $ 530.0
Stockholder's equity.................................... $ 294.7
Ratio of net debt to Adjusted EBITDA.................... 5.4x
WE MAY NOT BE ABLE TO SERVICE OUR DEBT WITHOUT THE NEED FOR ADDITIONAL
FINANCING, WHICH WE MAY NOT BE ABLE TO OBTAIN
Our ability to pay or to refinance our indebtedness, including the notes,
will depend upon our future operating performance, which will be affected by
general economic, financial, competitive, legislative, regulatory, business and
other factors beyond our control. We anticipate that our operating cash flow,
together with money we can borrow under our new credit facility, will be
sufficient to meet anticipated future operating expenses, to fund capital
expenditures and to service our debt as it becomes due. However, we cannot
assure you that our business will generate sufficient cash flow from operations,
that currently anticipated revenue growth and operating improvements will be
realized or that future borrowings will be available to us under our new credit
facility in amounts sufficient to enable us to pay our indebtedness, including
the notes, or to fund our other liquidity needs. If we are unable to meet our
debt service obligations or fund our other liquidity needs, we could attempt to
restructure or refinance our indebtedness or seek additional equity capital. We
cannot assure you that we will be able to accomplish those actions on
satisfactory terms, if at all.
9
RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS MAY LIMIT OUR ABILITY TO
ENGAGE IN A VARIETY OF TRANSACTIONS AND COULD TRIGGER DEFAULTS THAT WOULD
ACCELERATE ALL OF OUR DEBT
The indenture governing the notes will contain various covenants that limit
our ability to engage in a variety of transactions. In addition, the notes
issued by our parent company, which we refer to as "parent company notes," and
our new credit facility contain other and more restrictive covenants. Our new
credit facility prohibits us from prepaying our subordinated indebtedness,
including the notes, and also requires us to maintain specified financial ratios
and satisfy other financial condition tests. Our ability to meet those financial
ratios and tests can be affected by events beyond our control, and we cannot
assure you that we will meet those tests. A breach of any of these covenants or
other provisions in the agreement governing the new credit facility, the parent
company notes and/or the notes could result in a default under our new credit
facility, the parent company notes, and/or the notes. Upon the occurrence of an
event of default under our new credit facility, the lenders could elect to
declare all amounts outstanding under our new credit facility to be immediately
due and payable and terminate all commitments to extend further credit. If we
were unable to repay those amounts, the lenders could proceed against the
collateral granted to them to secure that indebtedness. We have pledged
substantially all of our assets, other than assets of our foreign subsidiaries,
as security under our new credit facility. If the lenders under our new credit
facility accelerate the repayment of borrowings, we cannot assure you that we
will have sufficient assets to repay our new credit facility and our other
indebtedness, including the notes.
RISKS RELATING TO OUR BUSINESS
WE DEPEND ON OUR CUSTOMERS' DISCRETIONARY MARKETING AND ADVERTISING BUDGETS,
WHICH MAY DECREASE IN AN ECONOMIC DOWNTURN
If a general economic downturn or a recession occurs in the United States or
any other market where we conduct a significant amount of business, our
customers may reduce their marketing and advertising budgets. Any material
decrease in marketing budgets could reduce the demand for exhibition space and
also reduce attendance at our trade shows and conferences. Any material decrease
in advertising budgets could reduce the demand for advertising space in our
publications. As a result, our revenue and our cash flow from operations would
decrease significantly. In addition, our integrated marketing strategy could be
materially adversely affected if advertising revenue cannot support one or more
of our important publications or if declines in our customers' marketing and
advertising budgets require us to discontinue one or more of our important trade
shows or conferences.
WE DEPEND ON SECURING DESIRABLE DATES AND LOCATIONS FOR OUR TRADE SHOWS AND
CONFERENCES, WHICH WE MAY NOT BE ABLE TO SECURE
The date and location of a trade show or a conference can impact its
profitability and prospects. The market for desirable dates and locations is
highly competitive. If we cannot secure desirable dates and locations for our
trade shows and conferences, their profitability and future prospects would
suffer, and our financial condition and results of operations would be
materially adversely affected. In general, we maintain multi-year reservations
for our trade shows and conferences. Consistent with industry practice, we do
not pay for these reservations, and these reservations are not binding on the
facility owners until we execute a contract with the owner. We typically sign
contracts that guarantee the right to venues or dates for only one year.
Therefore, our multi-year reservations may not lead to binding contracts with
facility owners. In addition, because trade shows and conferences are held on
pre-scheduled dates at specific locations, the success of a particular trade
show or conference depends upon events outside of our control, such as natural
catastrophes, labor strikes and transportation shutdowns.
10
A SIGNIFICANT PORTION OF OUR REVENUE AND ADJUSTED EBITDA IS GENERATED FROM
OUR MAGIC TRADE SHOWS, SO ANY DECLINE IN THE PERFORMANCE OF THESE SHOWS WOULD
REDUCE OUR REVENUES AND OPERATING INCOME
For the year ended December 31, 2000, our MAGIC trade shows represented
16.4% of our total pro forma revenue and 43.2% of our total pro forma Adjusted
EBITDA. We expect that the MAGIC trade shows will continue to represent a
significant portion of our overall revenue and Adjusted EBITDA in the future.
Therefore, a significant decline in the performance of one or both of the MAGIC
trade shows, typically held in the first and third quarters, could have a
material adverse effect on our financial condition and results of operations.
ANY SIGNIFICANT INCREASE IN PAPER OR POSTAGE COSTS WOULD CAUSE OUR EXPENSES
TO INCREASE SIGNIFICANTLY
Because of our print products, direct mail solicitations and product
distributions, we incur substantial costs for paper and postage. We do not use
forward contracts to purchase paper, and therefore are not protected against
fluctuations in paper prices. In general, we use the United States Postal
Service to distribute our print products and mailings. United States Postal
Service rates increase periodically. If we cannot pass increased paper and
postage costs through to our customers, our financial condition and results of
operations could be materially adversely affected.
THE MARKET FOR OUR PRODUCTS AND SERVICES IS INTENSELY COMPETITIVE
The market for our products and services is intensely competitive. The
competition is highly fragmented by product offering and by geography. On a
global level, larger international firms operate in many geographic markets and
have broad product offerings in trade shows, conferences, publications and
marketing services. In several industries, such as information technology and
healthcare, we compete with large firms with a single-industry focus. Many of
these large international and single-industry firms are better capitalized than
we are and have substantially greater financial and other resources than us.
Within each particular industry sector, we also compete with a large number
of small to medium-sized firms. While most small to medium-sized firms operate
in a single geographic market, in some cases, our competitors operate in several
geographic markets. Our trade shows and conferences compete with trade
associations and, in several international markets, with exposition hall owners
and operators. Our publications typically have between two and five direct
competitors that target the same industry sector, and we also have many indirect
competitors that define niche markets differently than we do and thus may be
alternatives for either readers or advertisers.
WE DEPEND IN PART ON NEW PRODUCT INTRODUCTIONS, AND THE PROCESS OF
RESEARCHING, DEVELOPING, LAUNCHING AND ESTABLISHING PROFITABILITY FOR A NEW
EVENT OR PUBLICATION IS INHERENTLY RISKY AND COSTLY
Our success has depended in part upon our ability to monitor rapidly
changing market trends and to adapt our events and publications to meet the
evolving needs of existing and emerging target audiences. Our future success
will depend in part on our ability to continue to adapt our existing events and
publications and to offer new events and publications by addressing the needs of
specific audience groups within our target markets. The process of researching,
developing, launching and establishing profitability for a new event or
publication is inherently risky and costly. We generally incur initial operating
losses when we introduce new events and publications. Our efforts to introduce
new events or publications may not ultimately be successful or profitable. In
addition, we expense as incurred costs related to the development of new events
and publications. Therefore, our year-to-year results may be adversely affected
by the number and timing of new product launches.
THE GROWTH OF THE INTERNET AS A B-TO-B MARKETING COMMUNICATIONS SOLUTION MAY
REDUCE INTEREST IN, AND THE NEED FOR, OUR TRADE SHOWS, PUBLICATIONS AND OTHER
MARKETING SERVICES
We are currently working with our affiliate Advanstar.com to use the
Internet increasingly to deliver our integrated B-to-B marketing communications
products and services to our customers.
11
Advanstar.com is developing vertical community web sites to serve our industry
sectors and is operating our event and publication-related web sites. While we
believe that Advanstar.com will serve to complement our trade shows,
publications and other marketing services, we cannot assure you that it will not
become an alternative to our existing business operations. Advanstar.com is not
an obligor on the notes.
In addition, other Internet sites that have content similar to traditional
B-to-B marketing communications products and services, such as our trade shows
and publications, may lead to a reduced interest in these traditional products
and services. Any increased use of the Internet as a means of offering B-to-B
marketing communications products and services could decrease the need for our
trade shows, publications and other marketing services, which, in turn, could
have a material adverse effect on our financial condition and results of
operations.
OUR GROWTH STRATEGY OF IDENTIFYING AND CONSUMMATING ACQUISITIONS ENTAILS
INTEGRATION AND FINANCING RISK AND COULD DIVERT OUR MANAGEMENT FROM THE
OPERATION OF OUR BUSINESS
We intend to continue to grow in part through strategic acquisitions. This
growth strategy entails risks inherent in identifying desirable acquisition
candidates and in integrating the operations of acquired businesses into our
existing operations. In addition, we may not be able to finance the acquisition
of a desirable candidate or to pay as much as our competitors because of our
leveraged financial condition or general economic conditions. Our management
will continue to devote substantial attention to the identification of
acquisition candidates and the integration of acquired businesses. The diversion
of our management's attention and the difficulties that we may encounter in
integrating the operations of acquired businesses could have a material adverse
impact on our results of operations and financial condition. Moreover, we may
not realize any of the anticipated benefits of an acquisition, and integration
costs may exceed anticipated amounts.
WE DEPEND ON OUR SENIOR MANAGEMENT TEAM, AND WE DO NOT HAVE EMPLOYMENT
CONTRACTS FOR MANY OF OUR SENIOR MANAGERS
We benefit substantially from the leadership and experience of Robert L.
Krakoff, James M. Alic and other members of our senior management team and
depend on their continued services to implement successfully our business
strategy. The loss of any member of our senior management team or other key
employee could materially adversely affect our financial condition and results
of operations. Although we have entered into employment agreements with
Mr. Krakoff and Mr. Alic, we do not have employment contracts with most other
members of our senior management team or other key employees. We cannot be
certain that we will continue to retain their services, or the services of other
key personnel, in the future. Moreover, we may not be able to attract and retain
other qualified personnel in the future. We do not currently maintain key-man
life insurance policies on any member of our senior management team or other key
employees.
OUR INTERNATIONAL OPERATIONS AND EXPANSION STRATEGY EXPOSES US TO VARIOUS
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
Our growth strategy includes expanding our product and service offerings
internationally. We currently maintain offices in Brazil, Germany, Hong Kong,
Mexico and the United Kingdom. International operations accounted for
approximately 11% of our total revenue in 2000. International operations and
expansion involve numerous risks, such as:
- the uncertainty of product acceptance by different cultures;
- divergent business expectations or cultural incompatibility in
establishing joint ventures with foreign partners;
- difficulties in staffing and managing multinational operations;
- currency fluctuations;
12
- state-imposed restrictions on the repatriation of funds; and
- potentially adverse tax consequences.
The impact of any of these risks could materially adversely affect our
future international operations and our financial condition and results of
operations.
WE HAVE SOME EXPOSURE TO FLUCTUATIONS IN THE EXCHANGE RATES OF INTERNATIONAL
CURRENCIES
Our consolidated financial statements are prepared in U.S. dollars. However,
a portion of our revenues, expenses, assets and liabilities is denominated in
currencies other than the U.S. dollar, including the British Pound Sterling, the
euro and the Brazilian Real. Consequently, fluctuations in exchange rates could
result in exchange losses. In 1998, 1999 and 2000, there was no material effect
on our net income due to currency fluctuations, but the impact of future
exchange rate fluctuations on our results of operations cannot be accurately
predicted. Moreover, because we intend to continue our international expansion,
the effect of exchange rate fluctuations could be greater in the future. We have
previously undertaken, and in the future may undertake, transactions to hedge
the risks associated with fluctuations in exchange rates of other currencies to
the dollar. We do not know if any hedging techniques that we may implement will
be successful or will mitigate the effect, if any, of exchange rate fluctuations
on our financial condition and results of operations.
OUR BUSINESS IS SEASONAL DUE LARGELY TO HIGHER TRADE SHOW REVENUE IN THE
FIRST AND THIRD QUARTERS
Our business is seasonal, with revenue typically reaching its highest levels
during the first and third quarters of each calendar year, largely due to the
timing of the MAGIC trade shows and our other large trade shows and conferences.
In 2000, 35.3% of our pro forma revenue was generated during the first quarter
and 25.4% during the third quarter. The second quarter accounted for 19.7% of
pro forma revenue in 2000 and the fourth quarter accounted for 19.6% of pro
forma revenue in 2000. Because event revenue is recognized when a particular
event is held, we may also experience fluctuations in quarterly revenue based on
the movement of annual trade show dates from one quarter to another.
RISKS RELATED TO OUR STOCKHOLDERS
WE ARE CONTROLLED BY PRINCIPAL STOCKHOLDERS WHO WILL BE ABLE TO MAKE
IMPORTANT DECISIONS ABOUT OUR BUSINESS AND CAPITAL STRUCTURE; THEIR INTERESTS
MAY DIFFER FROM YOUR INTERESTS AS A DEBTHOLDER
Circumstances may occur in which the interests of our principal stockholders
could be in conflict with your interests. In addition, these stockholders may
have an interest in pursuing transactions that, in their judgment, enhance the
value of their equity investment in our company, even though those transactions
may involve risks to you as a holder of the notes.
Substantially all of the outstanding shares of common stock of our ultimate
parent company is held by the DLJ Merchant Banking funds. As a result of their
stock ownership, the DLJ Merchant Banking funds control us and have the power to
elect a majority of our directors, appoint new management and approve any action
requiring the approval of the holders of common stock, including adopting
amendments to our certificate of incorporation and approving acquisitions or
sales of all or substantially all of our assets. The directors elected by the
DLJ Merchant Banking funds will have the ability to control decisions affecting
our capital structure, including the issuance of additional capital stock, the
implementation of stock repurchase programs and the declaration of dividends.
The general partners of each of the DLJ Merchant Banking funds are
affiliates or employees of Credit Suisse First Boston Corporation, which is also
an affiliate of (1) DLJ Capital Funding, Inc., the arranger, syndication agent
and a lender under our new credit facility, and (2) the general partners of each
of the DLJ Investment Partners funds, the purchasers of a portion of the units
issued by our parent company. Credit Suisse First Boston Corporation was also
one of the initial purchasers of the notes and the initial purchaser of the
additional parent company units sold in February 2001.
13
RISKS RELATED TO THE NOTES
THE NOTES AND THE GUARANTEES WILL RANK JUNIOR TO OTHER DEBT, AND SENIOR
DEBTHOLDERS MAY FORCE US TO STOP MAKING PAYMENTS TO YOU IF WE ARE IN DEFAULT ON
OUR OTHER DEBT
THE NOTES AND THE GUARANTEES WILL RANK JUNIOR TO OUR SENIOR INDEBTEDNESS
The notes will rank junior to all of our existing and future senior
indebtedness, including all indebtedness under our new credit facility. As a
result of the subordination of the notes, if we become insolvent or enter into a
bankruptcy or similar proceeding, then the holders of our senior indebtedness
must be paid in full before you are paid. In addition, we cannot make any cash
payments to you if we have failed to make payments to holders of designated
senior indebtedness. In addition, we cannot make any payments to you for a
period of up to 179 days if we have defaulted, other than failures to make
payments, under our designated senior indebtedness covenants.
The guarantees will rank junior to all existing and future senior
indebtedness of the guarantors, including their guarantees of our new credit
facility, to the same extent that the notes are subordinated to our senior
indebtedness.
At December 31, 2000, on a pro forma basis, the notes and the guarantees
would have ranked junior in right of payment to $370.0 million of senior
indebtedness.
WE MAY INCUR ADDITIONAL INDEBTEDNESS RANKING EQUAL TO THE NOTES OR THE
GUARANTEES
If we or a guarantor incur any additional debt that ranks equally with the
notes or the guarantees, including trade payables, the holders of that debt will
be entitled to share ratably with you in any proceeds distributed in connection
with any insolvency, liquidation, reorganization, dissolution or other
winding-up of our company. This may have the effect of reducing the amount of
proceeds paid to you.
THE NOTES WILL BE STRUCTURALLY JUNIOR TO INDEBTEDNESS AND OTHER LIABILITIES
OF OUR NON-GUARANTOR SUBSIDIARIES
Our foreign subsidiaries and any non-wholly owned domestic subsidiaries will
not be guarantors of the notes. You will not have any claim as a creditor
against any of our non-guarantor subsidiaries, and indebtedness and other
liabilities, including trade payables, of those subsidiaries will effectively be
senior to your claims against those subsidiaries. As of December 31, 2000, on a
pro forma basis, our non-guarantor subsidiaries would have had $18.0 million of
outstanding liabilities, including trade payables but excluding intercompany
obligations.
WHILE THE INDENTURE REQUIRES US TO REPURCHASE YOUR NOTES UPON A CHANGE OF
CONTROL, WE MAY BE UNABLE TO REPURCHASE YOUR NOTES IN THAT EVENT
Upon the occurrence of "change of control" events specified in "Description
of Notes," you may require us to purchase your notes at 101% of their principal
amount, plus accrued interest. The terms of our new credit facility limit our
ability to purchase your notes in those circumstances. Any of our future debt
agreements may contain similar restrictions and provisions. Accordingly, we may
not be able to satisfy our obligations to purchase your notes unless we are able
to refinance or obtain waivers under the new credit facility and other
indebtedness with similar restrictions. We cannot assure you that we will have
the financial resources to purchase your notes, particularly if that change of
control event triggers a similar repurchase requirement for, or results in the
acceleration of, other indebtedness. The parent company notes contain a similar
repurchase requirement, and our new credit facility currently provides that
certain change of control events will constitute a default and could result in
the acceleration of our indebtedness under the new credit facility.
14
WE ARE DEPENDENT UPON DIVIDENDS FROM OUR SUBSIDIARIES TO MEET OUR DEBT
SERVICE OBLIGATIONS, OUR ABILITY TO RECEIVE THOSE DIVIDENDS MAY BE LIMITED BY
LAW AND CONTRACT
We conduct a significant portion of our operations through our subsidiaries.
Our ability to meet our debt service obligations will be dependent on receipt of
dividends from our direct and indirect subsidiaries. Subject to the restrictions
contained in the indenture, future borrowings by our subsidiaries may contain
restrictions or prohibitions on the payment of dividends by our subsidiaries to
us. See "Description of Notes--Certain Covenants." In addition, under applicable
state law, our subsidiaries may be limited in amounts that they are permitted to
pay as dividends to us on their capital stock.
COURTS COULD INVOLVE FRAUDULENT TRANSFER STATUTES TO LIMIT YOUR RIGHTS TO
RECEIVE PAYMENTS ON YOUR NOTES
Federal and state fraudulent transfer laws permit a court, if it makes
certain findings, to
- avoid all or a portion of our obligations to you;
- subordinate our obligations to you to our other existing and future
indebtedness, entitling other creditors to be paid in full before any
payment is made on the notes; and
- take other action detrimental to you, including invalidating the notes.
In that event, we cannot assure you that you would ever be repaid.
Under federal and state fraudulent transfer laws, in order to take any of
those actions, courts will typically need to find that, at the time the notes
were issued, we:
(1) issued the notes with the intent of hindering, delaying or defrauding
current or future creditors; or
(2) received less than fair consideration or reasonably equivalent value for
incurring the indebtedness represented by the notes; and
(a) were insolvent or were rendered insolvent by reason of the issuance
of the notes;
(b) were engaged, or about to engage, in a business or transaction for
which our assets were unreasonably small; or
(c) intended to incur, or believed or should have believed we would
incur, debts beyond our ability to pay as such debts mature.
Many of the foregoing terms are defined in or interpreted under those fraudulent
transfer statutes.
To the extent that proceeds from the sale of the notes and the other related
financings were used, in part, to make payments to our former stockholders or to
refinance debt incurred to make such payments, a court could find that we did
not receive fair consideration or reasonably equivalent value for the incurrence
of the debt represented by the notes.
Different jurisdictions define "insolvency" differently. However, we
generally would be considered insolvent at the time we issued the notes if
(1) our liabilities exceeded our assets, at a fair valuation, or (2) the present
saleable value of our assets is less than the amount required to pay our total
existing debts and liabilities (including the probable liability related to
contingent liabilities) as they become absolute or matured. We cannot assure you
as to what standard a court would apply in order to determine whether we were
"insolvent" as of the date the notes were issued, and we cannot assure you that,
regardless of the method of valuation, a court would not determine that we were
insolvent on that date. Nor can we assure you that a court would not determine,
regardless of whether we were insolvent on the date the notes were issued, that
the payments constituted fraudulent transfers on another ground.
Our obligations under the notes will be guaranteed by all of our domestic
restricted subsidiaries, and the guarantees may also be subject to review under
various laws for the protection of creditors. It
15
is possible that creditors of the guarantors may challenge the guarantees as a
fraudulent transfer or conveyance. The analysis set forth above would generally
apply, except that the guarantees could also be subject to the claim that,
because the guarantees were incurred for the benefit of Advanstar, and only
indirectly for the benefit of the guarantors, the obligations of the guarantors
thereunder were incurred for less than reasonably equivalent value or fair
consideration. A court could void a guarantor's obligation under its guarantee,
subordinate the guarantee to the other indebtedness of a guarantor, direct that
holders of the notes return any amounts paid under a guarantee to the relevant
guarantor or to a fund for the benefit of its creditors, or take other action
detrimental to the holders of the notes. In addition, the liability of each
guarantor under the indenture will be limited to the amount that will result in
its guarantee not constituting a fraudulent conveyance or improper corporate
distribution, and there can be no assurance as to what standard a court would
apply in making a determination as to what would be the maximum liability of
each guarantor.
NO PUBLIC TRADING MARKET FOR THE NOTES EXISTS WHICH COULD RESULT IN AN
ILLIQUID TRADING MARKET AND/OR LOWER SALES PRICES FOR YOUR NOTES
The new notes are a new issue of securities for which there is currently no
active trading market. If any of the notes are traded after they are initially
issued, they may trade at a discount from their initial offering price. The
trading price of the notes depends on prevailing interest rates, the market for
similar securities and other factors, including economic conditions and our
financial condition, performance and prospects. If an active market does not
develop or is not maintained, the market price and liquidity of the notes may be
adversely affected.
RISKS RELATED TO FORWARD-LOOKING STATEMENTS
YOU MAY NOT BE ABLE TO RELY ON FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS, AS OUR ACTUAL RESULTS MAY BE MATERIALLY DIFFERENT
The information contained in this prospectus includes some forward-looking
statements that involve a number of risks and uncertainties. A number of factors
could cause our actual results, performance, achievements or industry results to
be very different from the results, performance, achievements or industry
results expressed or implied by those forward-looking statements. These factors
include, but are not limited to:
- the competitive environment in our industry;
- economic conditions in general and in the industry in which we compete;
- changes in or our failure to comply with federal, state, local or foreign
laws and government regulations;
- liability and other claims asserted against our company;
- changes in operating strategy or development plans;
- the ability to attract and retain qualified personnel;
- our significant indebtedness;
- changes in our acquisition and capital expenditure plans;
- unforeseen interruptions with our largest customers; and
- other factors we refer to in this prospectus.
In addition, forward-looking statements depend upon assumptions, estimates
and dates that may not be correct or precise and involve known and unknown
risks, uncertainties and other factors. Accordingly, a forward-looking statement
in this prospectus is not a prediction of future events or circumstances and
those future events or circumstances may not occur. Given these uncertainties,
you are warned not to rely on the forward-looking statements. A forward-looking
statement is usually identified by our use of certain terminology including
"believes," "expects," "may," "will," "should," "seeks," "pro forma,"
"anticipates" or "intends" or by discussions of strategy or intentions. We are
not undertaking any obligation to update these factors or to publicly announce
the results of any changes to our forward-looking statements due to future
events or developments.
16
THE ACQUISITION AND RELATED FINANCINGS
OUR CORPORATE STRUCTURE PRIOR TO THE ACQUISITION
Advanstar Communications Inc. is a New York corporation that is a
wholly-owned subsidiary of Advanstar, Inc. Prior to the acquisition described
below, Advanstar, Inc. was owned by AHI Advanstar LLC, which was controlled by
Hellman & Friedman Capital Partners III, L.P. and its affiliates.
Advanstar, Inc. has two direct subsidiaries: our company and Advanstar
IH, Inc., through which all its Internet-related businesses are conducted.
Advanstar IH, Inc. is not an obligor under the notes.
THE ACQUISITION
DLJ Merchant Banking Partners III, L.P. and affiliated funds, which we refer
to collectively as the "DLJ Merchant Banking funds," formed Advanstar Holdings
Corp. as a Delaware corporation for the purpose of acquiring Advanstar, Inc.
from its existing stockholders. Advanstar Holdings Corp., which we refer to as
"Holdings," in turn formed an acquisition subsidiary.
On August 14, 2000, Holdings and AHI entered into an agreement and plan of
merger pursuant to which the acquisition subsidiary would merge with and into
Advanstar, Inc., with Advanstar, Inc. as the surviving corporation.
In connection with and prior to the merger, which occurred on October 11,
2000, members of our executive management team exchanged, or rolled over, a
portion of their beneficial ownership interest in our company for approximately
2% of the outstanding shares of Holdings common stock.
Under the merger agreement, Holdings was required to pay the merger
consideration to the holders of shares of Advanstar, Inc. common stock and to
holders of options to purchase shares of Advanstar, Inc. common stock, as
described below. The merger consideration consisted of:
- cash payable at the closing of the merger in an amount equal to
approximately $875.0 million, LESS the amount of outstanding net debt and
subject to certain other adjustments, and
- shares of Holdings common stock representing approximately 2% of the
issued and outstanding common stock of Holdings.
Optionholders were entitled to their pro rata portion of the merger
consideration, net of the exercise price for their options. In addition, holders
of warrants to purchase shares of Advanstar, Inc. common stock that were
outstanding at the closing of the merger received warrants to purchase
approximately 4% of the outstanding shares of Holdings common stock, measured on
a fully diluted basis, at an exercise price per share equal to three times the
cost per share paid by the DLJ Merchant Banking funds to purchase Holdings'
common stock immediately prior to the merger.
A portion of the merger consideration was deposited into escrow accounts,
including $37.0 million to support indemnity obligations of the selling
stockholders and $21.0 million to fund anticipated costs related to the
repayment of debt assumed in connection with the merger. In January 2001, the
debt was refinanced and approximately $11.2 million of the debt repayment escrow
fund was released to the selling stockholders and optionholders, and the
remainder was paid to the DLJ Merchant Banking funds. The selling stockholders
may be entitled to receive additional post-closing consideration consisting of
unused amounts from the indemnity escrow account.
THE RELATED FINANCINGS
In order to fund the consideration for the acquisition and pay related fees
and expenses:
- We entered into a $495.0 million syndicated senior secured credit
facility, consisting of $415.0 million of term loan availability and
$80.0 million of revolving loan availability, with a
17
group of financial institutions led by DLJ Capital Funding, Inc., an
affiliate of the DLJ Merchant Banking funds. At the effective time of the
acquisition,
(1) we borrowed all of the term loans and used the proceeds to refinance
our then-existing bank facility and to pay a portion of the
acquisition consideration and related transaction fees and expenses,
and
(2) we obtained approximately $3.2 million of letters of credit under the
revolving credit facility.
We may use the remaining borrowing availability under the revolving credit
facility for general corporate purposes, subject to customary conditions,
including the absence of any material adverse change.
- We kept outstanding our existing 9 1/4% senior subordinated notes in an
aggregate principal amount of $150.0 million.
- Holdings and Advanstar, Inc. issued units, which we refer to as the parent
company units, consisting of (1) Advanstar, Inc.'s 15% senior discount
notes due October 2011 with a principal amount at maturity of
$103.2 million and (2) warrants to purchase approximately 2.4% of the
shares of Holdings common stock on a fully diluted basis, to DLJ
Investment Partners II, L.P., an affiliate of the DLJ Merchant Banking
funds, and related funds, for total consideration of approximately
$50.0 million.
- Holdings received (1) $291.0 million from the sale of its common stock to
the DLJ Merchant Banking funds, (2) shares of Advanstar, Inc. common stock
from members of our executive management team in exchange for shares of
its common stock valued at $5.5 million and (3) shares of Advanstar, Inc.
common stock from existing stockholders in exchange for shares of its
common stock valued at $6.1 million.
Under the indenture governing the 9 1/4% senior subordinated notes, we were
required to make an offer to purchase the 9 1/4% senior subordinated notes at
101% of principal amount as a result of the change of control caused by the
acquisition. The offer to purchase expired on January 4, 2001, and all of the
9 1/4% senior subordinated notes were tendered. We obtained bridge financing
from Credit Suisse First Boston, Cayman Islands Branch, in order to fund the
purchase price for those notes.
In February 2001, we used the proceeds of the offering of the old notes and
a concurrent offering by Advanstar, Inc. of additional parent company units,
together with some of our available cash, to
(1) repay and terminate the bridge financing; and
(2) repay $45.0 million of term loan borrowings under our new credit
facility.
In this prospectus, the "acquisition" refers to the acquisition of
Advanstar, Inc. by Holdings, and the "related financings" refer to the sale of
the initial Advanstar, Inc. units and Holdings common stock, the bridge
financing, our sale of the old notes, the additional parent company units
offering and borrowings under our new credit facility described above.
18
The following table sets forth the sources and uses of funds by Holdings and
its subsidiaries for the acquisition and the related financings, other than the
offering of the old notes and the additional parent company units offering.
(IN MILLIONS)
-------------
SOURCES OF FUNDS BY HOLDINGS AND ITS SUBSIDIARIES
Borrowings under our new credit facility.................... $415.0
Bridge financing............................................ 150.0
Advanstar, Inc. units....................................... 50.0
Holdings common stock--DLJ Merchant Banking funds........... 291.0
Holdings common stock--management rollover.................. 5.5
Holdings common stock--other existing stockholder
rollover(1)............................................... 6.1
------
Total sources............................................. $917.6
======
USES OF FUNDS BY HOLDINGS AND ITS SUBSIDIARIES
Acquisition consideration(2)................................ $346.6
Management rollover......................................... 5.5
Other existing stockholder rollover(1)...................... 6.1
Repayment of existing debt at closing....................... 357.8
Repayment of 9 1/4% senior subordinated notes tendered in
change of control offer................................... 151.5
Payment of accrued interest on existing notes............... 5.8
Estimated transaction fees and expenses..................... 32.6
Excess cash................................................. 11.7
------
Total uses................................................ $917.6
======
- ------------------------
(1) Represents the portion of merger consideration paid in the form of Holdings
common stock.
(2) Including $58.0 million deposited in escrow accounts as described above.
The following table sets forth the sources and uses of funds in connection
with the offering of the old notes and the concurrent offering of additional
parent company units, assuming they occurred as of December 31, 2000:
(IN MILLIONS)
-------------
SOURCES OF FUNDS
Senior subordinated notes................................... $160.0
Additional parent company units............................. 35.0
Available cash.............................................. 6.9
------
Total sources............................................. $201.9
======
(IN MILLIONS)
-------------
USES OF FUNDS
Repayment of bridge financing(1)............................ $150.0
Repayment of term debt under new credit facility(1)......... 45.0
Estimated fees and expenses................................. 6.9
------
Total uses................................................ $201.9
======
- ------------------------
(1) We were also be required to pay accrued interest on the bridge financing and
the term debt under the new credit facility of approximately $2.6 million,
which we repaid using available cash.
19
TRANSACTION SUMMARY
[The chart shows the corporate structure of Advanstar and the sources of
funds for the acquisition.
At the top of the chart is a description of each of the three groups of
shareholders of Holdings, including (1) "management", which is listed as having
a "2%" ownership as a result of a "$5.5 million equity rollover", (2) the DLJ
Merchant Banking funds, which are listed as having a "96%" ownership as a result
of a "$291.0 million Cash Equity Contribution" and (3) other shareholders, which
are listed as having a "2%" ownership as a result of a "$6.1 million equity
rollover".
The chart then shows Advanstar Holdings Corp.*, the ultimate parent company
of our company, which is indicated as having a 100% ownership of Advanstar,
Inc.* Advanstar, Inc. is indicated as receiving "$87.7 million in gross proceeds
from the sale of parent company units consisting of discount notes and warrants
to purchase Holding stock**". Advanstar, Inc. is further indicated as having a
100% ownership of Advanstar Communications, Inc. and Advanstar, IH, Inc.*, which
is indicated as owning Advanstar.com.*
Advanstar Communications Inc. is indicated as receiving an "$80 million
revolving credit facility", "$370 million term credit facility***" and
"$160 million senior subordinated notes".]
* Not an obligor of the notes.
** Includes accreted value from October 11, 2000 to the closing of the
additional parent company units on the original $50 million of senior
discount debentures.
*** Excludes $45 million of term loans, which were repaid at closing of the
offering of the old notes.
20
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes.
The new notes will be exchanged for old notes as described in this prospectus
upon our receipt of old notes. We will cancel all of the old notes surrendered
in exchange for the new notes.
Our net proceeds from the sale of the old notes were approximately
$154.2 million, after deduction of the initial purchasers' discounts and
commissions and other expenses of the offering. We used those net proceeds,
together with the net proceeds from the sale of an additional $35 million of
parent company units contributed to us by Advanstar, Inc. and available cash, to
repay the bridge financing incurred to pay for the 9 1/4% senior subordinated
notes, all of which were tendered in the change of control offer, and
$45.0 million of term loan borrowings under our new credit facility and to pay
related fees and expenses.
CAPITALIZATION
The following table presents our unaudited cash and cash equivalents and
consolidated capitalization as of December 31, 2000: (a) on a historical basis,
(b) on a pro forma basis to give effect to the issuance of the notes and the
capital contribution from Advanstar, Inc. from its sale of additional parent
company units. This table should be read in conjunction with our consolidated
financial statements and the notes to those statements included elsewhere in
this prospectus, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "The Acquisition and Related Financings."
AS OF
DECEMBER 31, 2000
----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN MILLIONS)
Cash and cash equivalents................................... $ 17.7 $ 1.0
====== ======
Long-term debt, including current portion
New credit facility
Revolver loans(1)....................................... $ -- $ --
Term loans.............................................. 415.0 370.0
9 1/4% senior subordinated notes.......................... 150.0 --
Senior subordinated notes offered hereby.................. -- 160.0
Other debt................................................ -- --
------ ------
Total debt.............................................. 565.0 530.0
------ ------
Stockholder's equity........................................ 265.0 294.7
------ ------
Total capitalization.................................... $830.0 $824.7
====== ======
- ------------------------
(1) We have an $80.0 million committed revolving credit facility, all of which
is available for borrowing, subject to satisfaction of customary borrowing
conditions. We have obtained $3.2 million in letters of credit under our
revolving credit facility.
21
NOTE ON INDUSTRY AND MARKET DATA
Industry and market data used throughout this prospectus were obtained
through company research, surveys and studies conducted by third parties and
industry and general publications.
In particular:
- INDUSTRY OVERVIEW: Except where otherwise specifically referenced, we have
based our discussion of the business-to-business communications industry
on publications by Veronis Suhler & Associates.
- TRADE SHOWS: As is typical in the trade show industry, we rank our trade
shows against the trade shows of our competitors based on an internally
conducted analysis of net square footage of exhibition space. This data is
typically reported by trade show organizers and published in the Tradeshow
Week Data Book 2000, a publication that lists trade shows grouped by
industrial classification codes. We include both direct and indirect
competitors in such comparisons. Direct competitors are the trade shows
within the same industrial classification code and geographic region as
our trade shows, although we only include trade shows within the same
industrial classification code that are within the same subcategory, as
defined by us, as our trade shows. For example, we only include women's
apparel shows in providing data about our women's apparel trade shows,
although the relevant industrial classification code covers all apparel
shows. Direct competitors are also determined in some cases by the time of
the year during which a trade show is held. Indirect competitors are
subjectively determined by us on a case-by-case basis. These indirect
competitors include: (1) broad-based trade shows we know from prior
experience that display, among other products, products displayed at our
trade shows and (2) trade shows identified by our current exhibitors as
other trade shows in which they participate. In determining our market
position in comparison to these broad-based shows, we compare the square
footage of our show against the estimated square footage of that broad-
based show allocated to the products that are of the same type as those
displayed in our trade show. Some of our trade shows have insignificant or
no direct competition, such as IBS New York, Licensing International,
Dealernews International Powersports Dealer Expo and the TeleCon shows.
- TRADE PUBLICATIONS: We utilize the industry-standard method of number of
advertising pages to rank our publications against competitors'
publications. For purposes of these rankings, we have defined our markets
narrowly as the niche of businesses or professionals at which a
publication is specifically targeted. Except where otherwise specifically
referenced, we have based the rankings of our publications on the number
of advertising pages in our publications compared to their competitors as
determined by Inquiry Management Systems Ltd., an independent third party.
We have not independently verified market and industry data from third-party
sources. While we believe internal company surveys are reliable and market
definitions are appropriate, neither these surveys nor these definitions have
been verified by any independent sources.
22
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents selected financial data for Advanstar
Communications Inc. and its predecessors for each of the periods indicated. The
selected historical financial data for Advanstar's predecessors for the five
months ended May 31, 1996, the seven months ended December 31, 1996, for the
year ended December 31, 1997 and the consolidated balance sheet as of
December 31, 1998 have been derived from the audited consolidated financial
statements and notes thereto of the predecessors for those periods, which are
not included nor incorporated herein. The selected historical financial data for
Advanstar's predecessor for the years ended December 31, 1998, 1999 and for the
period January 1, 2000 through October 11, 2000 have been derived from the
audited consolidated financial statements and notes thereto of the predecessor
for those periods included herein. The selected historical financial data for
Advanstar for the period October 12, 2000 through December 31, 2000 have been
derived from Advanstar's audited financial statements, included herein. The
combined financial data for the combined year ended December 31, 2000 has been
derived from the audited consolidated financial statements of the predecessor
and Advanstar but has not been audited and does not comply with generally
accepted accounting principles. The selected historical consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere in this prospectus.
PREDECESSORS ADVANSTAR
------------------------------------------------------------------------ -----------------------------
FOR THE PERIOD FOR THE PERIOD
FIVE MONTHS SEVEN MONTHS YEAR ENDED FROM JANUARY 1, FROM OCTOBER 12,
ENDED ENDED DECEMBER 31, 2000 THROUGH 2000 THROUGH COMBINED
MAY 31, DECEMBER 31, ---------------------------- OCTOBER 11, DECEMBER 31, 2000
1996 1996 1997 1998 1999 2000 2000 (UNAUDITED)
----------- ------------ -------- -------- -------- --------------- ---------------- -----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
INCOME STATEMENT
DATA:
Revenue............. $68,286 $ 82,720 $187,656 $259,825 $328,372 $314,045 $ 63,434 $377,479
Cost of production
and selling....... 43,827 53,493 126,103 168,543 205,105 187,849 47,296 235,145
General and
administrative
expenses.......... 11,462 17,395 30,714 36,557 43,646 41,290 11,519 52,809
Stock option
compensation
expense (benefit)
(1)............... -- -- -- 3,397 3,925 (2,485) -- (2,485)
Amortization of
goodwill and
intangible
assets............ 1,588 13,171 24,326 48,752 49,214 35,133 12,711 47,844
------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)............ 11,409 (1,339) 6,513 2,576 26,482 52,258 (8,092) 44,166
Other income
(expense):
Interest expense.... (6,963) (7,511) (15,117) (27,862) (39,888) (38,161) (13,765) (51,926)
Other income
(expense), net.... 23 (488) 292 (1,926) (198) (2,394) 215 (2,179)
------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
minority
interest.......... 4,469 (9,338) (8,312) (27,212) (13,604) 11,703 (21,642) (9,939)
Provision (benefit)
for income
taxes............. 13 1,076 583 1,264 (11,431) 11,190 (4,772) 6,418
Minority interest in
income (loss) of
subsidiaries...... -- -- -- (40) (1,588) 1,003 (125) 878
------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing
operations........ $ 4,456 $(10,414) ($ 8,895) ($28,436) ($ 585) ($ 490) ($16,745) ($17,235)
======= ======== ======== ======== ======== ======== ======== ========
23
PREDECESSORS ADVANSTAR
------------------------------------------------------------------------ -----------------------------
FOR THE PERIOD FOR THE PERIOD
FIVE MONTHS SEVEN MONTHS YEAR ENDED FROM JANUARY 1, FROM OCTOBER 12,
ENDED ENDED DECEMBER 31, 2000 THROUGH 2000 THROUGH COMBINED
MAY 31, DECEMBER 31, ---------------------------- OCTOBER 11, DECEMBER 31, 2000
1996 1996 1997 1998 1999 2000 2000 (UNAUDITED)
----------- ------------ -------- -------- -------- --------------- ---------------- -----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
OTHER DATA:
EBITDA (2).......... $14,428 $ 13,781 $ 34,039 $ 53,828 $ 78,478 $ 96,311
Adjusted EBITDA
(3)............... 14,428 13,781 34,039 57,225 82,403 93,826
Adjusted EBITDA
margin............ 21.1% 16.7% 18.1% 22.0% 25.1% 24.9%
Capital
expenditures...... $ 365 $ 780 $ 2,260 $ 4,154 $ 9,722 $ 11,882
Ratio of Adjusted
EBITDA to cash
interest
expense........... 1.8x 2.4x 2.1x 2.1x 1.8x
Ration of net debt
to Adjusted EBITDA
(4)............... 4.6x 7.2x 6.2x 5.8x
Ratio of earnings to
fixed charges
(5)............... 1.6x -- -- -- -- --
Cash flows provided
by (used in):
Operating
activities...... $(1,011) $ 12,616 $ 12,802 $ 33,568 $ 53,520 $ 38,798 $ (8,130) $ 30,668
Investing
activities...... (274) (18,927) (33,323) (358,261) (150,902) (29,550) (17,940) (47,490)
Financing
activities...... 2,227 5,944 25,224 332,600 94,904 (16,828) -- (16,828)
BALANCE SHEET DATA
(AT END OF PERIOD)
Cash and cash
equivalents....... $ 2,531 $ 7,024 $ 14,016 $ 11,237 $ 17,675
Working capital
(6)............... (11,572) (12,034) (33,232) (53,479) (62,601)
Total assets........ 277,173 298,497 660,226 781,581 957,205
Total debt.......... 151,000 164,223 426,868 523,154 565,000
Total stockholder's
equity............ 86,839 89,734 134,760 132,961 265,011
- ----------------------------------
(1) We account for stock-based compensation using the intrinsic value method. As
a result, we measure compensation cost as the difference between the
exercise price of the options and the fair value of the shares underlying
the options at the end of the period. Our results for the period January 1,
2000 through October 11, 2001 were favorably impacted by compensation
benefits due to a decrease in the fair value of the shares underlying the
options. We will no longer recognize compensation expense thereafter as a
result of a change in benefit plans.
(2) "EBITDA" is defined as operating income (loss) plus depreciation and
amortization less amounts attributable to minority interest. EBITDA is a key
financial measure but should not be construed as an alternative to operating
income or cash flows from operating activities (as determined in accordance
with generally accepted accounting principles). We believe that EBITDA is a
useful supplement to net income and other income statement data in
understanding cash flows generated from operations that are available for
taxes, debt service and capital expenditures. However, our method of
computation may not be comparable to other similarly titled measures of
other companies.
The following table demonstrates our calculation of EBITDA for each period
presented.
PREDECESSORS ADVANSTAR
------------------------------------------------------------------------- -----------------------------
FOR THE PERIOD FOR THE PERIOD
FIVE MONTHS SEVEN MONTHS YEAR ENDED FROM JANUARY 1, FROM OCTOBER 12,
ENDED ENDED DECEMBER 31, 2000 THROUGH 2000 THROUGH COMBINED
MAY 31, DECEMBER 31, ---------------------------- OCTOBER 11, DECEMBER 31, 2000
1996 1996 1997 1998 1999 2000 2000 (UNAUDITED)
----------- ------------- -------- -------- -------- --------------- ---------------- -----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
Operating income.... $11,409 $ (1,339) $ 6,513 $ 2,576 $ 26,482 $ 44,166
Depreciation and
amortization...... 3,019 15,120 27,526 51,823 53,258 54,100
Minority interest
(Excluding
depreciation and
amortization)..... -- -- -- (571) (1,262) (1,955)
------- -------- -------- -------- -------- --------
EBITDA.............. $14,428 $ 13,781 $ 34,039 $ 53,828 $ 78,478 $ 96,311
======= ======== ======== ======== ======== ========
(3) "Adjusted EBITDA" is defined as EBITDA plus stock option compensation
expense, or less any stock option compensation benefit. We believe that
Adjusted EBITDA is a useful supplement to net income and other income
statement data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures, as it
excludes stock option compensation expense which, in all historical periods,
was a non-cash expense.
(4) Net debt equals total debt less cash and cash equivalents.
(5) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as pretax income from continuing operations plus fixed charges,
and fixed charges consist of interest expense and one-third of rental
expense, which is considered representative of the interest component of
rental expense. Earnings were insufficient to cover fixed charges in the
seven months ended December 31, 1996, and the years ended December 31, 1997,
1998, 1999 and 2000 by $1.0 million, $9.3 million, $8.3 million,
$27.2 million, $12.0 million and $10.1 million, respectively.
(6) Working capital is defined as current assets, excluding cash, less current
liabilities, excluding the current portion of long term debt.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND OUR UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES TO THOSE STATEMENTS, INCLUDED
ELSEWHERE IN THIS PROSPECTUS.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE THOSE
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."
OVERVIEW
We are a worldwide provider of integrated, B-to-B marketing communications
products and services for targeted industry sectors, principally through trade
shows and conferences and through controlled circulation trade, business and
professional magazines. We also provide a broad range of other marketing
services products, including classified advertising, direct mail services,
reprints, database marketing, guides, and reference books.
We report our business in three segments:
- trade shows and conferences, which consists primarily of the management of
trade shows and seminars held in convention and conference centers;
- trade publications, which consists primarily of the creation and
distribution of controlled circulation trade, business and professional
magazines; and
- marketing services, which consists primarily of sales of a variety of
direct mail and database products, magazine editorial reprints, and
classified advertising.
Trade shows and conferences accounted for 32.8%, 43.5%, 49.0% and 52.6% of
total revenue in 1997, 1998, 1999 and 2000, respectively. Trade publications
accounted for 59.5%, 50.2%, 45.0%, and 42.1% of total revenue in 1997, 1998,
1999 and 2000, respectively, while marketing services accounted for 7.7%, 6.3%,
6.0%, and 5.3% of total revenue in 1997, 1998, 1999 and 2000, respectively. Our
revenue reaches its highest levels during the first and third quarters of the
year due to the timing of the MAGIC trade shows and our other large trade shows
and conferences. Because trade shows and conferences revenue is recognized when
a particular event is held, we may experience fluctuations in quarterly revenue
based on the movement of annual trade show dates from one quarter to another.
We provide our affiliate Advanstar.com with administrative support services
in accounting, finance, legal, human resource management, information technology
and business development. We also provide Advanstar.com with marketing and
promotional support through advertising pages in our trade publications and
exhibit space in our trade shows. These services are provided at rates which
fully cover our incremental costs. In return, Advanstar.com provides promotional
support on its web sites for our trade publications and trade shows at rates
which reflect incremental cost. We will pay Advanstar.com a service fee
beginning in 2001 based on cost plus a small administrative charge for these web
site services. Advanstar.com has the right to use the content from our
publications and events, our brands and our customer lists for the purpose of
building and operating the web sites. In return for these rights, Advanstar.com
will pay us beginning in 2001 a royalty based on a percentage of all revenue
derived by Advanstar.com. We expect that the transactions described above will
be on arm's-length terms going forward. In March 2001, our parent, Advanstar,
Inc. announced plans to more tightly focus the activities of Advanstar.com.
These plans will have the effect of more closely integrating many of the sales,
marketing, technology and operating functions of Advanstar.com with us and our
core activities in publishing, tradeshows, and marketing services. As a result,
Advanstar.com will reduce the number of internet products scheduled for
introduction in 2001.
25
PRESENTATION OF FINANCIAL INFORMATION
ACQUISITIONS
Since May 31, 1996, we have completed 28 acquisitions and joint ventures, 14
of which were completed in 1998, four of which were completed in 1999 and two of
which were completed in 2000.
- On April 30, 1998, we acquired Men's Apparel Guild in California, Inc.
("MAGIC") for approximately $234.3 million. MAGIC is now our wholly-owned
subsidiary and the core asset of our Fashion & Apparel cluster. On
August 17, 1998, we acquired certain travel-related publications and trade
show assets from Universal Media, Inc. for cash consideration of
$68.0 million. In addition, in 1998, we completed 12 other acquisitions or
joint ventures with purchase prices ranging from approximately
$0.6 million to approximately $20.0 million and aggregating approximately
$89.1 million.
- On July 28, 1999, we acquired certain trade shows and publishing
properties of Larkin-Pluznik-Larkin, LLC and LPL/Style Group, LLC, which
operates apparel trade shows. The purchase price was approximately
$135.4 million in cash and assumed liabilities. From January 1, 1999
through December 31, 1999, we completed three other acquisitions of trade
shows, conferences and publishing properties, with a cumulative purchase
price totaling approximately $17.3 million in cash and assumed
liabilities.
- In January 2000 we acquired the Documents, Messaging and Security or "DMS"
tradeshow and INFO 21 magazine from Gruppe 21 Informations-GmbH for
approximately $7.8 million in cash and assumed liabilities. In July 2000
we acquired the Brand Licensing London tradeshow for approximately
$4.6 million in cash and assumed liabilities.
- On November 26, 2000 we purchased the outstanding minority interest in
SeCA, a French trade show joint venture, for approximately $9.0 million.
These acquisitions have been accounted for under the purchase method of
accounting and our results of operations include the effect of these
acquisitions from the date of purchase.
In addition, we will purchase the outstanding minority interest in Advanstar
Wideband for approximately $4.0 million in a transaction that is expected to
close in early 2001. We previously recorded a minority interest expense related
to Advanstar Wideband's earnings in other income (expense), net. As a result of
this transaction, in future periods we will eliminate the minority interest
expense related to Advanstar Wideband in our results of operations.
In February 2001, we purchased several automotive industry magazines for
approximately $4.0 million. The acquisition is not expected to have a material
impact on our financial condition or results of operations.
THE ACQUISITION
As a result of the acquisition of our company by the DLJ Merchant Banking
funds, we will have significantly higher indebtedness and interest expense than
reflected in our historical results of operations. In addition, our acquisition
was accounted for under the purchase method of accounting. Under purchase
accounting, the purchase price is allocated to the tangible and identifiable
intangible assets acquired and liabilities assumed based on their respective
fair values, with the remainder being allocated to goodwill. The increase in
basis of these assets will result in non-cash depreciation and amortization
charges in future periods that will be significantly higher than that reflected
in our historical financial information.
During the first quarter of 2001, we will record an extraordinary charge of
approximately $2.4 million, net of a deferred tax benefit of $1.6 million, in
connection with the write-off of deferred financing fees related to the bridge
facility that was refinanced with the proceeds of the offering of the old notes
and the concurrent offering of additional parent company units.
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STOCK OPTION COMPENSATION CHARGES
We account for stock-based compensation using the intrinsic value method. As
a result, due to the variable features of option grants under Advanstar, Inc.'s
old stock option plan, we measure compensation cost as the difference between
the exercise price of the options and the fair value of the shares underlying
the options at the end of the period. We then recognize a non-cash compensation
expense.
Our results for 2000, including our EBITDA and EBITDA margin, were
positively impacted by non-cash compensation benefits recognized due to a
decrease in the fair value of the shares underlying the options at the end of
the period.
We no longer have a variable-feature benefit plan after the acquisition and
will therefore not recognize stock option compensation charges under that plan
as currently in effect.
SOURCES OF REVENUE
TRADE SHOWS AND CONFERENCES
The trade shows and conferences segment derives revenue principally from the
sale of exhibit space and conference attendance fees generated at its events. In
2000, approximately 81.6% of our trade shows and conferences revenue was from
the sale of exhibit space. Events are generally held on an annual basis in major
metropolitan or convention areas such as New York City or Las Vegas. At many of
our trade shows, a portion of exhibit space is reserved and partial payment is
received as much as a year in advance. For example, over 70% of exhibit space at
our Dealer Expo, Frontline Solutions, ICCM and Telecon shows is reserved prior
to the end of the preceding show. The sale of exhibit space is affected by the
on-going quality and quantity of attendance, venue selection and availability,
industry life cycle and general market conditions. Revenue and related direct
event expenses are recognized in the month in which the event is held. Cash is
collected in advance of an event and is recorded on our balance sheet as
deferred revenue.
TRADE PUBLICATIONS
The trade publications segment derives revenue principally from the sale of
advertising in its business-to-business magazines. Additionally, certain
publications derive revenue from paid subscriptions and custom publishing. Paid
subscriptions comprise less than 5% of total publishing revenue. Most
publications are produced monthly with advertising sold both on an annual
schedule and single insertion basis. The sale of advertising is affected by new
product releases, circulation quality, readership and general market conditions.
Advertising revenue is recognized on the publication issue date, and
subscription revenue, if any, is recognized over the subscription period,
typically one year.
Our publishing properties operate in many different markets and industries
which are subject to economic conditions prevalent in those industries.
Accordingly, publishing revenues may fluctuate in connection with the markets in
which we operate.
MARKETING SERVICES
The marketing services segment derives its revenue from the sale of
value-added marketing products such as classified advertising, both print and
internet based, direct mail services, reprints, database marketing, directories,
guides and reference books. These products complement and, in many cases,
utilize the content or databases generated by our trade shows, conferences and
publications. The sale of these products is affected by the success of the event
or publication from which these products are derived, the quality of the sales
team and general market conditions. Revenue is generally recognized when the
applicable product is shipped.
COMPONENTS OF EXPENSES
TRADE SHOWS AND CONFERENCES
Costs incurred by the trade shows and conferences segment include facility
rent, outsourced services such as registration, security and decorator, and
attendee and exhibitor promotion. Exhibitors
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generally contract directly with third parties for on-site services such as
electrical, booth set-up and drayage. Staff salaries and related payroll
expenses are treated as monthly period expenses. All other direct costs are
expensed in the month the event occurs.
TRADE PUBLICATIONS
Costs incurred by the trade publications segment include printing, paper and
postage; selling and promotion; editorial and prepress; and circulation
acquisition and fulfillment. Additionally, publisher and sales staff costs, and
production, editorial and circulation staff costs, with related payroll taxes
and benefits, are charged to the publications. We outsource the actual printing
of our publications.
MARKETING SERVICES
Costs of the marketing services segment include printing and distribution
costs, database administration fees and selling and product development salaries
and related payroll taxes and benefits.
General and administrative costs are not allocated to the segments.
RESULTS OF OPERATIONS
The following discussion compares our results for the two months and 20 days
ended December 31, 2000 combined with our predecessor's results for the period
January 1, 2000 through October 11, 2000, to our predecessor's results in 1999.
2000 COMPARED TO 1999
REVENUE
Revenue increased $49.1 million, or 15.0%, from $328.4 million in
December 31, 1999 to $377.5 million in 2000.
Revenue from our trade shows and conferences increased $37.4 million, or
23.2%, from $161.0 million in 1999 to $198.4 million for the comparable period
in 2000. This increase was attributable to:
- trade shows and conferences acquired in 1999 and 2000, such as Larkin and
DMS;
- new product launches, such as iEB West, InterExpo, Custom Relationship
Management New York and Art Expo Florida; and
- the growth of our existing product portfolio.
These revenue gains were partially offset by the discontinuation or sale of
certain trade shows and conferences held in 1999. Revenue for 2000 was also
impacted by weaker performance in the fourth quarter of 2000 compared to the
fourth quarter of 1999 resulting primarily from declines in our New York fashion
and apparel events, due in part to the ongoing market repositioning of these
events, and from competitive pressures and certain weather-related events
impacting certain European trade shows in our Call Center and Application
Technology sectors.
Revenue from trade publications increased $11.3 million, or 7.6%, from
$147.7 million in 1999 to $159.0 million in 2000. The increase in revenue was
due primarily to:
- trade publications acquired in 1999 and 2000, such as SENSORS and INFO 21;
- new product launches, such as E-LEARNING and WIRELESS ASIA; and
- the growth in advertising pages on our existing product portfolio.
These revenue gains were partially offset by the sale or discontinuation of
certain magazines published in 1999.
Revenue from our marketing services increased $0.5 million or 2.5% from
$19.7 million in 1999 to $20.1 million in 2000. Growth in revenue from list
rentals, reprints and classified advertising was primarily responsible for the
increase.
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PRODUCTION, SELLING AND OTHER DIRECT EXPENSES
Production, selling and other direct expenses increased $30.0 million, or
14.7%, from $205.1 million in 1999 to $235.1 million in 2000.
Trade shows and conference production, selling and other direct expenses
increased $22.7 million, or 25.4%, from $89.4 million in 1999 to $112.1 million
in 2000. This increase was primarily due to increases in operations, promotion
and management costs associated with our acquisitions and launches as well as
costs attributable to growth in existing events. These increases were partially
offset by cost savings associated with discontinued events.
Trade publications production, selling and other direct expenses increased
$7.1 million, or 6.7%, from $105.7 million in 1999 to $112.8 million in 2000.
This increase was primarily attributable to direct costs related to acquisitions
and launches as well as normal increases due to growth in revenue.
Marketing services production, selling and other direct expenses increased
$0.2 million, or 2.1%, from $10.0 million in 1999 to $10.2 million in 2000. This
increase was primarily due to increased selling expenses incurred as a result of
our efforts to market these products as well as increased costs of production
due to growth in those respective product lines.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $9.2 million, or 21.0%, from
$43.6 million in 1999 to $52.8 million in 2000. The increase was primarily due
to:
- the consolidation of our New York metropolitan area offices and office
expansion in several locations due to acquisitions and growth;
- the full-period depreciation effect of the development and expansion of
our information technology infrastructure;
- the continued implementation of our market-focused cluster management
structure; and
- increases in central services groups, such as finance and legal
administration, in line with our growth in scale and complexity.
In 2000 we recognized a benefit of $2.5 million related to our stock option
compensation plan. This represents a decrease in compensation expense of
approximately $6.4 million from 1999, resulting from a decrease in the fair
value of the shares underlying the options at the end of the period.
AMORTIZATION
Amortization expense decreased $1.4 million from $49.2 million in 1999 to
$47.8 million in 2000. This decrease was primarily due to the impact of certain
of our intangibles becoming fully amortized in 2000 and the Write-off in 1999 of
$4.1 million of intangible assets related to publications and trade shows that
were discontinous partially offset by increased amortization related to our
acquisitions.
OPERATING INCOME
Operating income increased $17.7 million, or 66.8%, from $26.5 million in
1999 to $44.2 million in 2000. The increase was primarily due to revenue growth
across our segments and reduced general and administrative expense after stock
option compensation expense, as more fully described above.
INTEREST EXPENSE
Net interest expense increased $12.0 million, or 30.2%, from $39.9 million
in 1999 to $51.9 million in 2000 due to the additional indebtedness necessary to
fund acquisitions and an aggregate increase in interest rates of approximately
1.0%. In July 1999, we obtained an additional $138.0 million in term debt
financing that was used to fund the Larkin and other acquisitions during the
year.
INCOME TAXES
Provision for income taxes increased $17.8 million from a benefit of
$11.4 million in 1999 to a provision of $6.4 million in 2000. This increase was
primarily due to an increase in taxable earnings as
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compared to book earnings. The DLJ acquisition has increased the amount of
non-deductible goodwill, impacting our taxable income.
NET LOSS
Net loss increased $16.6 million from $0.6 million in 1999 to $17.2 million
in 2000. This increase was primarily due to increased general and administrative
expense, increases in amortization, interest expense and provision for income
taxes, partially offset by revenue growth across our segments as more fully
described above.
EBITDA
EBITDA increased $17.8 million, or 22.7%, from $78.5 million in 1999 to
$96.3 million in 2000. The increase was primarily due to revenue growth across
our segments, partially offset by increased production, selling and other direct
expense and increased general and administrative expense, as more fully
described above.
1999 COMPARED TO 1998
REVENUE
Revenue increased $68.6 million, or 26.4%, from $259.8 million in 1998 to
$328.4 million in 1999.
Revenue from our trade shows and conferences increased $47.9 million, or
42.4%, from $113.1 million in 1998 to $161.0 million in 1999. This increase was
attributable to:
- trade shows and conferences acquired in 1998 and 1999, such as MAGIC,
SeCA, SCANTECH, Telexpo, Starform and Larkin;
- new product launches, such as Luxury Travel Expo, iEC Europe and MAGIC
East; and
- the growth of our existing product portfolio.
These revenue gains were partially offset by the discontinuation in 1999 of
certain trade shows and conferences held in 1998.
Revenue from our trade publications increased $17.3 million, or 13.2%, from
$130.4 million in 1998 to $147.7 million in 1999. The increase in revenue was
due primarily to:
- trade publications acquired in 1998 and 1999, such as TRAVEL AGENT,
TELEPROFESSIONAL, LICENSE!, POST and SENSORS;
- new product launches, such as GOLFDOM, SHADES OF BEAUTY and CUSTOMER
CONTACT SOLUTIONS; and
- the growth of advertising pages and advertising revenue per page in our
existing portfolio.
These revenue gains were partially offset by the sale or discontinuation in 1999
of certain magazines published in 1998.
Revenue from our marketing services increased $3.4 million, or 20.4%, from
$16.3 million in 1998 to $19.7 million in 1999. Growth in revenue from list
rentals, display and classified advertising, card decks and books was primarily
responsible for the increase.
PRODUCTION, SELLING AND OTHER DIRECT EXPENSES
Production, selling and other direct expenses increased $36.6 million, or
21.7%, from $168.5 million in 1998 to $205.1 million in 1999.
Trade shows and conferences production, selling and other direct expenses
increased $21.4 million, or 31.4%, from $68.0 million in 1998 to $89.4 million
in 1999. This increase was primarily due to increases in our operation,
promotion and management costs associated with our acquisitions as well as costs
attributable to new launches and growth in our existing events.
Trade publications production, selling and other direct expenses increased
$13.0 million, or 14.0%, from $92.7 million in 1998 to $105.7 million in 1999.
Direct costs related to acquisitions of publications were primarily responsible
for the increase as well as selected investments and product development in
certain of our publications.
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Marketing services production, selling and other direct expenses increased
$2.2 million, or 28.3%, from $7.8 million in 1998 to $10.0 million in 1999. This
increase was primarily due to the increased selling expenses incurred as a
result of our efforts to market these products as well as increased costs of
production due to the growth in those respective product lines.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses before non-cash stock option
compensation charges increased $7.0 million, or 19.4%, from $36.6 million in
1998 to $43.6 million in 1999. This increase was primarily attributable to
increased overhead related to the 18 acquisitions completed after January 1,
1998. We also incurred incremental expenses related to the expansion of our
infrastructure to support our industry-focused organization. These increases
were partially offset by improvements in our trade show operations support
group.
For the year ended December 31, 1999 we recognized non-cash stock option
compensation expense of $3.9 million related to our stock option compensation
plan. This represents an increase in compensation expense of approximately
$0.5 million over the comparable period of 1998, resulting from an increase in
the fair value of the shares underlying the options at the end of the period and
additional options issued during 1999.
AMORTIZATION
Amortization expense increased $0.4 million from $48.8 million in 1998 to
$49.2 million in 1999. This increase was primarily attributable to increased
amortization of intangible assets related to our acquisitions, partially offset
by a reduction of $8.5 million related to the write-off of intangible assets of
publication and trade show properties that were discontinued.
OPERATING INCOME
Operating income increased $23.9 million from $2.6 million in 1998 to
$26.5 million in 1999. The increase was due to the revenue growth across our
segments, partially offset by increased costs attributable to our acquisitions.
INTEREST EXPENSE
Net interest expense increased $12.0 million, or 43.2%, from $27.9 million
in 1998 to $39.9 million in 1999 due to a full year of interest on the 9 1/4%
senior subordinated notes issued in April 1998 to finance the MAGIC acquisition
and to the incurrence of additional indebtedness to fund acquisitions, partially
offset by an aggregate reduction in interest rates of approximately 0.2%. In
July 1999, we obtained an additional $138.0 million in term debt financing that
was used to fund the Larkin and other acquisitions.
INCOME TAXES
Provision for income taxes decreased $12.7 million from a provision of
$1.3 million in 1998 to a benefit of $11.4 million in 1999 due to the reversal
of valuation reserves established in prior years for deferred tax assets related
to amortization, depreciation and net operating loss carryforwards.
NET LOSS
Net loss decreased $27.9 million, or 97.9%, from a net loss of
$28.4 million in 1998 to a net loss of $0.6 million in 1999 due to the
improvements in operating performance described above.
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EBITDA
EBITDA increased $24.7 million, or 45.8%, from $53.8 million in 1998 to
$78.5 million in 1999. The increase was primarily due to an increase in our
revenue and resulting improvement in operating performance as described above.
LIQUIDITY AND CAPITAL RESOURCES
POST-ACQUISITION
Following the acquisition and the offering, our principal sources of
liquidity are cash flow from operations and borrowings under our new credit
facility. Our principal uses of cash will be debt service requirements to
service our debt described below, capital expenditures and strategic
acquisitions and investments.
DEBT SERVICE
On a pro forma basis, as of December 31, 2000, we had: (a) total
indebtedness of $530.0 million; and (b) approximately $76.8 million of
borrowings available under our new credit facility, subject to customary
conditions. Our significant debt service obligations following the acquisition
could have material consequences to our security holders. See "Risk Factors."
NEW CREDIT FACILITY. The term loan facility under the new credit facility
consists of a $100.0 million amortizing term loan A maturing six and one-half
years after the closing date of the new credit facility and a $315.0 million
amortizing term loan B maturing eight years after the closing date. We repaid
$10.8 million of term loan A and $34.2 million of term loan B at closing of the
offering of the old notes. The new credit facility also includes a
$80.0 million revolving credit facility. The revolving credit facility will
terminate six and one-half years after the closing date. The credit facility may
be increased by up to $50.0 million at our request, with the consent of the
lenders or other financial institutions providing the increase.
Borrowings under the new credit facility generally bear interest based on a
margin over, at our option, the base rate or the reserve-adjusted
London-interbank offered rate, or LIBOR. The applicable margin, until
approximately six months after the closing date, is 3.00% over LIBOR and 1.75%
over the base rate for borrowings under the revolving credit facility and for
term loan A, and 3.50% over LIBOR and 2.25% over the base rate for term loan B.
Thereafter, the applicable margin for revolving credit loans and term loan A
will vary based upon our ratio of consolidated debt to EBITDA, as defined in the
new credit facility, and the applicable margin for term loan B will remain 3.50%
over LIBOR and 2.25% over the base rate. Our obligations under the new credit
facility are guaranteed by Holdings, our parent company and all our existing and
future domestic subsidiaries and are secured by substantially all of the assets
of our company and the subsidiary guarantors, including a pledge of the capital
stock of all our existing and future domestic subsidiaries, a pledge of no more
than 65% of the voting stock of any foreign subsidiary directly owned by our
company or any domestic subsidiary, a pledge of all intercompany indebtedness in
favor of our company and our domestic subsidiaries, a pledge of our company's
and Advanstar IH, Inc.'s capital stock by our parent company and a pledge of our
parent company's capital stock by Holdings. The new credit facility contains
customary covenants, including covenants that limit our ability to incur debt,
pay dividends and make investments, and customary events of default. See
"Description of Certain Indebtedness--New Credit Facility."
NOTES. The notes mature in 2011 and are guaranteed by each of our existing
and future domestic restricted subsidiaries. Interest on the notes is payable
semi-annually in cash. The notes contain customary covenants and events of
default, including covenants that limit our ability to incur debt, pay dividends
and make investments. See "Description of Notes."
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PARENT COMPANY NOTES. As part of the financing for the acquisition,
Advanstar, Inc. issued senior discount notes due October 2011 with a principal
amount at maturity of $103.2 million. Concurrently with the closing of the
offering of the old notes, Advanstar, Inc. sold additional senior discount notes
due October 2011 with an additional aggregate principal amount at maturity of
$68.6 million. These notes will not require cash interest payments until 2006
and contain customary covenants and events of default, including covenants that
limit the ability of Advanstar, Inc. and its subsidiaries to incur debt, pay
dividends and make investments. Neither we nor any of our subsidiaries
guaranteed the notes. However, Advanstar, Inc. is a holding company and its
ability to pay interest on these notes will be dependent upon the receipt of
dividends from its subsidiaries, including our company. The new credit facility
and the senior subordinated notes offered hereby impose substantial restrictions
on our ability to pay dividends.
CAPITAL EXPENDITURES
Capital expenditures in 2000 were approximately $11.9 million and we
anticipate that we will spend approximately $10.0 million on capital
expenditures in each of 2001 and 2002, primarily for expenditures related to our
desktop computers and management information systems. Based on current
estimates, management believes that the amount of capital expenditures permitted
to be made under the new credit facility will be adequate to grow our business
according to our business strategy and to maintain the properties and business
of our continuing operations.
ACQUISITIONS AND INVESTMENTS
We have provided funding to Advanstar.com, our affiliate and a subsidiary of
Advanstar, Inc., to support its operations. We provided funding of approximately
$19.8 million in 2000 and anticipate that we will provide an aggregate of
$16.0 million of additional funding in 2001. Our debt instruments restrict our
ability to make investments in Advanstar.com, but, based on current estimates,
we anticipate that we will be able to make these investments.
Our business strategy includes the consummation of acquisitions. In
connection with any future acquisitions, we may require additional funding,
which may be provided in the form of additional debt or equity financing or a
combination thereof. There can be no assurance that any additional financing
will be available to us on acceptable terms or in a manner that complies with
the restrictive covenants in our debt instruments. Consistent with our strategy
since 1996, we are engaged in negotiations involving potential acquisitions of
complementary businesses. We do not expect that these acquisition opportunities,
if consummated, would total more than $60.0 million.
SOURCE OF FUNDS
We generally operate with negative working capital, excluding cash and
current maturities of long-term debt, due to the impact of deferred revenue from
trade shows, which is billed and collected as deposits up to one year in advance
of the respective trade show. Consequently, our existing operations are expected
to maintain very low or negative working capital balances, excluding cash and
current maturities of long-term debt. We anticipate that our operating cash
flow, together with borrowings under the new credit facility, will be sufficient
to meet our anticipated future operating expenses, capital expenditures and debt
service obligations as they become due. However, our ability to make scheduled
payments of principal, to pay interest on or to refinance our indebtedness and
to satisfy our other debt obligations will depend upon our future operating
performance, which will be affected by general economic, financial, competitive,
legislative, regulatory, business and other factors beyond our control. See
"Risk Factors."
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From time to time we will continue to explore additional financing methods
and other means to lower our cost of capital, which could include stock issuance
or debt financing and the application of the proceeds therefrom to the repayment
of bank debt or other indebtedness.
HISTORICAL
Historically, our financing requirements have been funded through cash
generated by operating activities, the sale of additional shares of common stock
to our stockholder, revolving and term loan borrowings and, in 1998, the
issuance of $150.0 million of 9 1/4% senior subordinated notes.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash provided by operations
decreased $22.8 million, or 42.6%, to $30.7 million in 2000 from $53.5 million
in 1999. The decrease was primarily due to an increase in general and
administrative expenses, interest expense, other expenses and working capital
items.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities
decreased $103.4 million, or 68.5%, to $47.5 million in 2000 from
$150.9 million in 1999. The decrease was primarily due to a reduction in
acquisition activity in 2000, an increase in proceeds received on the sale of
certain of our properties, partially offset by our funding of Advanstar.com, and
an increase in fixed asset expenditures, as more fully discussed below.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing
activities decreased to a use of cash of $16.8 million in 2000 from a source of
cash of $94.9 million in 1999. This decrease was principally due to our
financing of fewer acquisitions in 2000 in comparison to 1999, and repayments of
our long-term debt. In July 1999, we also obtained an additional $138.0 million
in term debt financing that was used to fund the Larkin acquisition.
CAPITAL EXPENDITURES. Capital expenditures increased $2.2 million, or
22.2%, to $11.9 million in 2000 from $9.7 million in 1999. The increase was
primarily due to the consolidation of multiple office locations in New York into
a single office location and other strategic investments. Capital expenditures
have been financed by our cash flows from operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to various market risks, including the potential loss arising
from adverse changes in market rates and prices, such as foreign currency
exchange and interest rates. We do not enter into derivatives or other financial
instruments for trading or speculative purposes. We enter into financial
instruments to manage and reduce the impact of changes in interest rates and
foreign currency exchange rates.
INTEREST
We rely significantly on variable-rate and fixed-rate debt in our capital
structure. On a pro forma basis at December 31, 2000, we had fixed-rate debt of
$160.0 million and variable-rate debt of $370.0 million. The pre-tax earnings
and cash flows impact for the next year resulting from a one percentage point
increase in interest rates on variable rate debt would be a reduction of
$3.7 million, holding other variables constant and excluding the impact of our
interest rate cap agreements. Under the new credit facility, we are required to
enter into interest rate protection agreements that have the effect of causing
at least half of the outstanding term loan borrowings and senior subordinated
notes to be fixed-rate borrowings. We have entered into agreements to cap the
interest rate on $105.3 million of borrowings under our new credit facility,
which would have the effect of reducing the impact of interest rate increases on
our earnings and cash flows.
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CURRENCIES
Outside of the United States, we maintain assets and operations in Europe,
South America and Asia. The results of operations and financial position of our
foreign operations are principally measured in their respective currency and
translated into U.S. dollars. As a result, exposure to foreign currency gains
and losses exists. The reported income of these subsidiaries will be higher or
lower depending on a weakening or strengthening of the U.S. dollar against the
respective foreign currency. Our subsidiaries and affiliates also purchase and
sell products and services in various currencies. As a result, we may be exposed
to cost increases relative to the local currencies in the markets in which we
sell.
A portion of our assets are based in our foreign locations and are
translated into U.S. dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected in other
comprehensive income. Accordingly, our consolidated stockholder's equity will
fluctuate depending upon the weakening or strengthening of the U.S. dollar
against the respective foreign currency.
Our strategy for management of currency risk relies primarily upon
conducting our operations in a country's respective currency and may, from time
to time, involve currency derivatives, primarily forward exchange contracts, to
reduce our exposure to currency fluctuations. As of December 31, 2000 there were
open foreign exchange derivative contracts with a notional amount totaling
$20.1 million. The potential loss in fair value resulting from a hypothetical
10% adverse change in quoted foreign currency exchange rates amounts to
approximately $1.1 million. Actual results may differ.
IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
as amended, is effective for fiscal years beginning after June 15, 2000. We
adopted SFAS No. 133 on January 1, 2001, which did not have a material impact on
our financial position or results of operations.
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BUSINESS
GENERAL
We are a leading worldwide provider of integrated, business-to-business, or
"B-to-B," marketing communications products and services for targeted industry
sectors, principally through trade shows and conferences and through controlled
circulation trade, business and professional magazines. We also provide a broad
range of other marketing services products, including classified advertising,
direct mail services, reprints, database marketing, directories, guides and
reference books. We are one of the largest U.S. trade show operators based upon
total square footage and number of shows in 2000 and the fifth largest B-to-B
trade publisher in the United States as measured by advertising pages in 2000.
Our pro forma revenues, EBITDA and Adjusted EBITDA for the year ended
December 31, 2000, totaled $377.5 million, $99.7 million and $97.3 million,
respectively.
PRODUCTS AND SERVICES
We offer our customers a comprehensive array of B-to-B communications
products and services to reach their existing and prospective buyers on a
cost-effective basis.
TRADE SHOWS
We are one of the largest trade show operators in the United States based on
total square footage and number of shows in 2000. As of December 31, 2000, we
owned and managed 92 trade shows and 16 standalone conferences for business,
professional and consumer audiences worldwide, most of which were among the
leading events in their respective markets based on square footage. Our trade
shows revenue is derived primarily from the sale of trade show floor space to
exhibitors, show-specific advertising, sponsorships and conferences. Trade shows
revenue accounted for approximately 49.0% of our revenue in 1999 and 52.6% in
the year ended December 31, 2000. Our largest trade shows include MAGIC Fall,
MAGIC Spring, Dealer News International Powersports Dealer Expo and Telexpo and
WWDMAGIC, which collectively represented 2.1 million of the 6 million total
square footage of all our trade shows in the twelve months ended December 31,
2000.
TRADE PUBLICATIONS
As of December 31, 2000, we published 72 specialized business magazines and
professional journals and 36 directories and other publications. Approximately
76% of our 59 magazines and journals for which competitive data is available
ranked either #1 or #2 in their respective markets, based on the number of
advertising pages in the year ended December 31, 2000. Our publications are
generally distributed free-of-charge to qualified professional recipients and
generate revenues predominantly from the sale of advertising. Trade publications
revenue accounted for approximately 45.0% of our total revenue in 1999 and 42.1%
in 2000. Our largest publications include TRAVEL AGENT, PHARMACEUTICAL
TECHNOLOGY, HOTEL AND MOTEL MANAGEMENT, PHARMACEUTICAL EXECUTIVE and AMERICAS
NETWORK, which collectively represented 28.5% of total advertising pages of all
our publications in the year ended December 31, 2000.
MARKETING SERVICES
Within each industry cluster, we provide a comprehensive set of marketing
communications products, services and support geared to the particular
industry's marketing and customer needs. These services include direct mail and
database marketing programs, reprint services, reference books and other
services to facilitate our clients' B-to-B marketing and communications
programs. These services are incremental to trade shows and publications and
allow our customers to fill in their marketing plans. Marketing services revenue
accounted for approximately 6.0% of our total revenue in 1999 and 5.3% in 2000.
36
In addition to our trade shows, trade publications, and marketing services,
we are working with our affiliate, Advanstar.com, which is also a subsidiary of
our parent but not an obligor of the notes, to use the Internet increasingly to
deliver our integrated B-to-B marketing communications products and services to
our customers.
INDUSTRY CLUSTERS
We organize and operate our business by targeting a number of industry
sectors in North America, Latin America, Europe and Asia through certain niche
markets grouped together in six core clusters. In addition to our six core
clusters, we have grouped the industry sectors in which we provide products and
services but do not have a significant industry presence into a "Market
Development" cluster. We believe that by focusing on industries rather than
products, we better serve our customers' B-to-B marketing communications needs.
In addition, we believe our industry focus allows us to cross-sell our products
and services effectively and to capture a larger share of our customers'
marketing budgets. In each of our niche markets, many of the same customers
advertise in our publications, exhibit at our trade shows and use our marketing
services to reach their buyers. We have expanded our trade show, conference and
publication offerings rapidly within each cluster through new product
introductions and strategic acquisitions, which we believe maximizes our
existing marketing and customer service infrastructure and industry expertise.
We believe that our total cluster participants, including readers, attendees,
conferees, exhibitors, advertisers, and other customers, number approximately
three million.
The following chart displays our cluster-based integrated revenue model.
[LOGO]
COMPETITIVE STRENGTHS
We believe that the following factors contribute to our strong competitive
position:
MARKET LEADERSHIP
We have achieved a strong market position within each of our six core
industry clusters, primarily as a result of our ability to offer customers in
each cluster comprehensive and integrated marketing communications products and
services, consisting of significant trade shows and conferences, leading
37
publications and marketing services. In 2000, most of our trade shows and
stand-alone conferences were among the leading events in their respective
markets based on square footage. For the twelve months ended December 31, 2000,
approximately 76% of our 59 magazines and journals for which competitive data is
available ranked either #1 or #2 in their respective markets, based on number of
advertising pages.
INDUSTRY-FOCUSED INTEGRATED MARKETING
We employ an integrated, industry-focused marketing approach that enables us
to better serve our customers' B-to-B marketing communications needs. We believe
this approach facilitates the development of deeper relationships with our
customers. For example, our call center group, which is part of the Information
Technology & Communications cluster, recently concluded several marketing
contracts involving participation in trade shows and advertising in our trade
publications.
DIVERSE CUSTOMER BASE
Our diverse customer base has provided us with stable and diverse sources of
revenue and cash flow as well as an established foundation from which to further
penetrate existing markets and to develop new markets. We benefit from:
- A high level of revenue diversification, primarily as a result of our
business presence in 19 different industry sectors consisting of over
24,000 advertisers and exhibitors, none of which represented more than 1%
of our revenues in 2000.
- A strong balance of revenue, with 52.6% of our revenues coming from trade
shows, 42.1% from publishing and 5.3% from marketing services in 2000.
- Approximately 11.4% of our revenues were generated from international
markets in 2000.
- Our customer diversity helps to mitigate our exposure to downturns in
particular industries or geographic markets.
ATTRACTIVE EBITDA MARGINS AND MODEST ONGOING CAPITAL EXPENDITURE
REQUIREMENTS
Our operating strategy has allowed us to produce attractive EBITDA margins
while incurring modest ongoing capital expenditure requirements. Our low ongoing
capital expenditure requirements are a result, in part, of our outsourcing of
the printing of trade publications and the physical operation of trade shows. On
a pro forma basis, our Adjusted EBITDA margin was 25.8% in the year ended
December 31, 2000. In the same period, our capital expenditures totaled
$11.9 million or 3.1% of total revenues.
EXPERIENCED AND MOTIVATED MANAGEMENT TEAM
Our senior management team has an average of over 17 years of industry
experience and has an established track record in:
- Delivering revenue and profit growth.
- Developing new products.
- Penetrating new markets.
- Integrating 28 acquisitions and joint ventures since 1996.
Our management is led by Robert L. Krakoff, Chairman and Chief Executive
Officer, and James M. Alic, Vice Chairman, both of whom joined Advanstar in
July 1996 with significant industry experience.
38
BUSINESS STRATEGY
Our objective is to increase profitability by solidifying our position as a
leading provider of comprehensive one stop B-to-B marketing communications
products and services. In order to achieve this objective, we operate our
business based on the following strategies:
OPERATE LEADING TRADE SHOWS AND PUBLISH LEADING MAGAZINES IN ATTRACTIVE
NICHE MARKETS
We focus on owning and managing businesses that are the leading sources of
information for businesses and professionals in specific niches. We believe that
our leading trade shows and trade publications serve as unique forums for B-to-B
communications and provide substantial value to industry participants. Niche
markets are often attractive publishing and trade show opportunities because of
the difficulty in reaching industry leaders through general interest
publications or broad based expositions. Approximately 76% of our 59 magazines
and journals for which competitive data is available ranked either #1 or #2 in
their respective niche markets in the twelve months ended December 31, 2000,
while most of our trade shows and conferences were among the leading events in
their respective markets based upon total square footage.
UTILIZE INDUSTRY CLUSTER STRATEGY TO DRIVE GROWTH
We organize our business based on the markets served, rather than by product
or geography. This structure allows us to provide expertise across all media
products within a market and to respond effectively to the market needs of
buyers and sellers however they may choose to go to market to reach their
customers. We are able to drive growth through multiple means, including:
- adaptation of existing trade shows and magazines to reflect industry
trends and attract new categories of buyers and sellers;
- development of new product extensions based on interaction with key
members of the buying and selling community;
- identification and introduction of international extensions of successful
U.S.-based products; and
- identification of fill-in acquisition and joint venture opportunities
based on continuing interaction within the market.
MAXIMIZE SHARE OF CUSTOMERS' TOTAL MARKETING EXPENDITURES
We seek to create cross-selling opportunities across existing as well as
newly-launched or acquired products and services. We offer customers a range of
communications methods to attain their specific B-to-B marketing goals. For
example, customers can choose to benefit from face-to-face meetings at trade
shows and conferences, achieve cost effective advertising through controlled
circulation trade publications and diversify and expand revenues through
customized marketing services, including Internet links to and from web sites
owned and operated by our affiliate.
LAUNCH NEW PRODUCTS AND SERVICES WITHIN EXISTING CLUSTERS
We have successfully developed new products within existing industry
clusters and will continue to make strategic new product introductions. We
launched seven magazines and 14 trade shows in existing industry sectors to
fill-in our existing product portfolio in the year ended December 31, 2000. Our
launches are generally line extensions or regional expansions of existing
product concepts, and thus launch investments are not high and risks are lower
than for major new product introductions.
39
IDENTIFY AND CONSUMMATE STRATEGIC ACQUISITIONS
As we expand further into our existing industry sectors, we explore
strategic acquisitions and joint ventures designed to maintain and achieve
market leading positions in particular niche markets. In addition, we also build
on our existing international infrastructure to make strategic international
acquisitions and enter into joint ventures with local operating partners. We
believe we enhance the value of acquired businesses by (1) integrating
acquisitions and joint ventures into our efficient infrastructure, (2) applying
our industry experience and (3) cross-selling new products and services to
increase our visibility in a given market. From May 31, 1996 to December 31,
2000, we completed 28 acquisitions and joint ventures. Consistent with our
strategy since 1996, we are engaged in negotiations involving potential
acquisitions of complementary businesses. We do not expect that these
acquisition opportunities, if consummated, would total more than $60.0 million.
INDUSTRY OVERVIEW
B-to-B communications companies provide marketing solutions for specific
industry sectors through trade shows and conferences, trade publications,
ancillary marketing services and through Internet applications. According to the
July 2000 Veronis Suhler & Associates COMMUNICATIONS INDUSTRY FORECAST, the
communications industry was the fastest growing sector of the U.S. economy from
1994 to 1999, expanding at a compound annual growth rate, or CAGR, of 7.8%.
Total spending on B-to-B communications increased from $16.8 billion to
$23.1 billion from 1995 to 1999, which represents a CAGR of 8.2% during that
period, with growth of 7.5% in 1999. Veronis expects a CAGR in excess of 6.0%
for the period from 1999 to 2004. Over the 1995 to 1999 period, trade shows grew
at a 9.6% CAGR and business magazines, which include both general and controlled
circulation magazines, increased at a 7.4% CAGR.
TRADE SHOWS
Trade shows have emerged as an important B-to-B sales, marketing and
educational medium in the global economy, paralleling its rise in profile among
corporate marketers as a highly cost-effective marketing tool. Trade shows
provide an opportunity for industry participants to conduct face-to-face selling
efforts, transact business and receive product information from the exhibits,
conferences, workshops and other forums. Trade show attendees include
executives, manufacturers and operating management, sales and marketing
personnel, industry analysts, middle-level managers and other industry
professionals. Trade shows are the second-leading form of B-to-B communication
in the United States. According to the Veronis report, spending on trade show
space in trade shows and conferences amounted to $8.5 billion in 1999, an 8.2%
increase from 1998 and a 9.6% CAGR during the period from 1995 to 1999.
TRADE PUBLICATIONS
Trade publications are generally published monthly and provide information
about a specific industry or market segment within an industry. Advertisers are
attracted to B-to-B print media by the highly targeted and controlled
circulation of publications. By focusing on targeted audiences, publishers aim
to connect advertisers with key purchasing decision-makers. Controlled
distribution assists advertisers in reaching very specific target groups and
provides for more efficient use of advertising dollars. The cost efficiency of
controlled circulation advertising versus general business advertising or
consumer advertising enhances the stability of B-to-B advertising spending
during difficult economic conditions. The U.S. B-to-B publishing industry is a
large, growing industry with revenues of $14.6 billion in 1999. According to
Veronis, from 1995 to 1999, the industry grew at a CAGR of 7.4%. This growth was
driven by rising levels of advertising spending, which accounted for over 80% of
B-to-B publishing revenues during that period. The remainder of B-to-B
publishing revenues was derived from subscription revenues.
40
PRODUCTS AND SERVICES
We offer our customers a comprehensive array of B-to-B communications
products and services to reach their existing and prospective customer base on a
cost-effective basis. We believe that our ability to offer a broad range of
marketing products and services in each of our target markets, or clusters, is a
key competitive advantage for us and allows us to maximize our share of our
customers' marketing expenditures. Our traditional product offerings are trade
shows and conferences, controlled circulation trade, business and professional
magazines, and marketing services.
TRADE SHOWS
We are one of the largest trade show operators in the United States based on
total square footage and number of trade shows in 2000. As of December 31, 2000,
we owned and managed 92 trade shows and 16 standalone conferences for business,
professional and consumer audiences worldwide, most of which were among the
leading events in their respective markets based on square footage. Our primary
sources of revenue from a trade show are derived from the sale of trade show
floor space to exhibitors as well as show-specific advertising, sponsorships and
conferences.
Trade shows are a long-established means of community building, bringing
buyers and sellers in one particular industry or business face-to-face, in a
single forum. In addition, as new products and services proliferate, both
suppliers and their customers need efficient forums to interact and transact
business with one another. Events often include an extensive conference program,
which provides a forum for the exchange and dissemination of information
relevant to the particular event's focus. A conference linked to a trade show
plays a strategic role in trade show development because it represents the
unique editorial content for an event, and it can be used to build new segments,
raise the profile of particular segments or technologies and drive attendance at
the underlying trade show. In addition, each event typically has one or more
keynote speakers drawn from notable industry leaders.
The advantages of trade shows to exhibitors and attendees are summarized
below:
ADVANTAGES TO EXHIBITOR ADVANTAGES TO ATTENDEE
- ----------------------- ----------------------
- - conduct sales more efficiently than in - receive overview of market and
the field; emerging trends;
- - position product and company in target - network with industry executives;
industry; - identify and work with new vendors;
and
- - communicate vision; - source new products.
- - service existing customers;
- - open new accounts; and
- - introduce new products.
TRADE PUBLICATIONS
As of December 31, 2000, we published 72 specialized business magazines and
professional journals and 36 directories and other publications. Of our 59
magazines and journals for which competitive data is available, approximately
76% ranked either #1 or #2 in their respective markets based on the number of
advertising pages in the year ended December 31, 2000. Our publications are
generally distributed free-of-charge to qualified professional recipients and
generate revenues predominantly from the sale of advertising.
By offering our advertisers access to a targeted and industry-specific
customer base, we believe that we are able to sell advertising space in our
publications at a rate per customer that is higher than the average rate charged
by publications aimed at more general audiences. We believe that our targeted
circulation lists for our U.S. and international publications provide our
advertising customers with a cost-effective method of reaching their target
market's decision-makers. We seek to increase advertising
41
revenues by introducing existing advertisers to new titles, by attracting new
advertisers who target our readership and by developing new reader and
advertising categories.
The advantages of trade publications to advertisers and readers are
summarized below:
ADVANTAGES TO ADVERTISER ADVANTAGES TO READER
- ------------------------ --------------------
- - cost effective; - relevant, industry specific
information;
- - highly targeted audience of qualified - promotion of industry stewardship;
readers; - keep up with peers in the industry; and
- - focused medium; - interactive follow-up system in print
- - attractive means to introduce new and/or electronically.
products; and
- - audited, controlled circulation.
MARKETING SERVICES
Within each industry cluster, we provide a comprehensive set of marketing
communications products, services and support geared to the particular
industry's marketing and customer needs. These services include direct mail and
database marketing programs, reprint services, reference books and other
services to facilitate our clients' B-to-B marketing and communications
programs.
Marketing services are centrally managed, rather than being organized by
cluster. Thus, our cluster executives are able to dedicate their activities to
high value sales. In addition, our central telesales and product management
provides professional skills to these specialized product offerings.
INTERNET
In addition to our trade shows, conferences, publications and marketing
services, we are working with Advanstar.com, which is also a subsidiary of
Holdings but not an obligor of the notes, to use the Internet increasingly to
deliver our integrated B-to-B marketing communications products and services to
our customers. Advanstar.com is developing vertical community web sites to serve
our industry sectors and is operating our event and publication-related web
sites. We believe that the Internet can be utilized on a customized basis to
serve our customers' B-to-B marketing communication needs more efficiently and
effectively by offering information 24 hours a day, seven days a week. For
example, Advanstar.com is completing development of a web site, MagicOnline, to
serve as an on-line information and product resource for apparel retailers. See
"Certain Relationships and Related Party Transactions--Relationship with
Advanstar.com."
INDUSTRY CLUSTERS
We organize our operations into six core clusters. In addition to our six
core clusters, we have grouped the industry sectors in which we provide services
but do not have a significant industry presence into a "Market Development"
cluster. In each of our targeted segments within these clusters, many of the
same customers advertise in our publications, exhibit at our trade shows and use
our marketing services to reach their buyers. We have expanded our offerings
rapidly within each community through new product introductions and strategic
acquisitions. We believe our total community participants, including readers,
attendees, conferees, exhibitors, advertisers and other customers, number
approximately three million.
The following is a summary of each of our clusters.
42
FASHION & APPAREL
Our Fashion & Apparel cluster serves the men's, women's, children's, and
fabrics industries. In 1999, we operated in these industry sectors through 23
trade shows. Three trade shows held concurrently in Las Vegas twice annually
constitute the foundation of our apparel market position:
- MAGIC, the world's largest and most widely recognized trade show for the
men's apparel industry;
- WWDMAGIC, the largest women's apparel trade show in the United States; and
- MAGICKids, the second largest children's apparel show in the United
States.
In 1999, we acquired the Larkin Group, adding 15 trade shows serving the
women's and children's fashion and fabric/textile industries to complement our
core Fashion & Apparel cluster. The Larkin Group trade shows held in New York
City consist of (1) five International Fashion Boutique shows focusing on
moderate price point women's apparel and accessories; (2) five Style Industries
shows focusing on higher end women's clothing; (3) three International Fashion
Kids shows focusing on children's apparel and accessories; and (4) two
International Fashion Fabric Trade shows focusing on fabric and textiles for the
apparel industry.
The following table sets forth pro forma information relating to trade shows
in our Fashion & Apparel cluster in the twelve months ended December 31, 2000.
We currently have no publications in this cluster:
FASHION & APPAREL EVENTS
EVENTS (1)
-----------------------------
SECTOR NUMBER NET SQUARE FOOTAGE
- ------ -------- ------------------
Men's (includes Edge)....................................... 4 1,432,875
Women's..................................................... 12 941,576
Kids........................................................ 5 299,589
Fabric...................................................... 2 102,522
- --------------------------
(1) Excludes conferences.
INFORMATION TECHNOLOGY & COMMUNICATIONS
Our Information Technology & Communications cluster serves the information
technology, telecommunications and call center industries. In 2000, we operated
in these industry sectors through 27 trade shows and 18 publications. We are a
very specialized niche company in the information technology market with focused
and successful events in Internet commerce, digital printing and digital media.
The rapidly evolving, deregulated competitive telecommunications sector is one
of our most important and fastest growing targeted markets and we have a
significant worldwide presence in trade shows and magazines. We are also a
leader in the rapidly growing and evolving market for teleconferencing,
web-based collaboration and e-learning. Finally, our CRM/Call Center sector has
served as a primary example of successful market-focused expansion on an
international scale:
Key trade shows, conferences and publications include:
- On Demand Digital Printing & Publishing Conference and Expo, the second
largest trade show and conference for the digital print and publishing
market;
- the TeleCon and e-Learning shows, trade shows in the United States for the
video conferencing and long distance e-learning markets, and the related
TELECONFERENCE AND E-LEARNING magazines;
43
- Incoming Call Center Management Conference & Exhibition, the #1 U.S. trade
show and conference for call center managers, and Call Center
Conference & Exhibition, large U.S. trade show and conference for
technology in the call center market;
- iEB, Internet and Electronic Business Conference and Exhibition, a large
U.S. trade show and conference serving the rapidly growing market for
electronic commerce through the Internet, produced in partnership with The
Gartner Group, Inc.;
- Telexpo, the #1 telecom trade show and conference in Latin America, held
annually in March in Sao Paolo with over 40,000 attendees and 377
exhibitors; and
- a global grouping of leading telecom magazines, including AMERICA'S
NETWORK, EURONET, TELECOM ASIA, TELECOM CHINA, WIRELESS ASIA, RNT(Brazil)
and TPLA (Latin America).
The following table sets forth pro forma information relating to trade shows
and magazines in our Information Technology & Communications cluster in the year
ended December 31, 2000:
INFORMATION TECHNOLOGY & COMMUNICATIONS EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
--------------------- ----------------------------------
NUMBER OF
MAGAZINES
NET SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2 (2)
- ------ -------- ---------- -------- -------- ------------
Information Technology......................... 8 389,626 4 1,323 2 of 2
Telecommunications............................. 4 375,940 11 2,986 3 of 7
CRM / Call Center.............................. 15 334,836 3 628 1 of 3
- --------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
SPECIALTY RETAIL
We served the Specialty Retail sector through 26 trade shows and 11
publications in 2000. This cluster includes the art, beauty,
entertainment/marketing and motor vehicles sectors.
Key trade shows and publications include:
- Artexpo New York, the largest mid-market art trade show in the United
States, and ART BUSINESS NEWS, a leading publication for gallery and
framing professionals;
- IBS New York, the largest trade show and educational event on the East
Coast for the beauty salon market, and AMERICAN SALON, the #2 publication
for the professional beauty and hair care industry;
- Licensing International, the largest trade show worldwide for the
merchandise licensing industry, and LICENSE!, the #1 publication for the
licensing industry; and
- Dealernews International Powersports Dealer Expo, the largest aftermarket
accessories trade show in the United States targeted at powersports
dealers, the 12 city tour of consumer International Motorcycle shows and
DEALERNEWS, the #1 magazine targeted at retailers in the powersports
market--motorcycles, snowmobiles and personal watercraft.
44
The following table sets forth pro forma information relating to trade shows
and magazines in our Specialty Retail cluster in the year ended December 31,
2000:
SPECIALTY RETAIL EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
--------------------- ---------------------------------
NUMBER OF
MAGAZINES
NET SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- ---------- -------- -------- -----------
Art............................................ 4 223,548 2 1,051 0 of 1
Beauty......................................... 2 226,646 3 1,459 2 of 3
Entertainment / Marketing...................... 6 289,796 3 2,233 3 of 3
Motor Vehicle.................................. 14 925,448 3 1,488 2 of 2
- --------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
HEALTHCARE, SCIENCE & PHARMACEUTICALS
Our Healthcare, Science & Pharmaceuticals cluster provided marketing
products and services to these three related sectors with eight trade shows and
19 publications in 2000. We serve the healthcare sector in both primary and
specialized care areas, such as geriatrics, dermatology, ophthalmology and
veterinary medicine; the science sector in areas such as spectroscopy and liquid
and gas chromatography; and the pharmaceutical sector in areas such as research
and development, manufacturing, testing and marketing.
Key trade shows, conferences and publications include:
- PHARMACEUTICAL TECHNOLOGY, the #1 publication targeted at pharmaceutical
scientists, engineers and operation managers, and PHARMACEUTICAL
EXECUTIVE, the #1 magazine for pharmaceutical company product managers and
marketing professionals;
- LCGC AND LCGC EUROPE, the #1 magazines in the United States and Europe in
liquid and gas chromatography;
- GERIATRICS, the #2 magazine for the geriatrics segment of the primary care
market, FORMULARY, the #2 magazine for the drug selection market and DVM,
THE NEWS MAGAZINE OF VETERINARY MEDICINE, the #1 magazine for
veterinarians; and
- Abilities Expos, the largest consumer-oriented events targeting
individuals with disabilities.
The following table sets forth pro forma information relating to trade shows
and magazines in our Healthcare, Science & Pharmaceuticals cluster in the year
ended December 31, 2000:
HEALTHCARE, SCIENCE & PHARMACEUTICALS EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
--------------------- ---------------------------------
NUMBER OF
MAGAZINES
NET SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- ---------- -------- -------- -----------
Healthcare..................................... 6 122,670 9 4,349 6 of 9
Science........................................ 1 16,678 5 1,910 4 of 4
Pharmaceuticals................................ 1 1,065 5 4,049 5 of 5
- --------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
45
TRAVEL & HOSPITALITY
We served the travel and hospitality sector through two trade shows and six
publications in 2000. Our publications for the travel and hospitality sector
provide a strong foundation to launch related trade shows and services as well
as to develop custom-publishing products.
Selected publications include:
- TRAVEL AGENT, the second largest non-computer U.S. trade magazine and #1
trade periodical for the travel industry;
- HOTEL & MOTEL MANAGEMENT, the #1 publication for the hospitality
management market; and
- PREMIER HOTELS AND RESORTS, a leading directory of 4 and 5 star hotel and
resort properties.
The following table sets forth pro forma information relating to trade shows
and magazines in our Travel & Hospitality cluster in the year ended
December 31, 2000:
TRAVEL & HOSPITALITY EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
------------------- ---------------------------------
NUMBER OF
NET MAGAZINES
SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- -------- -------- -------- -----------
Travel.......................................... 2 43,700 5 6,470 2 of 3
Hospitality..................................... -- NA 1 1,305 1 of 1
- ------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
MANUFACTURING & PROCESSING
Our Manufacturing & Processing cluster serves the application technology and
OEM/processing sectors. In 2000, we delivered our B-to-B marketing
communications products and services to our customers in these industries
through five trade shows and seven publications. In applied technology, we
focus:
- on the automatic data capture, identification and tracking systems market,
including bar coding, magnetic stripe, smart cards, biometrics and the
associated systems,
- the geospatial market, including global positioning systems and geographic
information systems and
- sensors technology.
For the OEM and processing sector, we offer trade shows, conferences and
publications focused on equipment, materials and intermediate products used in
the manufacturing and processing of a wide range of products.
Key trade shows, conferences and publications include:
- Frontline Solutions and Frontline Solutions Europe (formerly ScanTech),
the #1 U.S. and European trade show and conference, respectively, for the
automatic data capture, identification and tracking systems market, and
FRONTLINE SOLUTIONS magazine (formerly AUTOMATIC ID NEWS),
46
the #1 publication in the United States and Europe for the automatic data
capture, identification and tracking systems market; and
- SENSORS, the #1 U.S. magazine for engineers in the expanding use of
sensors in industrial and consumer products, and Sensors Expos, leading
trade shows serving the sensors market.
The following table sets forth pro forma information relating to trade shows
and magazines in our Manufacturing & Processing cluster in the year ended
December 31, 2000:
MANUFACTURING & PROCESSING EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
------------------- ---------------------------------
NUMBER OF
NET MAGAZINES
SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- -------- -------- -------- -----------
Applications Technology........................ 2 153,484 4 1,062 4 of 4
OEM / Processing............................... 3 95,375 3 1,889 3 of 3
- ------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
MARKET DEVELOPMENT
We group the balance of our products and services into a Market Development
cluster which serves as an incubator focused on growing these products and
services through internal development and acquisitions. The Market Development
cluster addresses large and attractive market sectors in which we provide
selected products and services but do not have a significant presence. Markets
currently served include energy, finance, landscaping/pest control, paper and
roofing sectors. In 2000, we delivered our B-to-B marketing communications
products and services to our customers in these industry sectors through one
trade show and 11 publications.
The following table sets forth pro forma information relating to trade shows
and magazines in our Market Development cluster in the year ended December 31,
2000:
MARKET DEVELOPMENT EVENTS AND MAGAZINES
EVENTS(1) MAGAZINES
------------------- ---------------------------------
NUMBER OF
NET MAGAZINES
SQUARE RANKED
SECTOR NUMBER FOOTAGE NUMBER AD PAGES #1 OR #2(2)
- ------ -------- -------- -------- -------- -----------
Energy.......................................... -- -- 1 341 1 of 1
Intimate Apparel................................ -- -- 2 143 1 of 1
Finance......................................... 1 9,780 -- -- --
Landscape / Pest Control........................ -- -- 5 1,811 4 of 4
Paper........................................... -- -- 2 1,181 1 of 2
Roofing......................................... -- -- 1 357 0 of 1
- ------------------------
(1) Excludes conferences.
(2) Ranking based only on measured magazines for the year ended December 31,
2000.
47
COMPANY OPERATIONS
TRADE SHOWS
The sales cycle for a future trade show typically begins shortly before the
current show, with pricing information, preliminary floor plans and exhibitor
promotion for the future show mailed in advance of the current show so that
selling for the future show can begin at the current show. Typically, this
"upfront" selling includes floor space reservations with exhibitors executing a
contract and making deposits for the future show. At many of our trade shows, a
commitment for a large portion of exhibit space for the next event is reserved
by the end of the current event. For example, at each of the Dealer Expo,
Frontline Solutions, ICCM and Telecon trade shows, over 70% of the exhibit space
for the future show is reserved by the end of the current show, and a portion of
the fees are collected shortly thereafter. The sales cycle continues with
selling to new exhibitors and collecting the balance of payments due. In
general, we require exhibitor payments in full prior to a trade show as a
condition to participation.
In addition to the sale of exhibit space, we market to exhibitors a wide
range of promotional opportunities to raise their visibility at an event. These
opportunities include directory and preview advertising, banners, sponsorships
of various functions and a wide variety of other products or services. We also
produce related conferences and workshops, which represent the editorial content
for an event and play a crucial strategic role in trade show development.
Conferences, workshops and other ancillary forums all stimulate interest in the
industry and drive attendance at the trade show. While show attendance is
typically free for qualified attendees, participation in conferences at these
shows can be a significant revenue source.
Event promotion is undertaken through direct mail, using both in-house,
exhibitor-provided and rented lists of pre-qualified industry participants. In
those industry sectors for which we also have complementary publications, our
publications play a key role in event promotion by providing lists from
circulation files and editorial coverage for the upcoming show. Other industry
magazines may also be involved, as the goal of any event is to represent the
entire industry or market. The "show issue" of an industry magazine for a
related event is often the biggest issue of the year, as the advertisers want to
reinforce their show presence.
In operating trade shows and conferences, we function in a capacity similar
to a general contractor. Through our central trade show and conference
operations, we select and manage venues, hotels, and vendors for decorating,
registration, travel and housing, audio-visual services and other services. In
many cases, venue and hotel reservations are made several years in advance,
particularly for primary markets such as New York, Chicago, Las Vegas, Los
Angeles and San Francisco. While the production of a show may involve hundreds
of workers, most workers are employees of our subcontractor vendors. We employ
very few of the workers on-site.
TRADE PUBLICATIONS
We have established an efficient publishing infrastructure in the United
States and Europe. Our publications generally follow the controlled circulation
model and are distributed free-of-charge to qualified recipients. We build
readership and maintain the quality and quantity of our circulation based on
delivering high quality, professional coverage of relevant industry information.
Because we offer our advertisers access to a highly-targeted, industry-specific
subscriber base with potential buying influence, our advertisers place their ads
in our publications to reach their customers. Most of our magazines are
published monthly, although some titles are published weekly or semi-monthly.
We attract readership and improve the effectiveness of our advertising by
maintaining and continuously improving the quality of the editorial content of
our publications. Recipients of our
48
publications are targeted through market research designed to determine the
market coverage and purchasing authority desired by prospective advertisers.
Based on existing and acquired mail lists, the targeted recipient is then
solicited through promotions offering free subscriptions to the relevant
publications. High-quality circulation is achieved when a high percentage of the
circulation list is recently qualified, within one or two years, and the
publication is delivered at the direct request of the recipient. Recipients are
qualified and requalified on a regular basis through direct mail qualification
cards included in the publication and, increasingly, the Internet.
Our advertising sales and editorial functions are dispersed throughout North
America, Asia, Europe and Brazil. Advertising sales are predominantly conducted
by our dedicated sales force. Editorial content for our publications is
primarily staff-written, with some editorial contribution by freelance writers
and industry or professional participants in selected markets.
Our advertising materials and editorial content are integrated in our
Duluth, Minnesota and Chester, England production facilities, where layout, ad
insertion and output to film is completed. All printing is outsourced to vendors
in various regions, but printing contracts are negotiated and managed centrally.
We purchase paper centrally through a relationship with one of the industry's
largest paper brokers. Paper is shipped directly from the mills to the printers
at our request. We maintain our own central U.S. fulfillment operation in Duluth
to generate mailing labels and mailing instructions for the printers. Our
production workforce is highly experienced and is based in relatively low-cost
locations in Duluth and Chester.
COMPETITION
The market for our products and services is intensely competitive. The
competition is highly fragmented by product offering and by geography. On a
global level, larger international firms operate in many geographic markets and
have broad product offerings in trade shows, conferences, publications and
marketing services. In several industries, such as information technology and
healthcare, we compete with large firms with a single-industry focus. Many of
these large international and single-industry firms are better capitalized than
we are and have substantially greater financial and other resources than we
have.
Within each particular industry sector, we also compete with a large number
of small to medium-sized firms. While most small to medium-sized firms operate
in a single geographic market, in some cases, our competitors operate in several
geographic markets. In the trade show and conference segment, we compete with
trade associations and, in several international markets, with exposition hall
owners and operators. Trade show and conference competition in each market and
country occurs on many levels. The venues and dates of trade shows drive
competition. Historically, successful shows have been held at desirable
locations and on desirable dates. Given the availability of alternative venues
and the ability to define events for particular market segments, the range of
competition for exhibitor dollars, sponsorships, attendees and conferees is
extensive. In the publications segment, we typically have between two and five
direct competitors which target the same industry sector and many indirect
competitors which define industry segments differently than we do and thus may
be alternatives for either readers or advertisers.
INTELLECTUAL PROPERTY
We have developed strong brand awareness for our principal products and
services. Accordingly, we consider our trademarks, service marks, copyrights,
trade secrets and similar intellectual property important to our success, and we
rely on trademark, service mark, copyright and trade secret laws, as well as
licensing and confidentiality agreements, to protect our intellectual property
rights. We generally register our material trademarks and service marks in the
United States and in certain other key countries in which these trademarks and
service marks are used. Effective trademark, service mark and
49
trade secret protection may not be available in every country in which our
products and services are available.
PROPERTIES
We have executive, marketing, sales and editorial offices in several cities
in the United States, including Boston; Cleveland; Edison, New Jersey; Eugene,
Oregon; Milford, Connecticut; New York City; Santa Ana, California; and Woodland
Hills, California. In addition, we have offices in Sao Paulo, Brazil; Hong Kong,
China; Paris, France; Essen, Germany; and Chester and London, United Kingdom.
Our finance, trade show registration, call center, circulation, fulfillment,
production and other necessary operational support facilities in the United
States are located in Duluth, Minnesota.
We generally lease our offices from third parties. However, we own our
operations offices in Duluth and Cleveland, although we have granted mortgages
on these properties to the lenders under our new credit facility. We believe
that our properties are in good operating condition and that suitable additional
or alternative space will be available on commercially reasonable terms for
future expansion.
ENVIRONMENTAL MATTERS
We are subject to various foreign, federal, state and local environmental
protection and health and safety laws and regulations, and accordingly, we incur
some costs to comply with those laws. We own or lease real property, and some
environmental laws hold current or previous owners or operators of businesses
and real property liable for contamination on that property, even if they did
not know of and were not responsible for the contamination. Although we do not
currently anticipate that the costs of complying with environmental laws will
materially adversely affect us, we cannot ensure that we will not incur material
costs or liabilities in the future, due to the discovery of new facts or
conditions, releases of hazardous materials, or a change in environmental laws.
EMPLOYEES
As of December 31, 2000, we had approximately 1,500 full-time equivalent
employees. Of these, approximately 210 employees were located in Europe, Brazil
and Asia with the balance based in the United States. None of our U.S. employees
are represented by a labor union. We consider our relationships with our
employees to be good.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings other than ordinary course,
routine litigation which is not material to our business, financial condition or
results of operations.
50
MANAGEMENT
The following table sets forth the name, age and position of each of our
executive officers, directors and other key employees.
NAME AGE POSITION
- ---- --- --------
Robert L. Krakoff 65 Chairman of the Board and Chief Executive Officer
James M. Alic 58 Vice Chairman, Vice President and Director
David W. Montgomery 43 Vice President--Finance, Chief Financial Officer and
Secretary
Eric I. Lisman 44 Vice President and General Counsel
William J. Cooke 49 Executive Vice President
Alexander S. DeBarr 40 Executive Vice President
Joseph Loggia 41 Executive Vice President, President--MAGIC
Daniel M. Phillips 38 Executive Vice President
OhSang Kwon 32 Director
James A. Quella 50 Director
David M. Wittels 36 Director
EXECUTIVE OFFICERS
ROBERT L. KRAKOFF has served as our Chairman and Chief Executive Officer
since he joined Advanstar in July 1996. From January 1993 to June 1996, he was
the Chairman and Chief Executive Officer of Reed Publishing USA, a division of
Reed Elsevier Inc. which included Cahners Publishing Company, a trade
publications business, and Reed Exhibition Companies, an exposition and
conference business. From January 1993 to June 1996, he was also a member of the
board of directors of Reed Elsevier PLC.
JAMES M. ALIC has served as our Vice Chairman and Vice President since he
joined Advanstar in July 1996. From June 1995 to June 1996, he was Vice
President and Controller of IBM Corporation, a computer hardware and software
manufacturer. From September 1994 to May 1995, he was Chairman of Reed
Exhibition Companies. From August 1991 to August 1994, he was President of Reed
Exhibitions North America.
DAVID W. MONTGOMERY has served as our Vice President--Finance and Chief
Financial Officer since January 1994. From July 1989 to December 1993, he was
our Director of Corporate Finance. In July 1992, he became our Secretary. From
January 1981 to June 1989, he was a practicing CPA with McGladrey & Pullen in
Minneapolis, St. Paul, Minnesota.
ERIC I. LISMAN has served as our Vice President and General Counsel since
September 1998. From November 1997 to August 1998, he engaged in a private legal
practice. From August 1996 to July 1997, he was a Senior Vice President and
General Counsel of Cahners Publishing Company. From July 1993 to July 1996, he
was a Vice President and General Counsel of Reed Publishing USA.
KEY EMPLOYEES
WILLIAM J. COOKE has served as our Executive Vice President since June 1997
and is responsible for the OEM and application technology industry sector, the
Market Development cluster and marketing services. In addition, Mr. Cooke is
responsible for corporate marketing and corporate training. From July 1995 to
May 1997, he was Group Vice President of Advanstar. From July 1993 to
June 1995, he was our President of the Marketing Services Division. From 1988
until June 1993, Mr. Cooke was Vice President of Strategic Planning and
Marketing for Dun & Bradstreet Corporation.
51
ALEXANDER S. DEBARR has served as our Executive Vice President since
June 1997 and is responsible for the art, beauty, travel and hospitality and
motor vehicle sectors. From February 1995 to May 1997, he was a Group Vice
President of Advanstar. Mr. DeBarr also served as a Group Publisher of Advanstar
from February 1993 until January 1995.
JOSEPH LOGGIA has served as MAGIC's President and Chief Executive Officer
since May 1997, President from August 1996 and Chief Operating Officer beginning
in 1995. From January 1993 to August 1996, he was Chief Financial Officer of
MAGIC. Prior to joining MAGIC, Mr. Loggia, who is a certified public accountant,
was a manager at the accounting firm of Coopers & Lybrand responsible for
Fraud & Financial Investigations.
DANIEL M. PHILLIPS currently serves as Executive Vice President of Advanstar
Technology Communities. He was previously Vice President and General Manager of
Advanstar's Technology groups. Mr. Phillips joined Advanstar in 1996 as a group
publisher of America's Network, Telecom Asia and Communicationes magazines, and
in 1998 was promoted to Vice President and General Manager. Prior to joining
Advanstar, Mr. Phillips was responsible for publications for EMAP (U.K.) in the
area of telecommunications.
DIRECTORS
ROBERT L. KRAKOFF. See "--Executive Officers."
JAMES M. ALIC. See "--Executive Officers."
OHSANG KWON has served as a director since October 2000. Mr. Kwon has been a
Principal of DLJ Merchant Banking, Inc. since 2001 and a Vice President of DLJ
Merchant Banking, Inc. prior to that. From May 1997 to February 2000, he was an
Associate with DLJ Securities Corporation, and he became a Vice President of DLJ
Securities Corporation in February 2000. From October 1996 to May 1997, he was
an Associate at Davis Polk & Wardwell. Prior to that, he was a law clerk for the
Hon. William C. Conner in the United States District Court for the Southern
District of New York.
JAMES A. QUELLA has served as a director since October 2000. Mr. Quella
joined DLJ Merchant Banking, Inc. in 2000 as a Managing Director and Operating
Partner. Immediately prior to joining DLJ, he was a Managing Director at GH
Venture Partners. From 1990 to 1999, Mr. Quella worked at Mercer Management
Consulting where he served as a senior consultant and became Vice Chairman in
1997. Mr. Quella was also a Director of Mercer Consulting Group and Executive
Partner of Marsh McLennan Companies. Mr. Quella currently serves on the board of
directors of AKI Holding Corp., AKI Inc., Merrill Corporation and Von Hoffman
Press, Inc.
DAVID M. WITTELS has served as a director since October 2000. Mr. Wittels
has been a Managing Director of DLJ Merchant Banking, Inc. since 2001 and has
served in various capacities with DLJ Merchant Banking for the past five years.
Mr. Wittels serves as a director of AKI Holding Corp., AKI Inc., Mueller
Holdings (N.A.) Inc., Ziff Davis Media Inc., Ziff Davis Holdings Inc. and Wilson
Greatbatch Technologies Inc.
52
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents compensation paid to our chief executive
officer and four other most highly paid officers in the last three fiscal years.
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER TOTAL
POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION($)(5) COMPENSATION($) COMPENSATION($)
- ------------------ -------- --------- ----------- ------------------ --------------- ---------------
Robert L. Krakoff..... 2000 522,308 194,805 4,861 12,624(3) 734,598
Chairman of the 1999 433,846 169,500 15,231(3) 618,577
Board and Chief 1998 415,385 150,000 18,138(3) 583,523
Executive Officer
James M. Alic......... 2000 422,308 157,700 5,392 7,112(3) 592,512
Vice Chairman, Vice 1999 333,846 133,200 7,561(3) 474,607
President and 1998 311,538 115,000 8,310(3) 434,848
Director
David W. Montgomery... 2000 210,000 110,836 14,712 773,246(2)(3) 1,108,794
Vice President- 1999 190,000 92,442 5,576(3) 288,018
Finance, Chief 1998 186,538 74,000 5,918(3) 266,456
Financial Officer
and Secretary
Eric I. Lisman(4)..... 2000 257,500 110,156 414,520(2)(3) 782,176
Vice President and 1999 237,500 87,984 2,637(3) 328,121
General Counsel 1998 72,692 25,012 199(3) 97,903
Joseph Loggia(6)...... 2000 565,385 280,933 1,622,611(2)(3) 2,468,929
1999 700,000 175,000 4,800(3) 879,800
1998 500,130 175,000 -- 675,130
- --------------------------
(1) Bonuses are reported in the year earned, even though they were actually paid
in the subsequent year.
(2) Includes all stock option payments and discretionary bonuses relating to the
acquisition of Advanstar, Inc. by the DLJ Merchant Banking funds and are
reported in the year earned even though some portion was actually paid in
the subsequent year. See "Option Exercises and Holdings."
(3) Includes value of group term life insurance benefits paid for by our
company.
(4) Mr. Lisman commenced employment on September 8, 1998.
(5) Includes the fair market value of fringe benefits provided for by our
company.
(6) Mr. Loggia commenced employment with Advanstar on April 30, 1998.
53
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made by Advanstar
during the year ended December 31, 2000 pursuant to the 2000 Management
Incentive Plan described below to each of the named executive officers. We have
not granted any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ---------- --------- ---------- --------- ----------
Robert L. Krakoff................... 900,000 28% 10.00 2010 5,660,052 14,343,682
James M. Alic....................... 275,000 8% 10.00 2010 1,729,460 4,382,792
David W. Montgomery................. 200,000 6% 10.00 2010 1,257,789 3,187,485
Eric I. Lisman...................... 100,000 3% 10.00 2010 628,895 1,593,742
Joseph Loggia....................... 400,000 12% 10.00 2010 2,515,579 6,374,970
OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the officers named in the
Summary Compensation Table, certain information concerning the number of shares
subject to both exercisable and unexercisable stock options as of December 31,
2000. None of the unexercised options were "in-the-money" at December 31, 2000.
No options were exercised by any of the named officers in 2000. However,
under the merger agreement, the holder of each "in-the-money" option outstanding
under the 1996 stock option plan received, for each option, an amount equal to
the per share merger consideration less the exercise price. While that
transaction was not technically an option exercise, we have provided information
in the following table about the number of shares and value realized in
connection with that transaction.
AGGREGATED OPTION EXERCISES IN 2000 AND DECEMBER 31, 2000 OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR END FISCAL YEAR END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Robert L. Krakoff................. -- -- -- 900,000 -- --
James M. Alic..................... -- -- -- 275,000 -- --
David W. Montgomery............... 200,000 $617,511 -- 200,000 -- --
Eric I. Lisman.................... 100,000 308,755 -- 100,000 -- --
Joseph Loggia..................... 200,000 617,511 -- 400,000 -- --
STOCK OPTION AND INCENTIVE PLANS
1996 STOCK OPTION PLAN
Advanstar, Inc.'s Second Amended and Restated 1996 Stock Option Plan, as
amended, provides for the issuance of a maximum of 2,051,124 shares of its
common stock pursuant to the grant of non-qualified stock options to employees
and other individuals who render services to Advanstar, Inc. As of December 31,
1999, options to purchase 2,031,100 shares of Advanstar, Inc.'s common stock at
an average exercise price of $8.24 were outstanding under the 1996 Plan, and no
options had been
54
exercised. Under the terms of the 1996 Plan and existing award agreements, upon
the closing of the merger all outstanding options became fully vested and
exercisable. Under the merger agreement, the holder of each option outstanding
under the 1996 Plan whose exercise price was less than the value of the merger
consideration received for every option, an amount equal to the per share merger
consideration minus the exercise price for such option. Outstanding options
whose exercise price exceeded the value of the merger consideration were
canceled as of the closing of the merger.
2000 MANAGEMENT INCENTIVE PLAN
The 2000 Management Incentive Plan was adopted by the board of Holdings on
October 11, 2000. The following description of the plan is intended to be a
summary and does not describe all provisions of the plan.
PURPOSE OF THE PLAN
The purpose of the plan is to attract and retain the best available key
employees, non-employee directors and consultants for Holdings and its
subsidiaries and affiliates and to encourage the highest level of performance by
those individuals, thereby enhancing Holdings' value for the benefit of its
stockholders. The plan is also intended to motivate such individuals by means of
performance-related incentives to achieve longer-range performance goals and
enable such individuals to participate in the long-term growth and financial
success of Holdings.
ADMINISTRATION OF THE PLAN
The plan will be administered by the compensation committee or the board as
a whole, if no committee is constituted. The compensation committee has the
power, in its discretion, to select the participants who will participate in the
plan, to grant awards under the plan, to determine the terms of these awards, to
interpret the provisions of the plan and to take any action that it deems
necessary or advisable for the administration of the plan.
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the plan is limited to key employees of
Holdings, its subsidiaries and affiliates. Participation in the plan is at the
discretion of the compensation committee and will be based upon the individual's
present and potential contributions to Holdings' success and such other factors
as the compensation committee deems relevant. No individual may be granted in
any calendar year awards covering more than 900,000 shares of Holdings common
stock.
TYPE OF AWARDS UNDER THE PLAN
The plan provides that the compensation committee may grant nonstatutory
stock options to eligible participants subject to such terms, conditions and
provisions as the compensation committee may determine to be necessary or
desirable.
NUMBER OF AUTHORIZED SHARES
Holdings has authorized a maximum of 3,422,789 shares of its common stock
for participants under the plan during the term of the plan, of which 3,255,000
have been granted as of March 31, 2001. In addition, the number of shares
available will be increased to the extent that shares are not purchased on a
leveraged basis under Holdings' Direct Investment Program. The compensation
committee may adjust the number and class of shares available under the plan to
prevent dilution or enlargement of rights in the event of various changes in
Holdings' capitalization.
55
PUT AND CALL RIGHTS
Holdings has certain rights to repurchase, or "call," shares purchased
pursuant to the plan if a plan participant is terminated by Holdings or one of
its subsidiaries for cause or without cause, or if the participant terminates
employment for good reason, without good reason, or due to death, disability or
"qualified retirement." A plan participant has the right to sell, or "put,"
shares purchased pursuant to the plan to Holdings if a participant's employment
is terminated due to disability, "qualified retirement" or death. "Qualified
retirement" means retirement at age 62 or with board approval.
CHANGE IN CONTROL
If there is a change in control of Holdings, all unvested time-vesting
options granted pursuant to the plan will vest and become immediately
exercisable and, if the change in control constitutes a liquidity event (as
defined in the award agreements), all performance vesting options will vest. A
change in control generally means the acquisition by any person or group of
persons, other than an affiliate or affiliates of the DLJ Merchant Banking
funds, of more than 51% of the outstanding voting securities of Holdings or a
sale of all or substantially all of Holdings' assets.
AMENDMENT AND TERMINATION
Holdings' board may amend, alter, suspend, discontinue or terminate the plan
at any time, provided that no such amendment, alteration, suspension,
discontinuation or termination will be made without stockholder approval if such
approval is necessary to qualify for or comply with any tax or regulatory status
or requirement with which the board deems it necessary or desirable to qualify
or comply.
DIRECT INVESTMENT PLAN
The Direct Investment Plan was adopted by the board of Holdings on
October 11, 2000. The following description of the plan is intended to be a
summary and does not describe all provisions of the plan.
PURPOSE OF THE PLAN
The purpose of the plan is to promote the interests of Holdings and its
stockholders by attracting and retaining exceptional executive personnel and
other key employees of Holdings, its subsidiaries and affiliates. The plan is
also intended to align the interests of such employees with those of Holdings'
equity investors and enable such employees to participate in the long-term
growth and financial success of Holdings.
ADMINISTRATION OF THE PLAN
The plan will be administered by a committee of the board or the board as a
whole, if no committee is constituted. The committee has the power, in its
discretion, to select the participants who will participate in the plan, to
determine the number of shares to be covered by purchase agreements, to
determine the terms and conditions of the purchase agreements, to interpret the
provisions of the plan and to take any action that it deems necessary or
advisable for the administration of the plan.
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the plan is limited to executive personnel and
key employees of Holdings, its subsidiaries and affiliates.
56
NUMBER OF AUTHORIZED SHARES
Holdings has authorized a maximum of 1,500,000 shares of its common stock
for purchase by participants under the plan during the term of the plan. The
committee may adjust the number and class of shares available under the plan to
prevent dilution or enlargement of rights in the event of various changes in
Holdings' capitalization.
SHARE PURCHASES
Holdings has agreed to make available non-recourse loans to purchase a
portion of the shares available for purchase under the plan.
PUT AND CALL RIGHTS
Holdings has certain rights to repurchase, or "call," shares purchased
pursuant to the plan if a plan participant is terminated by Holdings or one of
its subsidiaries for cause or without cause, or if the participant terminates
employment for good reason, without good reason, or due to death, disability or
"qualified retirement." A plan participant has the right to sell, or "put,"
shares purchased pursuant to the plan to Holdings if a participant's employment
is terminated due to disability, "qualified retirement" or death. "Qualified
retirement" means retirement at age 62 or with board approval.
TERM OF THE PLAN
Unless earlier terminated by the board, the plan will terminate on
October 11, 2010.
AMENDMENT AND TERMINATION
Holdings' board may amend, alter, suspend, discontinue or terminate the plan
at any time, provided that no such amendment, alteration, suspension,
discontinuation or termination will be made without stockholder approval if such
approval is necessary to qualify for or comply with any tax or regulatory status
or requirement with which the board deems it necessary or desirable to qualify
or comply.
401(K) PLAN
Advanstar, Inc. has an Employees' 401(k) Plan and Trust. All current and
future employees who have completed one year of service with Advanstar, Inc. or
any other domestic subsidiary of Advanstar, Inc. and are at least
21 years-of-age are eligible to participate in the 401(k) Plan. Participants in
the 401(k) Plan may not contribute more than the lesser of a specified statutory
amount or 15% of his or her pre-tax total compensation. Advanstar, Inc. is
required to make a matching contribution to the 401(k) Plan, which vests in
equal installments over five years, in accordance with the following schedule:
- with respect to the employee's elective contribution in an amount up to 2%
of the employee's gross compensation, the matching contribution is
required to be equal to 100% of the employee's contribution;
- with respect to the employee's elective contribution in excess of 2% and
not in excess of 6% of gross compensation, the matching contribution is
required to be equal to 25% of such employee's contribution; and
- with respect to the employee's elective contribution in excess of 6% of
gross compensation, there shall be no matching contribution.
57
EMPLOYMENT AGREEMENTS
Messrs. Krakoff and Alic have entered into employment agreements with us,
each dated as of August 14, 2000 which became effective on the closing of the
merger. Each agreement provides for a term through September 30, 2003. Pursuant
to the agreements, Messrs. Krakoff and Alic are entitled to annual base salaries
of $600,000 and $500,000, respectively. Mr. Krakoff and Mr. Alic are also
entitled to annual bonuses based on our EBITDA for any year, up to a maximum
bonus in any one year of 100% of base salary. The agreements provide for
indemnification of the executives to the extent permissible under New York law.
The agreements further provide for severance benefits equal to one year's base
salary and benefits and a pro rated bonus upon termination of employment by
Advanstar without "cause" or by the executive for "good reason," which includes
a change of control. Mr. Krakoff and Mr. Alic also entered into noncompetition
and confidentiality agreements with us. The noncompete period is one year after
termination of employment unless employment is terminated by us without cause or
by the executive for good reason, in which case the noncompetition period is six
months. During the noncompete period, the executives may not hire any employee
or solicit any trade show or publishing business from a third party that has a
relationship or contract with us.
We do not have employment agreements with our other named executive
officers.
DIRECTOR COMPENSATION
We have not yet determined whether we will pay our directors any fees.
58
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of our common stock is owned by our parent company, Advanstar, Inc.,
which is wholly-owned by Holdings. The following table sets forth information
with respect to the beneficial ownership of Holdings' common stock as of
April 16, 2000 by (a) any person or group who beneficially owns more than five
percent of Holdings common stock, (b) each of our directors and executive
officers and (c) all directors and officers as a group.
In accordance with the rules of the SEC, beneficial ownership includes
voting or investment power with respect to securities and includes shares
issuable pursuant to warrants that are exercisable within 60 days of
December 31, 2000. Shares issuable pursuant to warrants are deemed outstanding
in computing the percentage held by the person holding the warrants but are not
deemed outstanding in computing the percentage held by any other person.
NUMBER OF
SHARES OF PERCENTAGE OF
COMMON STOCK OUTSTANDING
BENEFICIALLY COMMON
NAME OF BENEFICIAL OWNER: OWNED STOCK
- ------------------------- ------------ -------------
DLJ Merchant Banking Partners III, L.P. and related
investors(1).............................................. 29,957,541 91.6%
Robert L. Krakoff........................................... 980,373(2) 3.2%
James M. Alic............................................... 301,596(3) 1.0%
David M. Montgomery......................................... -- --
Eric I. Lisman.............................................. -- --
Joseph Loggia............................................... -- --
David M. Wittels(4)
DLJ Merchant Banking Inc.
277 Park Avenue
New York, New York 10172.................................. -- --
OhSang Kwon(4)
DLJ Merchant Banking Inc.
277 Park Avenue
New York, New York 10172.................................. -- --
James A. Quella(4)
DLJ Investment Partners II, Inc.
277 Park Avenue
New York, New York 10172.................................. -- --
All directors and officers as a group (8 persons)(4)........ 1,281,969 4.2%
- --------------------------
(1) Consists of 29,100,000 shares held directly by DLJ Merchant Banking Partners
III, L.P. and the following related investors: DLJ ESC II, L.P., DLJMB
Funding III, Inc. and DLJ Offshore Partners III, C.V. and warrants to
purchase 857,541 shares of common stock issued to DLJ Investment Partners,
II, L.P. and the following related investors: DLJ ESC II, L.P., DLJ
Investment Funding II, Inc. and DLJ Investment Partners, L.P. See "Certain
Relationships and Related Party Transactions." The address of each of these
investors is 277 Park Avenue, New York, New York 10172, except that the
address of Offshore Partners is John B. Gorsiraweg 14, Willemstad, Curacao,
Netherlands Antilles.
(2) Consists of 864,342 shares and warrants to purchase 116,031 shares.
(3) Consists of 266,809 shares and warrants to purchase 34,787 shares.
(4) Messrs. Wittels, Quella and Kwon are officers of DLJ Merchant
Banking, Inc., an affiliate of the DLJ Merchant Banking funds and the DLJ
Investment Partners funds. Shares shown for Messrs. Wittels, Quella and Kwon
exclude shares shown as held by the DLJ Merchant Banking funds and the DLJ
Investment Partners funds, as to which they disclaim beneficial ownership.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
THE ACQUISITION
FINANCIAL ADVISORY FEES AND AGREEMENTS
Credit Suisse First Boston Corporation, an affiliate of the DLJ Merchant
Banking funds, is acting as our financial advisor and was an initial purchaser
of the old notes and the additional parent company units. We have agreed to pay
customary fees to Credit Suisse First Boston Corporation as compensation for
those services. DLJ Capital Funding, an affiliate of the DLJ Merchant Banking
funds, has and will receive customary fees and reimbursement of expenses in
connection with the arrangement and syndication of the new credit facility and
as a lender thereunder. Credit Suisse First Boston, Cayman Islands Branch, an
affiliate of the DLJ Merchant Banking Funds, received customary fees in
connection with the bridge financing. The aggregate amount of all fees payable
to the Credit Suisse First Boston Corporation entities in connection with the
acquisition and the related financings, including the offering of the old notes,
was approximately $26.2 million, plus out-of-pocket expenses.
Holdings has agreed to pay Credit Suisse First Boston Corporation an annual
advisory fee of $0.5 million beginning upon closing of the acquisition until the
earlier to occur of:
(1) an initial public offering of Holdings;
(2) the date when the DLJ Merchant Banking funds own less than 16 2/3%
of the shares of Holdings' common stock held by them on the closing date of
the acquisition; and
(3) October 11, 2005.
Advanstar and its subsidiaries may from time to time enter into other
investment banking relationships with Credit Suisse First Boston Corporation or
one of its affiliates pursuant to which Credit Suisse First Boston Corporation
or its affiliates will receive customary fees and will be entitled to
reimbursement for all related disbursements and out-of-pocket expenses. We
expect that any arrangement will include provisions for the indemnification of
Credit Suisse First Boston Corporation against a variety of liabilities,
including liabilities under the federal securities laws.
STOCKHOLDERS' AGREEMENT
Holdings, the DLJ Merchant Banking funds, the DLJ Investment Partners funds,
the existing stockholders and the management stockholders entered into a
stockholders' agreement at the closing of the acquisition. The stockholders'
agreement provides that any person acquiring shares of common stock of Holdings
who is required by the stockholders' agreement or by any other agreement or plan
of Holdings to become a party to the stockholders' agreement will execute an
agreement to be bound by the stockholders' agreement. In April 2001, the
existing stockholders sold an aggregate of 200,000 shares of Holdings stock to
an institutional investor. The new investor became a party to the stockholders'
agreement in connection with the sale.
The terms of the stockholders' agreement restrict transfers of shares of
Holdings capital stock by the DLJ Investment Partners funds, the existing
stockholders and the management stockholders, except to permitted transferees
and subject to various exceptions. The agreement will permit:
- the other stockholders to participate in specified sales of shares of
Holdings capital stock by the DLJ Merchant Banking funds,
- the DLJ Merchant Banking funds to require the other stockholders to sell
shares of Holdings capital stock in specified circumstances should the DLJ
Merchant Banking funds choose to sell any shares owned by them, and
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- the stockholders to purchase equity securities proposed to be issued by
Holdings to the DLJ Merchant Banking funds on a preemptive basis to
maintain their percentage ownership interest.
The stockholders' agreement also provides that the DLJ Merchant Banking
funds have the right to select three of the five members of the board of
directors of Holdings, the DLJ Investment Partners funds will have the right to
select one member so long as they maintain ownership of at least 50% of their
initial equity ownership, and Mr. Krakoff will be the other director pursuant to
the terms of his employment agreement. In addition, the DLJ Merchant Banking
funds are permitted to expand Holdings' board and select all of the additional
directors. Messrs. Alic, Kwon and Wittels are the directors selected by the DLJ
Merchant Banking funds and Mr. Quella is the director selected by the DLJ
Investment Partners funds.
Under the agreement, the DLJ Merchant Banking funds, the DLJ Investment
Partners funds, the existing stockholders and the management stockholders
entered into a registration rights agreement with Holdings. Under that
agreement, the DLJ Merchant Banking funds will have the right to six demand
registrations (or five if the DLJ Investment Partners funds have exercised a
demand), and the DLJ Investment Partners funds will have the right to one demand
registration of common stock after an initial public offering. In addition, all
of the holders will be entitled to piggyback registration rights, subject to
customary cutback and deferral provisions. The agreement also provides that
Holdings will indemnify the parties against specified liabilities, including
liabilities under the Securities Act.
RELATIONSHIP WITH ADVANSTAR.COM
Our affiliate, Advanstar.com, is developing vertical community web sites to
serve our industry sectors and operates our event and publication-related web
sites. We provide Advanstar.com with administrative support services in
accounting, finance, legal, human resource management, information technology
and business development. These services are charged to Advanstar.com based on
level of activity. In addition, selected staff in editorial and other functions
at Advanstar will be shared with Advanstar.com. To the extent the percentage of
time devoted by our employees to Advanstar.com activities is significant,
appropriate allocations of staff cost will be made to Advanstar.com. We also
provide Advanstar.com with marketing and promotional support through advertising
pages in our trade publications and exhibit space in our trade shows. These
services are provided at rates which fully cover our incremental costs. In
return, Advanstar.com provides promotional support on its web sites for our
trade publications and trade shows at rates which reflect incremental cost.
Advanstar.com operates specific web sites in support of our trade publications
and trade shows. Among other functions, these sites provide essential services,
such as trade show and conference registration and publication subscription and
reader services, in support of our products. We will pay Advanstar.com a service
fee beginning in 2001 based on cost plus a small administrative charge for these
web site services. Advanstar.com has the right to use the content from our
publications and events, our brands and our customer lists for the purpose of
building and operating the web sites. In return for these rights, Advanstar.com
will pay us beginning in 2001 a royalty based on a percentage of all revenue
derived by Advanstar.com. We expect that the transactions described above will
be on arm's-length terms going forward.
In addition, we have provided funding to Advanstar.com to support its
operations. We provided funding of approximately $19.8 million in 2000 and
anticipate that we will provide an aggregate of $16.0 million of additional
funding in 2001.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
THE FOLLOWING DESCRIPTIONS ARE SUMMARIES OF THE MATERIAL TERMS OF CERTAIN
INDEBTEDNESS. THEY MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE IMPORTANT
TO YOU. TO UNDERSTAND THESE AGREEMENTS FULLY, YOU SHOULD CAREFULLY READ EACH OF
THE AGREEMENTS, COPIES OF WHICH HAVE BEEN FILED AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART. THE FOLLOWING DESCRIPTION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE AGREEMENTS.
NEW CREDIT FACILITY
The new credit facility has been provided by a syndicate of financial
institutions led by DLJ Capital Funding, as lead arranger and syndication agent.
The new credit facility includes:
(1) a $415.0 million term loan facility consisting of
- a $100.0 million term loan A; and
- a $315.0 million term loan B; and
(2) an $80.0 million revolving credit facility, which provides for
revolving credit loans and swingline loans and under which letters of credit
may be issued.
The term loan A and the revolving credit facility each mature six and
one-half years after the closing of the new credit facility and the term loan B
matures eight years after that closing. The facility is subject to a potential,
although uncommitted, increase of up to $50.0 million at our request at any time
prior to maturity. The increase is only available if one or more financial
institutions agree to provide it.
Loans under the new credit facility will bear interest, at our option, at:
- the reserve adjusted LIBOR rate plus 3.00% or the alternate base rate plus
1.75% for borrowings under the revolving credit facility and for term
loan A, and
- the reserve adjusted LIBOR rate plus 3.50% or the alternate base rate plus
2.25% for term loan B.
Beginning approximately six months after the closing date of the new credit
facility, the applicable margins for revolving credit loans and term loan A will
be determined based on the leverage ratio, which measures the ratio of
consolidated total debt to consolidated EBITDA of our company and its restricted
subsidiaries, as defined in the new credit facility.
During the first six months after the closing date of the new credit
facility we are required to pay commitment fees at a rate equal to 1.25%, .875%
or .50% per year on the daily unused portion of the revolving credit facility,
based on whether the unused portion of the revolving credit facility constitutes
less than or equal to 33%, greater than 33% and less than or equal to 67% or
greater than 67% of the total revolving credit facility, respectively. Beginning
six months after the closing date of the new credit facility, the commitment
fees will be determined using a formula based on the leverage ratio and the
utilization of the revolving credit facility.
The commitment fees are payable quarterly in arrears and upon the maturity
or termination of the revolving credit facility.
Swingline loans may bear interest solely at the alternate base rate plus the
applicable margin for borrowings under the revolving credit facility.
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We will pay a letter of credit fee on the outstanding undrawn amounts of
letters of credit issued under the new credit facility at a rate per year equal
to the then existing applicable LIBOR rate margin for revolving credit loans, or
1.25% in the case of trade letter of credits, which fees shall be shared by all
lenders participating in that letter of credit, and an additional fronting fee
to the issuer of each letter of credit, payable quarterly in arrears.
The term facility is subject to the following amortization schedule:
TERM LOAN A TERM LOAN B
AMORTIZATION AMORTIZATION
YEAR (%) (%)
- ---- ------------ --------------
1............................................. 10 1
2............................................. 15 1
3............................................. 15 1
4............................................. 17.144 1
5............................................. 17.144 1
6............................................. 17.144 1
7............................................. 8.568 1
8............................................. -- 93
------- ---
100% 100%
The new credit facility is subject to mandatory prepayment:
- with the net cash proceeds of the sale or other disposition of any of our
property or assets, or receipt of casualty proceeds, that are not
reinvested in our business within 365 days of receipt, subject to
specified exceptions;
- with 50% of the net cash proceeds received from the issuance of equity
securities until the leverage ratio is less than 3.5:1, subject to
specified exceptions;
- with the net cash proceeds received from our incurrence of debt, subject
to specified exceptions; and
- with 50% of excess cash flow, as defined in the new credit facility, for
each fiscal year (beginning with the 2001 fiscal year) until the leverage
ratio is less than 3.5:1.
All mandatory prepayment amounts will be applied:
- first, pro rata to the prepayment of the term facilities to reduce the
remaining amortization payments in direct order to maturity;
- second, to the prepayment of outstanding borrowings under the swingline
facility;
- third, to the prepayment of outstanding borrowings under the revolving
credit facility; and
- thereafter, to cash collateralization of outstanding letters of credit.
Mandatory repayments of swingline borrowings and revolving credit borrowing
and cash collateralization of letters of credit will not reduce the lenders'
commitments under the revolving credit facility.
We are permitted to elect, in our sole discretion, to permit lenders holding
a portion of term loan B to decline to have their portions of term loan B
prepaid. Any lender holding a portion of term loan B may then, in its sole
discretion, waive the application of its pro rata share of any mandatory
63
prepayment, with 50% of the waived proceeds applied to the prepayment of the
term loan A, until paid in full, and the balance retained by us.
We prepaid approximately $10.8 million of term loan A and $34.2 million of
term loan B with the proceeds of the offering and the concurrent units offering.
These prepayments were applied to reduce the remaining amortization payments in
direct order to maturity, and will therefore eliminate the next required
amortization payment for term loan A and all amortization payments on term
loan B until the eighth year.
Our direct and indirect parent companies, Advanstar, Inc. and Holdings, and
all our direct and indirect domestic subsidiaries are guarantors of the new
credit facility. Our obligations under the new credit facility are secured by:
- a first-priority perfected lien on substantially all existing and
after-acquired personal property of Advanstar and the subsidiary
guarantors, including a pledge of all of the stock of all our existing or
future domestic subsidiaries and no more than 65% of the voting stock of
any foreign subsidiary that is a direct subsidiary of our company or one
of our domestic subsidiaries and a pledge of all intercompany indebtedness
in favor of our company or any domestic subsidiary;
- first-priority perfected liens on all material existing and after-acquired
real property fee and leasehold interests of Advanstar and the subsidiary
guarantors, subject to customary permitted liens described in the new
credit facility;
- a pledge by Advanstar, Inc. of our capital stock and the capital stock of
Advanstar IH, Inc. held by it;
- a pledge by Holdings of the capital stock of Advanstar, Inc.; and
- a negative pledge on all assets of our company and its subsidiaries.
The new credit facility contains customary covenants and restrictions on our
ability to engage in specified activities, including, but not limited to:
(1) limitations on other indebtedness, subsidiary stock, liens, investments
and guarantees,
(2) restrictions on dividends and redemptions and prepayments of
subordinated debt,
(3) limitations on capital expenditures, and
(4) restrictions on mergers and acquisitions, sales of assets and
sale-leaseback transactions.
The new credit facility also contains financial covenants requiring us to
maintain
- a minimum coverage of fixed charges, and
- a maximum leverage ratio.
Borrowings under the new credit facility are subject to significant
conditions, including compliance with the financial ratios included in the new
credit facility and the absence of any material adverse change.
PARENT COMPANY NOTES
As part of the financing for the acquisition, Advanstar, Inc. issued and
sold parent company units consisting of senior discount notes and warrants to
purchase Holdings common stock. Concurrently with this offering, Advanstar, Inc.
sold additional parent company units with an additional aggregate principal
amount at maturity of $68.6 million at closing of the old notes offering. The
senior discount
64
notes accrete at a rate of 15% compounded semiannually to an aggregate principal
amount of $171.8 million on October 15, 2005. Interest is payable in cash
thereafter on each April 15 and October 15. The parent company notes are senior
unsecured obligations of the issuer but effectively rank junior to all
liabilities of the issuer's subsidiaries, including our obligations under the
senior subordinated notes issued hereby.
The parent company notes are subject to redemption at Advanstar, Inc.'s
option at any time at the redemption prices, expressed as a percentage of
accreted value, plus accrued interest, as described below:
PERIOD REDEMPTION PRICE
- ------ ----------------
Prior to October 15, 2005................................... 115.000%
October 15, 2005--October 14, 2006.......................... 107.500%
October 15, 2006--October 14, 2007.......................... 103.750%
October 15, 2007--October 14, 2008.......................... 101.875%
Thereafter.................................................. 100.000%
Holders have the option of requiring the issuer to repurchase their parent
company notes upon a change of control at a repurchase price equal to 101% of
the accreted value of the parent company notes plus accrued interest, if any, to
the date of the repurchase. In addition, to the extent that Advanstar, Inc. does
not reinvest the proceeds of specified asset sales in its business or use those
proceeds to repay indebtedness, it will be required to use the proceeds to make
an offer to repurchase the parent company notes at a repurchase price equal to
accreted value of the parent company notes plus accrued interest.
The indenture governing the parent company notes restricts the ability of
the issuer and its subsidiaries, including our company and our subsidiaries, to:
- incur additional indebtedness;
- create liens;
- engage in sale-leaseback transactions;
- pay dividends or make distributions in respect of capital stock;
- purchase or redeem capital stock;
- make investments or restricted payments;
- enter into agreements that restrict the ability of Advanstar, Inc.'s
subsidiaries, including our company, to make dividends or loans, transfer
assets or repay debt to Advanstar, Inc.;
- sell assets;
- enter into transactions with stockholders or affiliates; or
- effect a consolidation or merger.
However, these limitations are subject to a variety of exceptions and
qualifications.
The parent company notes include customary events of default, including
failure to pay principal and interest on the notes, a failure to comply with
covenants, a failure by the issuer or its subsidiaries to pay material judgments
or indebtedness and bankruptcy and insolvency events with respect to the issuer
and its material subsidiaries.
65
DESCRIPTION OF NOTES
The notes were issued under an indenture, dated as of February 21, 2001,
among Advanstar, the Guarantors and Wells Fargo Bank Minnesota, N.A., as
trustee. The indenture is limited in aggregate principal amount to
$250.0 million, of which $160.0 million aggregate principal amount was issued in
the offering. Additional notes may be issued in one or more series from time to
time, subject to the limitations set forth under "Certain Covenants--Limitation
on Indebtedness." These additional notes may vote as a class with the notes.
The following summary highlights material terms of the indenture. Because
this is a summary, it does not contain all of the information that is included
in the indenture. You should read the entire indenture, including the
definitions of many terms used below. The indenture is by its terms subject to
and governed by the Trust Indenture Act of 1939, as amended. We have filed a
copy of the indenture as an exhibit to the registration statement of which this
prospectus forms a part.
In this "Description of Notes", Advanstar refers to Advanstar
Communications, Inc. and not any of its subsidiaries.
GENERAL
The notes will be unsecured, senior subordinated obligations of Advanstar,
initially limited to $160.0 million aggregate principal amount, and will mature
on February 15, 2011. Each note will bear interest at the annual rate of 12%
from the date of issuance, or from the most recent date to which interest has
been paid or provided for, payable semi-annually on February 15 and August 15 of
each year commencing on August 15, 2001 to holders of record at the close of
business on the February 1 or August 1 immediately preceding the interest
payment date.
Interest will be computed on the basis of a 360 day year comprised of twelve
30 day months. Principal of, premium, if any, and interest on the notes will be
payable, and the notes may be exchanged or transferred, at the office or agency
of Advanstar in the Borough of Manhattan, The City of New York, which initially
will be the corporate trust office of the trustee in New York, New York.
However, at the option of Advanstar, payment of interest may be made by check
mailed to the address of the holders as such address appears in the note
register. No service charge will be made for any registration of transfer or
exchange of notes, but Advanstar may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith.
OPTIONAL REDEMPTION
Except as set forth below, we may not redeem the notes prior to
February 15, 2006. Thereafter, we may redeem, the notes, in whole or in part,
upon not less than 30 nor more than 60 days prior notice mailed by first-class
mail to each holder's registered address, at the redemption prices, expressed in
percentages of principal amount, set forth below, plus accrued and unpaid
interest to the redemption date, subject to the right of holders of record on
the relevant record date to receive interest due on the relevant interest
payment date, if redeemed during the 12-month period commencing on February 15
of the years set forth below:
REDEMPTION
PERIOD PRICE
- ------ ----------
2006........................................................ 106.000%
2007........................................................ 104.000%
2008........................................................ 102.000%
2009 and thereafter......................................... 100.000%
In addition, at any time and from time to time prior to February 15, 2004,
we may redeem in the aggregate up to 35% of the original principal amount of the
notes with the proceeds of one or more
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Equity Offerings received by, or invested in, us so long as there is a Public
Market at the time of such redemption, at a redemption price, expressed as a
percentage of principal amount, of 112.0% plus accrued and unpaid interest, if
any, to the redemption date, subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date, provided, that
- at least 65% of the original principal amount of the notes must remain
outstanding after each such redemption; and
- the redemption occurs within 90 days of the date of closing of any Equity
Offering.
At any time on or prior to February 15, 2006, we may redeem the notes as a
whole upon the occurrence of a Change of Control, upon not less than 30 nor more
than 60 days prior notice, but in no event more than 30 days after the
occurrence of such Change of Control, mailed by first-class mail to each
holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest, if any, to, the date of redemption, subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date. Notices may be conditional.
"APPLICABLE PREMIUM" means, with respect to a note at any Redemption Date,
the greater of
(1) 1.0% of the principal amount of such note and
(2) the excess of
(A) the present value at such time of
(a) the redemption price of such note at February 15, 2006, such
redemption price being described under "Optional Redemption",
plus
(b) all required interest payments due on such note through
February 15, 2006, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over
(B) the principal amount of such note.
"TREASURY RATE" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity, as compiled and
published in the most recent Federal Reserve Statistical Release H.15
(519) which has become publicly available at least two business days prior to
the Redemption Date, or, if such Statistical Release is no longer published, any
publicly available source of similar market data, most nearly equal to the
period from the Redemption Date to February 15, 2006; PROVIDED, HOWEVER, that if
the period from the Redemption Date to February 15, 2006 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation, calculated to the nearest one-twelfth of a year, from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to February 15, 2006
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
SELECTION OF NOTES IN PARTIAL REDEMPTION. If we are redeeming less than all
of the notes at any time, the trustee will select the notes for redemption
- if the notes are not so listed
- on a pro rata basis
- by lot OR
- by any other method as the trustee shall deem fair and appropriate
67
provided that no notes of $1,000 or less shall be redeemed in part. If we intend
to redeem any note in part, the notice of redemption that we send to you will
state the portion of the principal amount to be redeemed, and we will issue to
you a new note in principal amount equal to the unredeemed portion when we
cancel the original note.
RANKING AND SUBORDINATION
The payment of the principal of, premium, if any, and interest on the notes
is subordinated in right of payment, to the prior payment in full in cash or
Cash Equivalents when due of all Senior Indebtedness of Advanstar. However,
payment from the money or the proceeds of U.S. Government Obligations held in
any defeasance trust described under "Defeasance" below is not subordinate to
any Senior Indebtedness or subject to the restrictions described herein.
As of December 31, 2000, on a pro forma basis, the outstanding Senior
Indebtedness of Advanstar would have been $370.0 million, exclusive of unused
commitments. Although the indenture contains limitations on the amount of
additional Indebtedness that Advanstar may Incur, the amount of such
Indebtedness could be substantial and, such Indebtedness may be Senior
Indebtedness. See "Certain Covenants--Limitation on Indebtedness" below.
"SENIOR INDEBTEDNESS" is defined, as the Bank Indebtedness and all other
Indebtedness of Advanstar, including accrued and unpaid interest thereon,
including interest accruing on or after the filing of any petition in bankruptcy
or for reorganization relating to Advanstar at the rate specified in the
documentation with respect thereto whether or not a claim for post filing
interest is allowed in such proceeding, and fees relating thereto, unless, in
the instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that the obligations in respect of such Indebtedness
are not superior in right of, or are subordinate to, payment to the notes
whether outstanding on the Issue Date or thereafter issued, created, Incurred or
assumed; however, Senior Indebtedness will not include
(1) any obligation of Advanstar to any Subsidiary,
(2) any liability for Federal, state, foreign, local or other taxes owed or
owing by Advanstar,
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities),
(4) any Indebtedness, Guarantee or obligation of Advanstar that is expressly
subordinate or junior in right of payment to any other Indebtedness,
Guarantee or obligation of Advanstar, including any Senior Subordinated
Indebtedness and any Subordinated Obligations or
(5) any Capital Stock.
Only Indebtedness of Advanstar that is Senior Indebtedness will rank senior
to the notes in accordance with the provisions of the indenture. The notes will
in all respects rank equally with all other indebtedness of Advanstar.
Advanstar may not pay principal of, premium, if any, or interest on, the
notes or make any deposit pursuant to the provisions described under
"DEFEASANCE" below and may not otherwise purchase, redeem or retire any notes,
collectively, "PAY THE NOTES", if
(1) any Senior Indebtedness is not paid when due in cash or Cash Equivalents
or
(2) any other default on Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms
unless, in either case, the default has been cured or waived and any such
acceleration has been rescinded or such Senior Indebtedness has been paid in
full in cash or Cash Equivalents. However,
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Advanstar may pay the notes without regard to the foregoing if Advanstar and the
trustee receive written notice approving such payment from the Representative of
the Senior Indebtedness with respect to which either of the events set forth in
clause (1) or (2) of the immediately preceding sentence has occurred and is
continuing. During the continuance of any default, other than a default
described in clause (1) or (2) of the second preceding sentence, with respect to
any Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated immediately without further notice, except such notice as may be
required to effect such acceleration, or the expiration of any applicable grace
periods, we may not pay the notes for a period (a "PAYMENT BLOCKAGE PERIOD")
commencing upon the receipt by the trustee, with a copy to Advanstar, of written
notice (a "BLOCKAGE NOTICE") of such default from the Representative of the
holders of such Designated Senior Indebtedness specifying an election to effect
a Payment Blockage Period and ending 179 days thereafter, or earlier if such
Payment Blockage Period is terminated
(1) by written notice to the Trustee and Advanstar from the Person or
Persons who gave such Blockage Notice,
(2) because the default giving rise to such Blockage Notice is no longer
continuing or
(3) because such Designated Senior Indebtedness has been repaid in full.
Notwithstanding the provisions described in the immediately preceding
sentence, unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, we may resume payments on the notes after the end of such
Payment Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets or securities of Advanstar
upon a total or partial liquidation, dissolution, reorganization or bankruptcy
of or similar proceeding relating to Advanstar or its property, the holders of
Senior Indebtedness will be entitled to receive payment in full in cash or Cash
Equivalents of the Senior Indebtedness, including interest accruing after, or
which would accrue but for, the commencement of any proceeding at the rate
specified in the applicable Senior Indebtedness, whether or not a claim for such
interest would be allowed, before the holders of the notes are entitled to
receive any payment or distribution, and until the Senior Indebtedness is paid
in full in cash or Cash Equivalents, any payment or distribution to which
holders of the notes would be entitled but for the subordination provisions of
the indenture will be made to holders of the Senior Indebtedness as their
interests may appear. If a payment or distribution is made to holders of the
notes that, due to the subordination provisions, should not have been made to
them, such holders are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
If payment of the notes is accelerated because of an Event of Default,
Advanstar or the trustee will promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
Advanstar may not pay the notes until five Business Days after such holders or
the Representative of the Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the notes only if the subordination
provisions of the indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the indenture, in
the event of insolvency, creditors of Advanstar who are holders of Senior
Indebtedness may recover more, ratably, than the noteholders.
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GUARANTEES
Each Guarantor will unconditionally guarantee, jointly and severally, to
each holder and the trustee, on a senior subordinated basis, the full and prompt
payment of principal of, premium, if any, and interest on the notes, and of all
other obligations under the indenture.
The Note Guarantees, will be subordinated to all Guarantor Senior
Indebtedness of such Guarantor on the same basis as the notes are subordinated
to Senior Indebtedness of Advanstar. As of September 30, 2000, on a pro forma
basis, there would have been approximately $370.0 million of Guarantor Senior
Indebtedness, all of which would have represented Guarantees of borrowings under
the Senior Credit Agreement. Although the indenture contains limitations on the
amount of additional Indebtedness that Advanstar's Restricted Subsidiaries may
Incur, the amount of such Indebtedness could be substantial and such
Indebtedness may be Guarantor Senior Indebtedness. See "Certain
Covenants--Limitation on Indebtedness" below. See "--Ranking and Subordination"
above.
The obligations of each Guarantor will be 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 under the Senior Credit
Agreement, 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 Note Guarantee or pursuant to its contribution obligations
under the indenture, result in the obligations of such Guarantor under its Note
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law.
Each Guarantor may consolidate with or merge into or sell its assets to
Advanstar or another Wholly-Owned Guarantor without limitation. Each Guarantor
may consolidate with or merge into or sell all or substantially all its assets
to a corporation, partnership, trust, limited partnership, limited liability
company or other similar entity other than Advanstar or a Wholly-Owned Guarantor
(whether or not affiliated with the Guarantor) except that if the surviving
corporation of any such merger or consolidation is a Subsidiary of Advanstar,
such Subsidiary shall not be a Foreign Subsidiary. Upon the sale or disposition
of a Guarantor (by merger, consolidation, the sale of its Capital Stock or the
sale of all or substantially all of its assets) to a Person (whether or not an
Affiliate of the Guarantor) that is not a Subsidiary of Advanstar, which sale or
disposition is otherwise in compliance with the indenture (including the
covenant described under "Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock"), such Guarantor will be deemed released from all its
obligations under the indenture and its Note Guarantee and such Note Guarantee
will terminate; PROVIDED, HOWEVER, that any such termination will occur only to
the extent that all obligations of such Guarantor under the Senior Credit
Agreement and all of its Guarantees of, and under all of its pledges of assets
or other security interests that secure, any other Indebtedness of Advanstar
will also terminate upon such release, sale or transfer.
CHANGE OF CONTROL
Upon the occurrence of any of the following events, each, a "CHANGE OF
CONTROL", unless Advanstar shall have exercised its right to redeem the notes as
described under "--Optional Redemption," each holder will have the right to
require Advanstar to repurchase all or any part of such holder's notes at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase, subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date:
(1) the sale, lease, transfer, conveyance or other disposition, other than
by way of merger or consolidation, in one or a series of related
transactions, of all or substantially all of the assets of Advanstar and
its Subsidiaries, taken as a whole, to any "person" or "group" (as those
terms are used in Section 13(d) of the Exchange Act), other than the
Principals and their Related Parties;
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(2) the adoption of a plan for the liquidation or dissolution of Advanstar;
(3) the consummation of any transaction, including, without limitation, any
merger or consolidation, the result of which is that any "person" or
"group" (as those terms are used in Section 13(d) of the Exchange Act),
other than the Principals and their Related Parties, becomes the
"beneficial owner" (as that term is defined in Rule 13D-3 and Rule 13D-5
under the Exchange Act), directly or indirectly through one or more
intermediaries, of 35% or more of the voting power of the outstanding
voting stock of Advanstar; or
(4) the first day on which a majority of the members of the Board of
Directors of Advanstar are not Continuing Members.
"CONTINUING MEMBERS" means, as of any date of determination, any member of
the Board of Directors of Advanstar who:
(1) was a member of Advanstar's Board of Directors immediately after the
Issue Date; or
(2) was nominated for election or elected to Advanstar's Board of
Directors with the approval of, or whose election to the Board of
Directors was ratified by, at least a majority of the Continuing
Members who were members of Advanstar's Board of Directors at the
time of that nomination or election.
"PRINCIPALS" means the DLJ Merchant Banking Funds.
"RELATED PARTY" means, with respect to any Principal,
(1) any controlling stockholder or partner of that Principal on the date
of the indenture; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding (directly or through one or more Subsidiaries) a 51% or more
controlling interest of which consist of the Principals and/or such
other Persons referred to in the immediately preceding clauses
(1) or (2).
Within 30 days following any Change of Control, unless Advanstar has mailed
a redemption notice with respect to all the outstanding notes in connection with
such Change of Control as described under "--Optional Redemption," Advanstar
will mail a notice to each holder with a copy to the trustee stating:
(1) that a Change of Control has occurred and that such holder has the right
to require Advanstar to purchase such holder's notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on a record date to receive interest on the relevant
interest payment date);
(2) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(3) the procedures determined by Advanstar, consistent with the indenture,
that a holder must follow in order to have its notes purchased.
Advanstar will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of the indenture, Advanstar will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations described in the indenture by virtue thereof.
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The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the Senior Credit Agreement. Future
Senior Indebtedness of Holdings, Parent, Advanstar and its Subsidiaries may also
contain prohibitions of certain events that would constitute a Change of Control
or require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require Advanstar to
repurchase the notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on Advanstar. Finally, Advanstar's ability to pay cash to the holders
upon a repurchase may be limited by Advanstar's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases. Even if sufficient funds were
otherwise available, the terms of the Senior Credit Agreement will (and other
Senior Indebtedness may) prohibit Advanstar's prepayment of notes prior to their
scheduled maturity. Consequently, if Advanstar is not able to prepay the Bank
Indebtedness and any other Senior Indebtedness containing similar restrictions
or obtain requisite consents, as described above, Advanstar will be unable to
fulfill its repurchase obligations if holders of notes exercise their repurchase
rights following a Change of Control, thereby resulting in a default under the
indenture.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving Advanstar by increasing the
capital required to effectuate such transactions. The definition of "Change of
Control" includes a disposition of all or substantially all of the property and
assets of Advanstar and its Restricted Subsidiaries. With respect to the
disposition of property or assets, the phrase "all or substantially all" as used
in the indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which is the
choice of law under the indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the property or assets of a Person, and therefore
it may be unclear as to whether a Change of Control has occurred and whether
Advanstar is required to make an offer to repurchase the notes as described
above.
CERTAIN COVENANTS
The indenture contains certain covenants including, among others, the
following:
LIMITATION ON INDEBTEDNESS. (a) Advanstar will not, and will not permit any
of its Restricted Subsidiaries to, Incur any Indebtedness; PROVIDED, HOWEVER,
that Advanstar and its Restricted Subsidiaries that are Guarantors may Incur
Indebtedness if on the date thereof, after giving pro forma effect to the
incurrence of such Indebtedness, the Leverage Ratio for Advanstar and its
Restricted Subsidiaries is less than 6.00 to 1.00.
(b) Notwithstanding the foregoing paragraph (a), Advanstar and its
Restricted Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Senior Credit Agreement of up to
$545.0 million outstanding at any time;
(2) the Note Guarantees and Guarantees of Indebtedness Incurred pursuant to
paragraph (a) or clause (1) of this paragraph (b);
(3) Indebtedness of Advanstar owing to and held by any Wholly-Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held
by Advanstar or any Wholly-Owned Subsidiary; PROVIDED, HOWEVER, that any
subsequent issuance or transfer of any Capital Stock or any other event
that results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-
Owned Subsidiary or any subsequent transfer of any such Indebtedness,
except to Advanstar or a Wholly-Owned Subsidiary, will be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;
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(4) Indebtedness represented by
(x) $160.0 million aggregate principal amount of the notes and the Note
Guarantees,
(y) any Indebtedness (other than the Indebtedness described in clauses
(1), (2) and (3)) outstanding on the Issue Date and
(z) any Refinancing Indebtedness Incurred in respect of any Indebtedness
described in this clause (4) or clause (5) or Incurred pursuant to
paragraph (a) above;
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the
date on which such Restricted Subsidiary, was acquired by Advanstar;
PROVIDED, HOWEVER, that at the time such Restricted Subsidiary is
acquired by Advanstar, Advanstar would have been able to Incur $1.00 of
additional Indebtedness pursuant to paragraph (a) above after giving
effect to the Incurrence of such Indebtedness pursuant to this
clause (5);
(6) Indebtedness under Currency Agreements and Interest Rate Agreements;
PROVIDED, HOWEVER, that in the case of Currency Agreements and Interest
Rate Agreements, such Currency Agreements and Interest Rate Agreements
are entered into for bona fide hedging purposes of Advanstar or its
Restricted Subsidiaries, as determined in good faith by the Board of
Directors or senior management of Advanstar, and correspond in terms of
notional amount, duration, currencies and interest rates, as applicable,
to Indebtedness of Advanstar or its Restricted Subsidiaries Incurred
without violation of the indenture or to business transactions of
Advanstar or its Restricted Subsidiaries on customary terms entered into
in the ordinary course of business; and
(7) Indebtedness (other than Indebtedness described in clauses (1)-(6)) in a
principal amount that, when taken together with the principal amount of
all other Indebtedness Incurred pursuant to this clause (7) and then
outstanding, will not exceed $20.0 million.
(c) Neither Advanstar nor any Restricted Subsidiary will Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Subordinated Obligations of Advanstar
unless such Indebtedness will be subordinated to the notes to at least the same
extent as such Subordinated Obligations. No Guarantor will Incur any
Indebtedness under paragraph (b) above if the proceeds thereof are used,
directly or indirectly, to refinance any Guarantor Subordinated Obligations of
such Guarantor unless such Indebtedness will be subordinated to the obligations
of such Guarantor under its Note Guarantee to at least the same extent as such
Guarantor Subordinated Obligations.
(d) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant, in the event that Indebtedness meets the
criteria of more than one of the types of Indebtedness described in
paragraph (b) above, Advanstar, in its sole discretion, will classify such item
of Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
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(e) Advanstar will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Debt.
LIMITATION ON LAYERING. Advanstar will not Incur any Indebtedness if such
Indebtedness is subordinate or junior in ranking in any respect to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
contractually subordinated in right of payment to Senior Subordinated
Indebtedness. No Guarantor will Incur any Indebtedness if such Indebtedness is
contractually subordinate or junior in ranking in any respect to any Guarantor
Senior Indebtedness of such Guarantor unless such Indebtedness is Guarantor
Senior Subordinated Indebtedness of such Guarantor or is contractually
subordinated in right of payment to Guarantor Senior Subordinated Indebtedness
of such Guarantor.
LIMITATION ON RESTRICTED PAYMENTS. (a) Advanstar will not, and will not
permit any of its Restricted Subsidiaries, directly or indirectly, to
- declare or pay any dividend or make any distribution on or in respect of
its Capital Stock, including any payment in connection with any merger or
consolidation involving Advanstar or any of its Restricted Subsidiaries,
except
(A) dividends or distributions payable in its Capital Stock, other than
Disqualified Stock, or in options, warrants or other rights to
purchase such Capital Stock and
(B) dividends or distributions payable to Advanstar or a Restricted
Subsidiary of Advanstar, and if such Restricted Subsidiary is not a
Wholly-Owned Subsidiary, to its other holders of Capital Stock on a
pro rata basis,
- purchase, redeem, retire or otherwise acquire for value any Capital Stock
of Advanstar held by Persons other than a Restricted Subsidiary of
Advanstar or any Capital Stock of a Restricted Subsidiary of Advanstar
held by any Affiliate of Advanstar, other than another Restricted
Subsidiary, in either case, other than in exchange for its Capital Stock
(other than Disqualified Stock,
- purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations, other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of purchase, repurchase or acquisition, or
- make any Investment, other than a Permitted Investment, in any Person,
We refer to any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment as a
"RESTRICTED PAYMENT".
if at the time Advanstar or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default shall have occurred and be continuing, or would result
therefrom; or
(2) Advanstar is not able to Incur an additional $1.00 of Indebtedness
pursuant to paragraph (a) under "Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other Restricted
Payments declared or made subsequent to the Issue Date would exceed the
sum of:
(A) (1) Consolidated EBITDA accrued during the period, treated as one
accounting period, from January 1, 2001 to the end of the most recent
fiscal quarter ending prior to the date of such Restricted Payment as
to which financial results are available, or, in case such
Consolidated EBITDA is a deficit, minus 100% of such deficit, less
74
(2) 150% of Consolidated Interest Expense for such period;
(B) the aggregate Net Cash Proceeds received by Advanstar from the issue
or sale of its Capital Stock, other than Disqualified Stock, or other
capital contributions subsequent to the Issue Date, other than net
proceeds to the extent
(x) used to redeem notes or
(y) received from an issuance or sale of such Capital Stock to a
Subsidiary of Advanstar or an employee stock ownership plan or
similar trust to the extent such sale to an employee stock ownership
plan or similar trust is financed by loans from or guaranteed by
Advanstar or any Restricted Subsidiary unless such loans have been
repaid with cash on or prior to the date of determination;
(C) the amount by which Indebtedness of Advanstar is reduced on
Advanstar's balance sheet upon the conversion or exchange, other than
by a Subsidiary of Advanstar, subsequent to the Issue Date of any
Indebtedness of Advanstar convertible or exchangeable for Capital
Stock of Advanstar, less the amount of any cash, or other property,
distributed by Advanstar upon such conversion or exchange; and
(D) the amount equal to the net reduction in Investments, other than
Permitted Investments, made by Advanstar or any of its Restricted
Subsidiaries in any Person resulting from
(1) repurchases or redemptions of such Investments by such Person,
proceeds realized upon the sale of such Investment to an unaffiliated
purchaser, repayments of loans or advances or other transfers of
assets as a return of capital or similar payment, excluding by way of
dividend or distribution, by such Person to Advanstar or any
Restricted Subsidiary of Advanstar or
(2) the redesignation of Unrestricted Subsidiaries as Restricted
Subsidiaries, valued in each case as provided in the definition of
"Investment", not to exceed, in the case of any Unrestricted
Subsidiary, the amount of Investments, excluding Permitted
Investments, previously made by Advanstar or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included
in the calculation of the amount of Restricted Payments; PROVIDED,
HOWEVER, that no amount will be included under this clause (D) to the
extent it is already included in Consolidated Net Income.
(b) The provisions of paragraph (a) will not prohibit:
(1) any purchase or redemption of Capital Stock or Subordinated Obligations
of Advanstar made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of Advanstar (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or similar trust to the
extent such sale to an employee stock ownership plan or similar trust is
financed by loans from or guaranteed by Advanstar or any Restricted
Subsidiary unless such loans have been repaid with cash on or prior to
the date of determination); PROVIDED, HOWEVER, that
(A) such purchase or redemption will be excluded in subsequent
calculations of the amount of Restricted Payments and
(B) the Net Cash Proceeds from such sale will be excluded from
clause (3) (B) of paragraph (a);
(2) any purchase or redemption of Subordinated Obligations of Advanstar made
by exchange for, or out of the proceeds of the substantially concurrent
sale of, Subordinated Obligations of Advanstar; PROVIDED, HOWEVER, that
such purchase or redemption will be excluded in subsequent calculations
of the amount of Restricted Payments;
75
(3) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted under "Limitation on Sales of
Assets and Subsidiary Stock," below; PROVIDED, HOWEVER, that such
purchase or redemption will be excluded in subsequent calculations of the
amount of Restricted Payments;
(4) dividends paid within 60 days after the date of declaration if at such
date of declaration such dividend would have complied with this
provision; PROVIDED, HOWEVER, that such dividends will be included in
subsequent calculations of the amount of Restricted Payments;
(5) cash dividends to Parent or Holdings for the purpose of, and in amounts
equal to, amounts required to permit Parent or Holdings
(A) to redeem or repurchase Capital Stock of Parent or Holdings from
existing or former employees or management of Parent, Holdings,
Advanstar or any Subsidiary or their assigns, estates or heirs, in
each case in connection with the repurchase provisions under employee
stock option or stock purchase agreements or other agreements to
compensate management employees PROVIDED, HOWEVER, that such
dividends will be included in subsequent calculations of the amount
of Restricted Payments;
(B) to make loans or advances to employees or directors of Advanstar or
any Subsidiary the proceeds of which are used to purchase Capital
Stock of Parent or Holdings; PROVIDED, HOWEVER, that such dividends
will be included in subsequent calculations of the amount of
Restricted Payments;
(C) to pay any Federal, state or local income taxes to the extent that
such income taxes are attributable to the income of Advanstar and its
Subsidiaries, pay franchise taxes and other fees required to maintain
its legal existence, corporate overhead expenses Incurred in the
ordinary course of business, and salaries or other compensation of
employees who perform services for both Parent or Holdings and
Advanstar; PROVIDED, HOWEVER, that such dividends will be excluded in
subsequent calculations of the amount of Restricted Payments and
(D) so long as no Default or Event of Default shall have occurred and be
continuing, in an amount not to exceed $100,000 in any fiscal year to
enable Parent or Holdings to make payments to holders of its Capital
Stock in lieu of the issuance of fractional shares of its Capital
Stock;
PROVIDED, HOWEVER, that such dividends will be excluded in subsequent
calculations of the amount of Restricted Payments; PROVIDED FURTHER,
HOWEVER, that the aggregate amount of dividends paid to Parent or
Holdings pursuant to this clause (5) (other than payments for taxes
permitted by clause (C)) shall not exceed $3.0 million in any fiscal
year;
(6) repurchases of Capital Stock deemed to occur upon the exercise of stock
options if such Capital Stock represents a portion of the exercise price
hereof; PROVIDED, HOWEVER, that such repurchases will be excluded from
subsequent calculations of the amount of Restricted Payments; and
(7) so long as no Default or Event of Default has occurred and is
continuing, any other Restricted Payment which, together with all other
Restricted Payments made under this clause (7) since the Issue Date, does
not exceed $20.0 million; PROVIDED that such payments will be included in
subsequent calculations of the amounts of Restricted Payments.
LIMITATION ON LIENS. Advanstar will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to
exist any Lien, other than Permitted Liens and Liens securing Senior
Indebtedness and Guarantor Senior Indebtedness, upon any of its property or
assets (including Capital Stock), whether owned on the date of the indenture or
thereafter acquired, securing
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any Indebtedness, unless contemporaneously therewith effective provision is made
to secure the Indebtedness due under the indenture and the notes or, in respect
of Liens on any Restricted Subsidiary's property or assets, any Note Guarantee
of such Restricted Subsidiary, equally and ratably with (or prior to in the case
of Liens with respect to Subordinated Obligations) the Indebtedness secured by
such Lien for so long as such Indebtedness is so secured.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. Advanstar will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to
(1) pay dividends or make any other distributions on its Capital Stock or
pay any Indebtedness or other obligations owed to Advanstar,
(2) make any loans or advances to Advanstar or
(3) transfer any of its property or assets to Advanstar,
except
(a) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the date of the indenture (including, without
limitation, the Senior Credit Agreement);
(b) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by a Restricted Subsidiary on or prior to the date on which
such Restricted Subsidiary was acquired by Advanstar (other than
Indebtedness Incurred as consideration in, or to provide, all or any
portion of the funds utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by
Advanstar) and outstanding on such date;
(c) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement effecting a refinancing of
Indebtedness Incurred pursuant to an agreement referred to in
clause (a) or (b) of this covenant or this clause (c) or contained in
any amendment to an agreement referred to in clause (a) or (b) of
this covenant or this clause (c); PROVIDED, HOWEVER, that the
encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such agreement or amendment are no less
favorable to the Holders of the notes than encumbrances and
restrictions contained in such agreements;
(d) in the case of clause (3) above, any encumbrance or restriction
(A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease,
license or similar contract, or the assignment or transfer of any
such lease, license or other contract,
(B) by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of
Advanstar or any Restricted Subsidiary not otherwise prohibited
by the indenture,
(C) contained in mortgages, pledges or other security agreements
securing Indebtedness of a Restricted Subsidiary to the extent
such encumbrance or restrictions restrict the transfer of the
property subject to such mortgages, pledges or other security
agreements or
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(D) pursuant to customary provisions restricting dispositions of real
property interests set forth in any reciprocal easement
agreements of Advanstar or any Restricted Subsidiary;
(e) any restriction with respect to a Restricted Subsidiary (or any of
its property or assets) imposed pursuant to an agreement entered into
for the direct or indirect sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted
Subsidiary (or the property or assets that are subject to such
restriction) pending the closing of such sale or disposition;
(f) encumbrances or restrictions arising or existing by reason of
applicable law; and
(g) encumbrances or restrictions arising or existing by reason of
customary provisions in joint venture agreements and other similar
agreements.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) Advanstar will not,
and will not permit any of its Restricted Subsidiaries to, make any Asset
Disposition unless,
- Advanstar or such Restricted Subsidiary receives consideration at the time
of such Asset Disposition at least equal to the fair market value, as
determined in good faith by the Board of Directors (including as to the
value of all non-cash consideration), of the shares and assets subject to
such Asset Disposition and
- at least 85% of the consideration thereof received by Advanstar or such
Restricted Subsidiary is in the form of cash or Cash Equivalents.
With respect to any Asset Disposition occurring on or after the Issue Date
from which Advanstar or any Restricted Subsidiary receives Net Available Cash,
Advanstar or such Restricted Subsidiary shall apply an amount equal to 100% of
the Net Available Cash from such Asset Disposition at its election, to either
(1) prepay, repay or purchase Senior Indebtedness or Indebtedness, other
than any Preferred Stock, of a Wholly-Owned Subsidiary, in each case
other than Indebtedness owed to Advanstar or an Affiliate of Advanstar
other than Bank Indebtedness, within 365 days from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash;
(2) invest in Additional Assets within 365 days from the later of the date
of such Asset Disposition or the receipt of such Net Available Cash; or
(3) make an offer pursuant to paragraph (b) to purchase the notes and other
Senior Subordinated Indebtedness outstanding with similar provisions
requiring Advanstar to make an offer to purchase such Indebtedness with
the proceeds from any Asset Disposition, the "PARI PASSU NOTES", at 100%
of the principal amount thereof, or 100% of the accreted value of such
Pari Passu Notes so tendered if such Pari Passu Notes were issued at a
discount, plus accrued and unpaid interest, if any, to the date of
purchase;
PROVIDED, HOWEVER, that, in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (1) above, Advanstar or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any), unless such commitment is for the provision of a
revolving credit facility, to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions, Advanstar and its Restricted
Subsidiaries will not be required to apply any Net Available Cash in accordance
herewith except to the extent that the aggregate Net Available Cash from all
Asset Dispositions which are not applied in accordance with this covenant exceed
$1.0 million. Any Net Available Cash from an Asset Disposition that is not
invested or
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applied as provided and within the time period set forth in clauses (1) and
(2) of the first sentence of this paragraph will be deemed to constitute "EXCESS
PROCEEDS."
For the purposes of this covenant and for no other purpose, the following
will be deemed to be cash:
(x) the assumption by the transferee of Senior Indebtedness of Advanstar or
Indebtedness of any Restricted Subsidiary of Advanstar and the release of
Advanstar or such Restricted Subsidiary from all liability on such Senior
Indebtedness or Indebtedness in connection with such Asset Disposition,
in which case Advanstar will, without further action, be deemed to have
applied such assumed Indebtedness in accordance with clause (1) of the
preceding paragraph;
(y) securities received by Advanstar or any Restricted Subsidiary of
Advanstar from the transferee that are promptly converted by Advanstar or
such Restricted Subsidiary into cash; and
(z) the fair market value, as determined by the Board of Directors of
Advanstar in good faith, of any Designated Noncash Consideration received
by Advanstar or any of its Restricted Subsidiaries in any Asset
Disposition, taken together with the fair market value, as determined by
the Board of Directors of Advanstar in good faith, of all other
Designated Noncash Consideration received pursuant to this clause (z)
that is at that time outstanding, not to exceed $25.0 million at the time
of the receipt of such Designated Noncash Consideration, with the fair
market value of each item of Designated Noncash Consideration being
measured at the time received and without giving effect to subsequent
changes in value, in which case such Designated Noncash Consideration
shall not constitute Net Available Cash.
(b) When the aggregate amount of Excess Proceeds exceeds $5.0 million, with
lesser amounts to be carried forward for purposes of determining whether an
Offer, as defined, is required with respect to the Excess Proceeds from any
subsequent Asset Disposition, Advanstar will be required to apply such Excess
Proceeds to the repayment of the notes and any Pari Passu Notes as follows:
(A) Advanstar will make an offer to purchase (an "OFFER") within ten days of
such time from all holders of the notes in accordance with the procedures
set forth in the indenture in the maximum principal amount (expressed as
a multiple of $1,000) of notes that may be purchased out of an amount
(the "NOTE AMOUNT") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding
principal amount of the notes and the denominator of which is the sum of
the outstanding, principal amount of the notes and the outstanding
principal amount, or accreted value, as the case may be, of the Pari
Passu Notes at a purchase price of 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of purchase and
(B) Advanstar will make an offer to purchase any Pari Passu Notes, a "PARI
PASSU OFFER", in an amount equal to the excess of the Excess Proceeds
over the note Amount at a purchase price of 100% of the principal amount,
or accreted value, as the case may be, thereof plus accrued and unpaid
interest, if any, to the date of purchase in accordance with the
procedures, including prorating in the event of oversubscription, set
forth in the documentation governing such Pari Passu Notes with respect
to the Pari Passu Offer. If the aggregate purchase price of the notes and
Pari Passu Notes tendered pursuant to the Offer and the Pari Passu Offer
is less than the Excess Proceeds, the remaining Excess Proceeds will be
available to Advanstar to fund other corporate purposes not otherwise
prohibited by the indenture.
(c) Advanstar will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of notes pursuant to the
indenture. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, Advanstar will comply
with the applicable securities laws and
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regulations and will not be deemed to have breached its obligations under the
indenture by virtue thereof.
LIMITATION ON ASSET SWAPS. Advanstar will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Swaps, unless:
(1) at the time or entering into such Asset Swap and immediately after
giving effect to such Asset Swap, no Default or Event of Default shall
have occurred and be continuing or would occur as a consequence thereof;
(2) in the event such Asset Swap involves the transfer by Advanstar or any
Restricted Subsidiary of assets having an aggregate fair market value, as
determined by the Board of Directors of Advanstar in good faith, in
excess of $1.0 million, the terms of such Asset Swap have been approved
by a majority of the members of the Board of Directors of Advanstar and
(3) in the event such Asset Swap involves an aggregate amount in excess of
$10.0 million, Advanstar has received a written opinion from an
independent investment banking firm of nationally recognized standing
that such Asset Swap is fair to Advanstar or such Restricted Subsidiary,
as the case may be, from a financial point of view.
LIMITATION ON AFFILIATE TRANSACTIONS. (a) Advanstar will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or conduct any transaction, including the purchase, sale, lease or exchange of
any property or the rendering of any service, with any Affiliate of Advanstar,
an "AFFILIATE TRANSACTION", unless:
(1) the terms of such Affiliate Transaction are no less favorable to
Advanstar or such Restricted Subsidiary, as the case may be, than those
that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate;
(2) in the event such Affiliate Transaction involves an aggregate amount in
excess of $1.0 million, the terms of such transaction have been approved
by a majority of the members of the Board of Directors of Advanstar and
by a majority of the members of such Board having no personal stake in
such transaction, if any (and such majority or majorities, as the case
may be, determines that such Affiliate Transaction satisfies the criteria
in (1) above); and
(3) in the event such Affiliate Transaction involves an aggregate amount in
excess of $5.0 million, Advanstar has received a written opinion from an
independent investment banking firm of nationally recognized standing
that such Affiliate Transaction is not materially less favorable than
those that might reasonably have been obtained in a comparable
transaction at such time on an arm's-length basis from a Person that is
not an Affiliate; PROVIDED, HOWEVER, that this clause (3) will not apply
to any Affiliate Transaction with any joint venture or similar entity in
which the Principals and their Related Parties do not have any direct or
indirect interests other than the interests of Advanstar and its
Restricted Subsidiaries in such joint venture or similar entity.
(b) The foregoing paragraph (a) will not apply to
(1) any Restricted Payment permitted to be made pursuant to the covenant
described under "Limitation on Restricted Payments;"
(2) any issuance of
(A) securities to any of the Principals and Related Parties or
(B) securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements,
stock options and stock ownership plans approved by the Board of
Directors of Advanstar;
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(3) loans or advances to employees in the ordinary course of business of
Advanstar or any of its Restricted Subsidiaries;
(4) any transaction between Advanstar and a Wholly-Owned Subsidiary or
between Wholly-Owned Subsidiaries;
(5) payments of customary fees by Advanstar or any of its Restricted
Subsidiaries to the DLJ Merchant Banking Funds and their Affiliates made
for any financial advisory, financing, underwriting or placement services
or in respect of other investment banking activities, including, without
limitation, in connection with acquisitions or divestitures; and
(6) transactions on arm's-length basis with Advanstar IH, Inc. and its
subsidiaries in the ordinary course of business; provided, in the case of
this clause (6), that any individual transaction or series of related
transactions consummated in a twelve month period in excess of
$5.0 million shall require the written opinion referred to in
clause (a)(3) above.
LIMITATION ON DISPOSITIONS OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. Advanstar
(1) will not, and will not permit any Restricted Subsidiary of Advanstar to,
transfer, convey, sell, lease or otherwise dispose of any Capital Stock
of any Restricted Subsidiary to any Person (other than Advanstar or a
Wholly-Owned Subsidiary), unless
(A) such transfer, conveyance, sale, lease or other disposition is a sale
of the common stock of such Restricted Subsidiary and, after giving
effect to the consummation thereof, Advanstar owns
(x) more than 50% of the outstanding common stock of such Restricted
Subsidiary or
(y) none of the outstanding common stock of such Restricted
Subsidiary and
(B) the cash net proceeds from such transfer, conveyance, sale, lease or
other disposition are applied in accordance with the covenant
described above under "Limitation on Sales of Assets and Subsidiary
Stock"; and
(2) will not permit any Restricted Subsidiary to issue any of its Capital
Stock (other than, if necessary, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to Advanstar or a
Wholly-Owned Subsidiary, unless such issuance is an issuance of the
common stock of such Restricted Subsidiary and, after giving effect to
the consummation thereof, Advanstar owns
(x) more than 50% of the outstanding common stock of such Restricted
Subsidiary or
(y) none of the outstanding common stock of such Restricted Subsidiary.
REPORTS. Notwithstanding that Advanstar may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted
by the Exchange Act, Advanstar will file with the Commission, and provide,
within 15 days after Advanstar is required to file the same with the Commission,
the Trustee and the holders of the notes with the annual reports and the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) that are
specified in Sections 13 and 15(d) of the Exchange Act. In the event that
Advanstar is not permitted to file such reports, documents and information with
the Commission pursuant to the Exchange Act, Advanstar will nevertheless deliver
such Exchange Act information to the Trustee and the holders of the notes as if
Advanstar were subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act.
MERGER AND CONSOLIDATION. Advanstar will not consolidate with or merge with
or into, or convey, transfer or lease all or substantially all its assets to,
any Person, unless:
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(1) the resulting, surviving or transferee Person (the "SUCCESSOR COMPANY")
will be a corporation, partnership, trust, limited liability company or
other similar entity organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company, if not Advanstar, will expressly assume, by
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of Advanstar under the
notes and the indenture;
(2) immediately after giving effect to such transaction (and treating any
Indebtedness that becomes an obligation of the Successor Company or any
Subsidiary of the Successor Company as a result of such transaction as
having been Incurred by the Successor Company or such Subsidiary at the
time of such transaction), no Default or Event of Default shall have
occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur at least an additional $1.00 of
Indebtedness pursuant to paragraph (a) of "Limitation on Indebtedness";
and
(4) Advanstar has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture, if any, comply with the
indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Advanstar under the indenture, but, in the
case of a lease of all or substantially all its assets, Advanstar will not be
released from the obligation to pay the principal of and interest on the notes.
Notwithstanding the foregoing clauses (2) and (3),
(1) any, Restricted Subsidiary of Advanstar may consolidate with, merge into
or transfer all or part of its properties and assets to Advanstar and
(2) Advanstar may merge with an Affiliate incorporated solely for the
purpose of reincorporating Advanstar in another jurisdiction to realize
tax or other benefits.
FUTURE GUARANTORS. After the Issue Date, Advanstar will cause each
Restricted Subsidiary (other than a Foreign Subsidiary) created or acquired by
Advanstar to execute and deliver to the Trustee a Note Guarantee pursuant to
which such Guarantor will unconditionally Guarantee, on a joint and several
basis, the full and prompt payment of the principal of, premium, if any and
interest on the, notes on a senior subordinated basis.
LIMITATION ON LINES OF BUSINESS. Advanstar will not, nor will it permit any
of its Subsidiaries to, engage in any line of business, other than a Related
Business.
EVENTS OF DEFAULT
Each of the following constitutes an Event of Default under the indenture:
(1) a default in any payment of interest on any note when due, continued for
30 days, whether or not such payment is prohibited by the provisions
described under "Ranking and Subordination" above,
(2) a default in the payment of principal of any note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise, whether or not such payment is prohibited by
the provisions described under "Ranking and Subordination" above,
(3) the failure by Advanstar to comply with its obligations under "Certain
Covenants--Merger and Consolidation" above,
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(4) failure by Advanstar to comply for 30 days after notice with any of its
obligations under the covenants described under "Change of Control" above
or under covenants described under "Certain Covenants" above (in each
case, other than a failure to purchase notes which will constitute an
Event of Default under clause (2) above),
(5) the failure by Advanstar to comply for 60 days after notice with its
other agreements contained in the indenture,
(6) Indebtedness of Advanstar or any Restricted Subsidiary is not paid
within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5.0 million (the "CROSS
ACCELERATION PROVISION"),
(7) certain events of bankruptcy, insolvency or reorganization of Advanstar
or a Significant Subsidiary (the "BANKRUPTCY PROVISIONS"),
(8) any judgment or decree for the payment of money in excess of
$5.0 million is rendered against Advanstar or a Significant Subsidiary
and such judgment or decree remains undischarged or unstayed for a period
of 60 days after such judgment becomes final and non-appealable (the
"JUDGMENT DEFAULT PROVISION") or
(9) any Note Guarantee ceases to be in full force and effect (except as
contemplated by the terms of the indenture) or any Guarantor denies or
disaffirms its obligations under the indenture or its Note Guarantee.
However, a default under clauses (4) and (5) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of the
outstanding notes notify Advanstar of the default and Advanstar does not cure
such default within the time specified in clauses (4) and (5) hereof after
receipt of such notice.
If an Event of Default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding notes by notice to
Advanstar and the trustee may declare the principal of and accrued and unpaid
interest, if any, on all the notes to be due and payable. Upon such a
declaration, such principal and accrued and unpaid interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of Advanstar occurs and is continuing,
the principal of and accrued and unpaid interest on all the notes will become
and be immediately due and payable without any declaration or other act on the
part of the trustee or any holders. Under certain circumstances, the holders of
a majority in principal amount of the outstanding notes may rescind any such
acceleration with respect to the notes and its consequences. In the event of a
declaration of acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (4) of the preceding paragraph, the declaration of
acceleration of the Notes shall be automatically annulled if the holders of any
Indebtedness described in clause (5) have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of the date of such
declaration and if
(1) the annulment of the acceleration of the Notes would not conflict with
any judgment or decree of a court of competent jurisdiction and
(2) all existing Events of Default, except non-payment of principal or
interest on the Notes that became due solely because of the acceleration
of the Notes, have been cured or waived.
Subject to the provisions of the indenture relating to the duties of the
trustee, if an Event of Default occurs and is continuing, the trustee will be
under no obligation to exercise any of the rights or powers under the indenture
at the request or direction of any of the holders unless such holders have
offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to
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enforce the right to receive payment of principal, premium, if any, or interest
when due, no holder may pursue any remedy with respect to the indenture or the
notes unless
(1) such holder has previously given the trustee notice that an Event of
Default is continuing,
(2) holders of at least 25% in principal amount of the outstanding notes
have requested the trustee to pursue the remedy,
(3) such holders have offered the trustee reasonable security or indemnity
against any loss, liability or expense,
(4) the trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and
(5) the holders of a majority in principal amount of the outstanding notes
have not given the trustee a direction that, in the opinion of the
trustee, is inconsistent with such request within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the trustee
or of exercising any trust or power conferred on the trustee. The trustee,
however, may refuse to follow any direction that conflicts with law or the
indenture or that the trustee determines is unduly prejudicial to the rights of
any other holder or that would involve the trustee in personal liability. Prior
to taking any action under the indenture, the trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The indenture provides that if a Default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, premium, if any, or interest on any note, the trustee may
withhold notice if and so long as a committee of its trust officers in good
faith determines that withholding notice is in the interests of the noteholders.
In addition, Advanstar is required to deliver to the trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. Advanstar
also is required to deliver to the trustee, within 30 days after the occurrence
thereof, written notice of any events which would constitute certain Defaults,
their status and what action Advanstar is taking or proposes to take in respect
thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the indenture may be amended with the consent
of the holders of a majority in principal amount of the notes then outstanding
and any past default or compliance with any provisions may be waived with the
consent of the holders of a majority in principal amount of the notes then
outstanding. However, without the consent of each holder of an outstanding note
affected, no amendment may, among other things:
(1) reduce the amount of notes whose holders must consent to an amendment,
(2) reduce the stated rate of or extend the stated time for payment of
interest on any note,
(3) reduce the principal of or extend the Stated Maturity of any note,
(4) reduce the premium payable upon the redemption or repurchase of any note
or change the time at which any note may be redeemed as described under
"Optional Redemption" above,
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(5) make any note payable in money other than that stated in the note,
(6) impair the right of any holder to receive payment of principal of and
interest on such holder's notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to
such holder's notes or
(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions.
Without the consent of any holder, Advanstar, the Guarantors and the trustee
may amend the indenture:
- to cure any ambiguity, omission, defect or inconsistency
- to provide for the assumption by a successor corporation, partnership,
trust or limited liability company of the obligations of Advanstar under
the indenture
- to provide for uncertificated notes in addition to or in place of
certificated notes (PROVIDED that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated notes are described in Section 163(f)
(2) (B) of the Code)
- to add Guarantees with respect to the notes
- to secure the notes
- to add to the covenants of Advanstar for the benefit of the holders or to
surrender any right or power conferred upon Advanstar
- to make any change that does not adversely affect the rights of any holder
or
- to comply with any requirement of the Commission in connection with the
qualification of the indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Indebtedness
then outstanding unless the holders of such Senior Indebtedness (or any group or
representative thereof authorized to give a consent) consent to such change.
The consent of the holders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient such consent
approves the substance of the proposed amendment. After an amendment under the
indenture becomes effective, Advanstar is required to mail to the holders a
notice briefly describing such amendment. However, the failure to give such
notice to all the holders, or any defect therein, will not impair or affect the
validity of the amendment.
DEFEASANCE
Advanstar at any time may terminate all its obligations under the notes and
the indenture ("LEGAL DEFEASANCE"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes
and to maintain a registrar and paying agent in respect of the notes, and after
giving effect to such legal defeasance, any omission to comply with such
obligations shall no longer constitute a Default or Event of Default with
respect to the notes. If Advanstar exercises its legal defeasance option, the
Note Guarantees in effect at such time will terminate. Advanstar at any time may
terminate its obligations under covenants described under "Certain Covenants",
other than "Merger and Consolidation", the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries,
the judgment default provision and the Note Guarantee provision described under
"Events of Default" above and the limitations contained in clauses (3) and
(4) under
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"Certain Covenants--Merger and Consolidation" above ("COVENANT DEFEASANCE") and
thereafter any omission to comply with such obligations shall no longer
constitute a Default or Event of Default with respect to the notes.
Advanstar may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Advanstar exercises its legal
defeasance option, payment of the notes may not be accelerated because of any
event that, in the absence of such legal defeasance, would have constituted an
Event of Default with respect thereto. If Advanstar exercises its covenant
defeasance option, the events specified in clause (4), (6), (7), with respect
only to Significant Subsidiaries, (8) or (9) under "Events of Default" above
will no longer constitute an Event of Default, and payment of the notes may not
be accelerated because of the occurrence of any such event or because of the
failure of Advanstar to comply with clause (3) or (4) under "Certain
Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, Advanstar must irrevocably
deposit in trust (the "DEFEASANCE TRUST") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium, if any, and
interest on the notes to redemption or maturity, as the case may be, and must
comply with certain other conditions, including delivery to the Trustee of an
Opinion of Counsel to the effect that holders of the notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and defeasance 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 and defeasance had not occurred, and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law.
CONCERNING THE TRUSTEE
Wells Fargo Bank Minnesota, N.A. is the trustee under the indenture and has
been appointed by Advanstar as Registrar and Paying Agent with regard to the
notes. An affiliate of the trustee is a lender under our new credit facility.
GOVERNING LAW
The indenture provides that it, the notes and the Note Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflicts of law to the extent
that the application of the law of another jurisdiction would be required
thereby.
BOOK-ENTRY, DELIVERY AND FORM
THE GLOBAL NOTES
Notes will be issued in the form of one or more registered notes in global
form, which will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC, or
will remain in the custody of the trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the trustee.
Except as set forth below, the global notes, may be transferred, in whole
and not in part, solely to another nominee of DTC or to a successor of DTC or
its nominee. Beneficial interests in the global notes may not be exchanged for
notes in physical, certificated form except in the limited circumstances
described below.
All interests in the global notes may be subject to the procedures and
requirements of DTC.
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BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC set forth below are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and, are subject
to change by them from time to time. Advanstar takes no responsibility for these
operations or procedures, and investors are urged to contact the relevant system
or its participants directly to discuss these matters.
DTC has advised Advanstar that it is:
(1) a limited purpose trust company organized under the laws of the State of
New York,
(2) a "banking organization" within the meaning of the New York Banking Law,
(3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
(5) a "clearing agency" registered pursuant to Section 17A of the Exchange
Act. DTC was created to hold securities for its participants and
facilitates the clearance and settlement of securities transactions
between participants through electronic book-entry changes to the
accounts of its participants, thereby eliminating the need for physical
transfer and delivery of certificates.
DTC's participants include securities brokers and dealers (including the
initial purchasers), banks and trust companies, clearing corporations and
certain other organizations. Indirect access to DTC's system is also available
to other entities such as banks, brokers, dealers and trust companies, or
"INDIRECT PARTICIPANTS" that clear through or maintain a custodial relationship
with a participant, either directly or indirectly. Investors who are not
participants may beneficially own securities held by or on behalf of DTC only
through participants or indirect participants.
Advanstar expects that pursuant to procedures established by DTC ownership
of the notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC and the records of participants
and the indirect participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by a
global note to such persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through participants, the ability of a person having an interest
in notes represented by a global note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by the global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note will not be entitled to have notes represented by such global note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated notes, and will not be considered the owners or holders
thereof under the indenture for any purpose, including with respect to the
giving of any direction, instruction or approval to the trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global note must rely
on the procedures of DTC and, if such holder is not a participant or an indirect
participant, on the procedures of the participant through which such holder owns
its interest, to exercise any rights of a holder of notes under the indenture or
such global note, Advanstar understands that under existing industry practice,
in the event that Advanstar requests any action of holders of notes, or a holder
that is an owner of a beneficial interest
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in a global note desires to take any action that DTC, as the holder of such
global note, is entitled to take, DTC would authorize the participants to take
such action and the participants would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of
such holders. Neither Advanstar nor the trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of notes by DTC, or for maintaining, supervising or reviewing any records of DTC
relating to such notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any notes represented by a global note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the global note representing such notes
under the indenture. Under the terms of the indenture, Advanstar and the trustee
may treat the persons in whose names the notes, including the global notes, are
registered as the owners thereof for the purpose of receiving payment thereon
and for any and all other purposes whatsoever. Accordingly, neither Advanstar
nor the Trustee has or will have any responsibility or liability for the payment
of such amounts to owners of beneficial interests in a global note. Payments by
the participants and the indirect participants to the owners of beneficial
interests in a global note will be governed by standing instructions and
customary industry practice and will be the responsibility of the participants
or the indirect participants and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
Although DTC, has agreed to the foregoing procedures to facilitate transfers
of interests in the global notes among participants 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. Neither Advanstar nor the Trustee
will have any responsibility for the performance by DTC or its participants or
indirect participants of their obligations under the rules and procedures
governing their operations.
CERTIFICATED NOTES
If
(1) Advanstar notifies the trustee in writing that DTC is no longer willing
or able to act as a depositary or DTC ceases to be registered as a
clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation,
(2) Advanstar, at its option, notifies the Trustee in writing that it elects
to cause the issuance of notes in definitive form under the indenture or
(3) upon the occurrence of certain other events as provided in the
indenture, then, upon surrender by DTC of the global notes,
certificated notes will be issued to each person that DTC identifies as the
beneficial owner of the notes represented by the global notes.
Upon any such issuance, the trustee is required to register such
certificated notes in the name of such person or persons, or the nominee of any
thereof, and cause the same to be delivered thereto.
Neither Advanstar nor the trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners of
the related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes, including with
respect to the registration and delivery, and the respective principal amounts,
of the notes to be issued.
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CERTAIN DEFINITIONS
"ADDITIONAL ASSETS" means
(1) any property or assets (other than Indebtedness and Capital Stock) to be
used by Advanstar or a Restricted Subsidiary in a Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by Advanstar or a
Restricted Subsidiary of Advanstar; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary of Advanstar;
PROVIDED, HOWEVER, that, in the case of clauses (2) and (3), such Restricted
Subsidiary is primarily engaged in a Related Business.
"AFFILIATE" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"ASSET DISPOSITION" means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions that are part of a common plan) of shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares), property or
other assets (each referred to for the purposes of this definition as a
"DISPOSITION") by Advanstar or any of its Restricted Subsidiaries (including any
disposition by means of a merger, consolidation or similar transaction) other
than
(1) a disposition by a Restricted Subsidiary to Advanstar or by Advanstar or
a Restricted Subsidiary to a Wholly-Owned Guarantor,
(2) the sale of Cash Equivalents in the ordinary course of business,
(3) a disposition of inventory in the ordinary course of business,
(4) a disposition of obsolete or worn out equipment or equipment that is no
longer useful in the conduct of the business of Advanstar and its
Restricted Subsidiaries,
(5) transactions permitted under "Certain Covenants--Merger and
Consolidation" above,
(6) an Asset Swap effected in compliance with the "Limitation on Asset
Swaps" covenant and
(7) for purposes of "Limitation on Sales of Assets and Subsidiary Stock"
only, a Permitted Investment or a disposition subject to "Limitation on
Restricted Payments."
"ASSET SWAP" means the execution of a definitive agreement, subject only to
customary closing conditions that Advanstar in good faith believes will be
satisfied, for a concurrent purchase and sale or exchange of Related Business
Assets, between Advanstar or any of its Restricted Subsidiaries and another
Person, and the consummation of such purchase and sale or exchange; PROVIDED
that any amendment to or waiver of any closing condition which individually or
in the aggregate is material to any Asset Swap shall be deemed to be a new Asset
Swap that must comply with the "Limitation on Asset Swaps" covenant.
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"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the notes, compounded semi-annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"BANK INDEBTEDNESS" means any and all amounts, whether outstanding on the
Issue Date or thereafter Incurred, payable by Advanstar under or in respect of
the Senior Credit Agreement and any related notes, collateral documents, letters
of credit and guarantees and any Interest Rate Agreement entered into with a
Lender (as defined in the Senior Credit Agreement) in connection with the Senior
Credit Agreement, including principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to Advanstar at the rate specified therein whether or
not a claim for post filing interest is allowed in such proceedings), fees,
charges, expenses, reimbursement obligations, guarantees and all other amounts
payable thereunder or in respect thereof.
"BOARD OF DIRECTORS" means, as to any Person, the Board of Directors of such
Person or any duly authorized committee thereof.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"CAPITALIZED LEASE OBLIGATION" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation will be the capitalized amount of such obligation determined in
accordance with GAAP, and the Stated Maturity thereof will be the date of the
last payment of rent or any other amount due under such lease prior to the first
date such lease may be terminated without penalty.
"CASH EQUIVALENTS" means
(1) securities issued or directly and fully guaranteed or insured by the
United States Government or any agency or instrumentality thereof, having
maturities of not more than one year from the date of acquisition;
(2) marketable general obligations issued by any state of the United States
of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition thereof, having a
credit rating of "A" or better from either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc.;
(3) certificates of deposit, time deposits, eurodollar time deposits,
overnight bank deposits or bankers' acceptances having maturities of not
more than one year from the date of acquisition thereof issued by any
commercial bank the long-term debt of which is rated at the time of
acquisition thereof at least "A" or the equivalent thereof by Standard &
Poor's Rating Group, or "A" or the equivalent thereof by Moody's
Investors Service, Inc., and having capital and surplus in excess of
$500 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (1), (2) and
(3) entered into with any bank meeting the qualifications specified in
clause (3) above;
(5) commercial paper rated at the time of acquisition thereof at least "A-2"
or the equivalent thereof by Standard & Poor's Rating Group or "P-2" or
the equivalent thereof by Moody's Investors Service, Inc., or carrying an
equivalent rating by a nationally recognized rating
90
agency, if both of the two named rating agencies cease publishing ratings
of investments, and in either case maturing within 270 days after the
date of acquisition thereof; and
(6) interests in any investment company that invests solely in instruments
of the type specified in clauses (1) through (5) above.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"CONSOLIDATED EBITDA" for any period means the Consolidated Net Income for
such period, plus the following to the extent deducted in calculating such
Consolidated Net Income:
(1) income tax expense, plus
(2) Consolidated Interest Expense, plus
(3) depreciation expense, plus
(4) amortization of intangibles, plus
(5) other non-cash charges, including without limitation, any non-cash
charge reflecting compensation expense relating to employee stock option
or similar plans, reducing Consolidated Net Income (excluding any such
non-cash charge to the extent it represents an accrual of or reserve for
cash charges in any future period or amortization of a prepaid cash
expense that was paid in a prior period not included in the calculation),
plus
(6) any non-capitalized transaction costs incurred in connection with
actual, proposed or abandoned financings, acquisitions or divestitures,
including, but not limited to, financing and refinancing fees and costs
incurred in connection with the acquisition of Parent by the Principals,
less
(7) other non-cash charges increasing Consolidated Net Income (excluding any
non-cash item to the extent it represents the reversal of an accrual of,
or a cash reserve for, anticipated cash charges in any prior period).
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the interest, depreciation and amortization of, a Restricted
Subsidiary of a Person will be added to Consolidated Net Income to compute
Consolidated EBITDA of such Person only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
the Consolidated Net Income of such Person.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of Advanstar and its consolidated Subsidiaries, plus, to the extent not
included in such interest expense,
(1) interest expense attributable to Capitalized Lease Obligations and the
interest portion of rent expense associated with Attributable
Indebtedness in respect of the relevant lease giving rise thereto,
determined as if such lease were a capitalized lease in accordance with
GAAP,
(2) amortization of debt discount and debt issuance cost,
(3) capitalized interest and accrued interest,
(4) non-cash interest expense,
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing,
(6) interest actually paid by Advanstar or any such Subsidiary under any
Guarantee of Indebtedness or other obligation of any other Person,
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(7) net costs associated with Hedging Obligations (including amortization of
fees),
(8) dividends in respect of all Disqualified Stock of Advanstar and all
Preferred Stock of Subsidiaries, in each case, held by Persons other than
Advanstar or a Wholly-Owned Subsidiary and
(9) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than Advanstar) in connection
with Indebtedness Incurred by such plan or trust;
PROVIDED, HOWEVER, that there will be excluded therefrom any such interest
expense of any Unrestricted Subsidiary to the extent the related Indebtedness is
not Guaranteed or paid by Advanstar or any Restricted Subsidiary. For purposes
of the foregoing, total interest expense will be determined after giving effect
to any net payments made or received by Advanstar and its Subsidiaries with
respect to Interest Rate Agreements. Notwithstanding the foregoing, the
Consolidated Interest Expense with respect to any Restricted Subsidiary of
Advanstar that was not a Wholly-Owned Subsidiary will be Included only to the
extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income.
"CONSOLIDATED NET INCOME" means, for any period, the net income (loss)
before preferred stock dividends of Advanstar and its consolidated Subsidiaries;
PROVIDED, HOWEVER, that there will be excluded for purposes of calculating
Consolidated Net Income:
(1) any net income (loss) of any Person if such Person is not a Restricted
Subsidiary, except that
(A) subject to the limitations contained in (4) below, Advanstar's equity
in the net income of any such Person for such period will be included
in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to Advanstar
or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a
Restricted Subsidiary, to the limitations contained in clause (3)
below) and
(B) Advanstar's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period will be included in
determining such Consolidated Net Income to the extent such loss has
been funded with cash from Advanstar or a Restricted Subsidiary;
(2) any net income (loss) of any Person acquired by Advanstar or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(3) any net income of any Restricted Subsidiary if such Subsidiary is
subject to restrictions, directly or indirectly, on the payment of
dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to Advanstar, except that
(A) subject to the limitations contained in (4) below Advanstar's equity
in the net income of any such Restricted Subsidiary for such period
will be included in such Consolidated Net Income up to the aggregate
amount of cash that could have been distributed by such Restricted
Subsidiary during such period to Advanstar or another Restricted
Subsidiary as a dividend (subject, in the case of a dividend to
another Restricted Subsidiary, to the limitation contained in this
clause) and
(B) Advanstar's equity in a net loss of any such Restricted Subsidiary
for such period will be included in determining such Consolidated Net
Income;
(4) any gain (loss) realized upon the sale or other disposition of any
property, plant or equipment of Advanstar or its consolidated
Subsidiaries (including pursuant to any Sale/Leaseback
92
Transaction) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (loss) realized upon the sale or other
disposition of any Capital Stock of any Person;
(5) any extraordinary gain or loss and
(6) the cumulative effect of a change in accounting principles.
"CONSOLIDATED TANGIBLE ASSETS" means, as of any date of determination, the
total assets, less goodwill, deferred financing costs and other intangibles (in
each case net of accumulated amortization) shown on the balance sheet of
Advanstar and its Restricted Subsidiaries as of the most recent date for which
such balance sheet is available, determined on a consolidated basis in
accordance with GAAP.
"CURRENCY AGREEMENT" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement as to which such
Person is a party or a beneficiary.
"DEFAULT" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means noncash consideration received by
Advanstar or a Restricted Subsidiary in connection with an Asset Disposition
that is so designated as Designated Noncash Consideration pursuant to an
Officers' Certificate, setting forth the basis of determining the fair market
value thereof, executed by the principal executive officer and the principal
financial officer of Advanstar; PROVIDED, that in determining the aggregate fair
market value of Designated Noncash Consideration that is outstanding from time
to time, there shall be subtracted the aggregate amount of cash or Cash
Equivalents received in connection with a sale of any Designated Noncash
Consideration (which sale shall be deemed an Asset Disposition, and which cash
or Cash Equivalents must be applied in accordance with the "Limitation on Sales
of Assets and Subsidiary Stock" covenant).
"DESIGNATED SENIOR INDEBTEDNESS" means
(1) the Bank Indebtedness in the case of Advanstar and
(2) any other Senior Indebtedness that, at the date of determination, has an
aggregate principal amount outstanding of, or under which, at the date of
determination, the holders thereof are committed to lend up to, at least
$25.0 million and is specifically designated in the instrument evidencing
or governing such Senior Indebtedness as "Designated Senior Indebtedness"
for purposes of the indenture.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock of
such Person which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock
(excluding capital stock that is convertible or exchangeable solely at
the option of Advanstar or a Restricted Subsidiary) or
(3) is redeemable at the option of the holder thereof, in whole or in part,
in each case on or prior to the Stated Maturity of the notes,
PROVIDED that
(a) only the portion of Capital Stock which so matures or is mandatorily
redeemable, is so convertible or exchangeable or is so redeemable at the
option of the holder thereof prior to such Stated Maturity will be deemed
to be Disqualified Stock and
(b) any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require the issuer thereof
to repurchase such Capital Stock upon the
93
occurrence of a change of control shall not constitute Disqualified Stock
if the terms of such Capital Stock provide that the issuer may not
repurchase or redeem it pursuant to such provision unless such repurchase
complies with the covenant described under "Certain Covenants--Limitation
on Restricted Payments."
"DLJ MERCHANT BANKING FUNDS" means DLJ Merchant Banking Partners III, L.P.
and its Affiliates.
"EQUITY OFFERING" means an offering for cash by Advanstar, Holdings or
Parent of its respective common stock, or options, warrants or rights with
respect to its common stock.
"FOREIGN SUBSIDIARY" means any Restricted Subsidiary that is not organized
under the laws of the United States of America or any state thereof or the
District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the issue date, including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession.
All ratios and computations based on GAAP contained in the indenture will be
computed in conformity with GAAP.
"GUARANTEE" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER,
that the term "Guarantee" will not include endorsements for collection or
deposit and indemnities given by Advanstar or any of its Subsidiaries in
connection with exhibitions, in each case, in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding
meaning.
"GUARANTOR" means each Subsidiary of Advanstar (other than a Foreign
Subsidiary) in existence on the Issue Date and any Restricted Subsidiary (other
than a Foreign Subsidiary) created or acquired by Advanstar after the Issue
Date.
"GUARANTOR SENIOR INDEBTEDNESS" means, with respect to a Guarantor, the
following obligations, whether outstanding on the date of the indenture or
thereafter issued, without duplication:
(1) any Guarantee of the Bank Indebtedness by such Guarantor and all other
Guarantees by such Guarantor of Senior Indebtedness of Advanstar or
Guarantor Senior Indebtedness for any other Guarantor; and
(2) all obligations consisting of the principal of and premium, if any, and
accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to
the Guarantor regardless of whether postfiling interest is allowed in
such proceeding) on, and fees and other amounts owing in respect of, all
other Indebtedness of the Guarantor, unless, in the instrument creating
or evidencing the same or pursuant to which the same is outstanding, it
is expressly provided that the obligations in respect of such
Indebtedness are not senior in right of payment to the obligations of
such Guarantor under the Note Guarantee;
PROVIDED, HOWEVER, that Guarantor Senior Indebtedness will not include
94
(1) any obligations of a Guarantor to another Guarantor,
(2) any liability for Federal, state, local, foreign or other taxes owed or
owing by a Guarantor,
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities),
(4) any Indebtedness of a Guarantor that is expressly subordinate in right
of payment to any of the Indebtedness of such Guarantor, including any
Guarantor Senior Subordinated Indebtedness and Guarantor Subordinated
Obligations of such Guarantor or
(5) any Capital Stock.
"GUARANTOR SENIOR SUBORDINATED INDEBTEDNESS" means with respect to a
Guarantor, the obligations of such Guarantor under the Note Guarantee and any
other Indebtedness of such Guarantor that specifically provides that such
Indebtedness is to rank Pari Passu in right of payment with the obligations of
such Guarantor under the Note Guarantee and is not expressly subordinated by its
terms in right of payment to any Indebtedness of such Guarantor which is not
Guarantor Senior Indebtedness of such Guarantor.
"GUARANTOR SUBORDINATED OBLIGATION" means, with respect to a Guarantor, any
Indebtedness of such Guarantor (whether outstanding on the Issue Date or
thereafter Incurred) which is expressly subordinate in right of payment to the
obligations of such Guarantor under its Note Guarantee pursuant to a written
agreement.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"HOLDINGS" means Advanstar Holdings Corp., a Delaware corporation.
"INCUR" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such person becomes a Restricted Subsidiary, (whether by
merger, consolidation, acquisition or otherwise), will be deemed to be incurred
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication),
(1) the principal of and premium (if any) in respect of indebtedness of such
Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto), other than (except for purposes of the cross-acceleration
provisions described under "Events of Default") obligations in respect of
the undrawn face amount of letters of credit that are the functional
equivalents of surety or performance bonds or that support self-insurance
programs to the extent that the aggregate amount of all such obligations
does not exceed $3.0 million;
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services other than trade payables arising and
accrued expenses Incurred in the ordinary course of business, which
purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the
completion of such services (if and to the extent any such obligation
would appear as a liability upon a balance sheet of such Person prepared
in accordance with GAAP);
95
(5) all Capitalized Lease Obligations and all Attributable Indebtedness of
such Person;
(6) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary, any Preferred Stock (but excluding, in
each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
PROVIDED, HOWEVER, that the amount of such Indebtedness will be the
lesser of
(A) the fair market value of such asset at such date of determination and
(B) the amount of such Indebtedness of such other Persons;
(8) all Indebtedness of other Persons to the extent Guaranteed by such
Person; and
(9) to the extent not otherwise included in this definition, net obligations
of such Person under Currency Agreements and Interest Rate Agreements
(the amount of any such obligations to be equal at any time to the
termination value of such agreement or arrangement giving rise to such
obligation that would be payable by such Person at such time).
The amount of Indebtedness of any Person at any date will be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date; PROVIDED that the amount
outstanding at any one 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. Notwithstanding the foregoing,
Indebtedness shall exclude
(1) obligations created, issued or incurred by any Person with respect to
customer subscription payments or customer deposits for trade shows and
exhibitions and
(2) any indemnification obligation of Advanstar to third parties in respect
of customary representations and warranties contained in stock purchase,
asset purchase or similar acquisition agreements to which Advanstar is a
party, if such indemnification obligation would not appear as a liability
upon a balance sheet of Advanstar prepared in accordance with GAAP.
"INTEREST RATE AGREEMENT" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is a party or a beneficiary.
"INVESTMENT" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business) or other
extension of credit (including by way of Guarantee or similar arrangement, but
excluding any debt or extension of credit represented by a bank deposit other
than a time deposit) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of the "Limitation on Restricted Payments" covenant,
(1) "Investment" will include the portion (proportionate to Advanstar's
equity interest in a Restricted Subsidiary to be designated as an
Unrestricted Subsidiary) of the fair market value of the net assets of
such Restricted Subsidiary of Advanstar at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
Advanstar will be deemed to
96
continue to have a permanent "Investment" in an Unrestricted Subsidiary
in an amount (if positive) equal to
(x) Advanstar's "Investment" in such Subsidiary at the time of such
redesignation less
(y) the portion (proportionate to Advanstar's equity interest in such
Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time that such Subsidiary is so re-designated a
Restricted Subsidiary; and
(2) any property transferred to or from an Unrestricted Subsidiary will be
valued at its fair market value at the time of such transfer, in each
case as determined in good faith by the Board of Directors of Advanstar.
"ISSUE DATE" means the date on which the notes are originally issued.
"LEVERAGE RATIO," as of any date of determination means, with respect to any
Person, the ratio of
(1) the sum of the aggregate outstanding Indebtedness of such Person and its
Subsidiaries as of the date of calculation on a consolidated basis in
accordance with GAAP to
(2) the aggregate amount of Consolidated EBITDA of such Person for the
period of the most recent four consecutive fiscal quarters ending prior
to the date of such determination;
PROVIDED, HOWEVER, that
(1) if since the beginning of such period Advanstar or any Restricted
Subsidiary will have made any Asset Disposition or if the transaction
giving rise to the need to calculate the Leverage Ratio is an Asset
Disposition, the Consolidated EBITDA for such period will be reduced by
an amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset
Disposition for such period or increased by an amount equal to the
Consolidated EBITDA (if negative) directly attributable thereto for such
period,
(2) if since the beginning of such period Advanstar or any Restricted
Subsidiary (by merger or otherwise) will have made an Investment in any
Restricted Subsidiary, or any Person that becomes a Restricted Subsidiary
or is merged with or into Advanstar, or an acquisition of assets,
including any acquisition of assets occurring in connection with a
transaction causing a calculation to be made hereunder, which constitutes
all or substantially all of an operating unit of a business, Consolidated
EBITDA for such period will be calculated after giving pro forma effect
thereto, including the Incurrence of any Indebtedness and including the
pro forma expenses and cost reductions calculated in accordance with
Regulation S-X promulgated by the Commission, as if such Investment or
acquisition occurred on the first day of such period and
(3) if since the beginning of such period any Person, that subsequently
became a Restricted Subsidiary or was merged with or into Advanstar or
any Restricted Subsidiary since the beginning of such period, will have
made any Asset Disposition or any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (1) or
(2) above if made by Advanstar or a Restricted Subsidiary during such
period, Consolidated EBITDA for such period will be calculated after
giving pro forma effect thereto (including the Incurrence of any
Indebtedness and including the pro forma expenses and cost reductions
calculated in accordance with Regulation S-X promulgated by the
Commission) as if such Asset Disposition or Investment occurred on the
first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, amount of income
or earnings relating thereto, the pro forma calculations will be
determined in good faith by a responsible financial or accounting officer
of Advanstar.
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"LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"NET AVAILABLE CASH" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form, whether or not constituting Designated
Noncash Consideration) therefrom, in each case net of
(1) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses Incurred, and all
Federal, state, provincial, foreign and local taxes required to be paid
or accrued as a liability under GAAP, as a consequence of such Asset
Disposition,
(2) all payments made on any Indebtedness that is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any
Lien upon such assets, or that must by its terms, or in order to obtain a
necessary consent to such Asset Disposition, or by applicable law be
repaid out of the proceeds from such Asset Disposition,
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition and
(4) the deduction of appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Disposition and retained by
Advanstar or any Restricted Subsidiary after such Asset Disposition.
"NET CASH PROCEEDS", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually Incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale.
"NON-RECOURSE DEBT" means Indebtedness
(1) as to which neither Advanstar nor any Restricted Subsidiary
(a) provides any guarantee or credit support of any kind (including any
undertaking, guarantee, indemnity, agreement or instrument that would
constitute Indebtedness) or
(b) is directly or indirectly liable (as a guarantor or otherwise) and
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder
of any other Indebtedness of Advanstar or any Restricted Subsidiary to
declare a default under such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"NOTE GUARANTEE" means, individually, any Guarantee of payment of the notes
by a Guarantor pursuant to the terms of the indenture, and, collectively, all
such Guarantees. Each such Note Guarantee will be in the form prescribed in the
indenture.
"OFFICER" means the Chairman of the Board, the President, Chief Financial
Officer, any Vice President, the Treasurer or the Secretary of Advanstar.
"OFFICERS' CERTIFICATE" means a certificate signed by two Officers.
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"OPINION OF COUNSEL" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to
Advanstar or the Trustee.
"PARENT" means Advanstar, Inc., a Delaware corporation.
"PERMITTED INVESTMENT" means an Investment by Advanstar or any Restricted
Subsidiary in
(1) Advanstar, a Restricted Subsidiary or a Person which will, upon the
making of such Investment, become a Restricted Subsidiary; PROVIDED,
HOWEVER, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, Advanstar or a Restricted Subsidiary;
PROVIDED, HOWEVER, that such Person's primary business is a Related
Business;
(3) cash and Cash Equivalents;
(4) receivables owing to Advanstar or any Restricted Subsidiary created or
acquired in the ordinary course of business and payable or dischargeable
in accordance with customary trade terms; PROVIDED, HOWEVER, that such
trade terms may include such concessionary trade terms as Advanstar or
any such Restricted Subsidiary deems reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(6) loans or advances to employees made in the ordinary course of business
not exceeding in the aggregate, at any time, $1.0 million;
(7) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to Advanstar or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Asset Swap made in accordance with the "Limitation on Asset Swaps"
covenant or any Investment in securities or other assets received in
connection with an Asset Disposition made in accordance with the
provisions of the "Limitation on Sales of Assets and Subsidiary Stock"
covenant;
(9) Investments made after the Issue Date in a Related Business in the form
of joint ventures, operating agreements, partnership agreements or other
similar or customary agreements, interests or arrangements with
unaffiliated third parties, the aggregate outstanding amount of which
does not exceed $25.0 million (which aggregate amount outstanding will be
reduced by returns of capital received by Advanstar or any Restricted
Subsidiary in respect of such Investments) at any time;
(10) Currency Agreements, Interest Rate Agreements and related Hedging
Obligations, which transactions or obligations are Incurred in compliance
with the "Limitation on Indebtedness" covenant; and
(11) other Investments in an aggregate amount outstanding at any time not to
exceed $20.0 million.
"PERMITTED LIENS" means, with respect to any Person,
(a) pledges or deposits by such Person under workmen's compensation laws,
unemployment insurance laws or similar legislation, or good faith
deposits in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which such Person is a party, or
deposits to secure public or statutory obligations of such Person or
deposits or cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business;
99
(b) Liens imposed by law, including carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith
by appropriate proceedings; or other Liens arising out of judgments or
awards against such Person with respect to which such Person is then
proceeding with an appeal or other proceedings for review;
(c) Liens for taxes, assessments or other governmental charges not yet
subject to penalties for non-payment or which are being contested in good
faith by appropriate proceedings provided appropriate reserves have been
taken on the books of this Company;
(d) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the
ordinary course of its business; PROVIDED, HOWEVER, that such letters of
credit do not constitute Indebtedness;
(e) encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and telephone
lines and other similar purposes, or zoning or other restrictions as to
the use of real properties or liens incidental to the conduct of the
business of such Person or to the ownership of its properties which do
not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the
business of such Person;
(f) Liens securing an Interest Rate Agreement so long as the related
Indebtedness is, and is permitted to be under the indenture, secured by a
Lien on the same property securing the Interest Rate Agreement;
(g) leases and subleases of real property which do not materially interfere
with the ordinary conduct of the business of Advanstar or any of its
Restricted Subsidiaries;
(h) judgement Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment have not been
finally terminated or the period within which such proceedings may be
initiated has not expired;
(i) Liens for the purpose of securing the payment (or the refinancing of the
payment) of all or a part of the purchase price of, or Capitalized Lease
Obligations with respect to, assets or property acquired or constructed
in the ordinary course of business provided that
(x) the aggregate principal amount of Indebtedness secured by such Liens
is otherwise permitted to be Incurred under the indenture and does
not exceed the cost of the assets or property so acquired or
constructed and
(y) such Liens are created within 180 days of construction or acquisition
of such assets or property and do not encumber any other assets or
property of Advanstar or any Restricted Subsidiary other than such
assets or property and assets affixed or appurtenant thereto;
(j) Liens arising solely by virtue of any statutory or common law provision
relating to banker's Liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
expository institution; provided that
(x) such deposit account is not a dedicated cash collateral account and
is not subject to restrictions against access by Advanstar in excess
of those set forth by regulations promulgated by the Federal Reserve
Board, and
(y) such deposit account is not intended by Advanstar or any Restricted
Subsidiary to provide collateral to the depository institution;
(k) Liens arising from Uniform Commercial Code financing statement filings
regarding operating leases entered into by Advanstar and its Restricted
Subsidiaries in the ordinary course of business;
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(l) Liens existing on the Issue Date;
(m) Liens on property or shares of stock of a Person at the time such Person
becomes a Subsidiary; PROVIDED, HOWEVER, that such Liens are not created,
Incurred or assumed in connection with, or in contemplation of, such
other Person becoming a Subsidiary; PROVIDED FURTHER, HOWEVER, that any
such Lien may not extend to any other property owned by Advanstar or any
Restricted Subsidiary;
(n) Liens on property at the time Advanstar or a Subsidiary acquired the
property, including any acquisition by means of a merger or consolidation
with or into Advanstar or any Restricted Subsidiary; PROVIDED, HOWEVER,
that such Liens are not created, Incurred or assumed in connection with,
or in contemplation of, such acquisition; PROVIDED FURTHER, HOWEVER, that
such Liens may not extend to any other property owned by Advanstar or any
Restricted Subsidiary;
(o) Liens securing Indebtedness or other obligations of a Subsidiary owing
to Advanstar or a Wholly-Owned Subsidiary;
(p) Liens securing Refinancing Indebtedness Incurred to Refinance
Indebtedness that was previously so secured, provided that any such Lien
is limited to all or part of the same property or assets, plus
improvements, accessions, proceeds or dividends or distributions in
respect thereof, that secured, or, under the written arrangements under
which the original Lien arose, could secure, the obligations to which
such Liens relate; and
(q) Liens on money or U.S. Government Obligations incurred for the purpose
of defeasing Advanstar's 9 1/4% Senior Subordinated Notes due 2008.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision hereof or any other entity.
"PREFERRED STOCK", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes however designated, which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"PRINCIPALS" means the DLJ Merchant Banking Funds.
A "PUBLIC MARKET" exists at any time with respect to the common stock of
Advanstar, Holdings or Parent, as the case may be, if
(1) the common stock of Advanstar, Holdings or Parent, as the case may be,
is then registered with the Securities Exchange Commission pursuant to
Section 12(b) or 12(g) of the Exchange Act and traded either on a
national securities exchange or in the National Association of Securities
Dealers Automated Quotation System and
(2) at least 15% of the total issued and outstanding common stock of
Advanstar, Holdings or Parent, as the case may be, has been distributed
prior to such time by means of an effective registration statement under
the Securities Act of 1933. Unless the context otherwise requires,
references to "Public Market" shall refer to Public Markets with respect
to any of Parent, Holdings or Advanstar.
"REFINANCING INDEBTEDNESS" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend, including pursuant to any defeasance
of discharge mechanism, collectively, "refinance", "refinances," and
"refinanced" shall have a correlative meaning, any Indebtedness existing on the
date of the indenture or Incurred in compliance with the indenture, including
Indebtedness of Advanstar that refinances Indebtedness of any Restricted
Subsidiary and Indebtedness of any Restricted
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Subsidiary that refinances Indebtedness of another Restricted Subsidiary,
including Indebtedness that refinances Refinancing Indebtedness, PROVIDED,
HOWEVER, that
(1) (x) if the Stated Maturity of the Indebtedness being refinanced is
earlier than the Stated Maturity of the notes, the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being refinanced or
(y) if the Stated Maturity of the Indebtedness being refinanced is later
than the Stated Maturity of the notes, the Refinancing Indebtedness
has a Stated Maturity later than the notes,
(2) the Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced, and
(3) such Refinancing Indebtedness is Incurred in an aggregate principal
amount, or if issued with original issue discount, an aggregate issue
price, that is equal to or less than the sum of the aggregate principal
amount, or if issued with original issue discount, the aggregate accreted
value, then outstanding plus fees and expenses, including any premium and
defeasance costs, of the Indebtedness being refinanced.
"RELATED BUSINESS" means any business related, ancillary or complementary to
the businesses of Advanstar and the Restricted Subsidiaries on the Issue Date.
"RELATED BUSINESS ASSETS" means assets used or useful in a Related Business.
"RELATED PARTY" means, with respect to any Principal,
(1) any controlling stockholder or partner of that Principal on the date
of the indenture; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding, directly or through one or more Subsidiaries, a 51% or more
controlling interest of which consist of the Principals and/or such
other Persons referred to in the immediately preceding clauses
(1) or (2).
"REPRESENTATIVE" means any trustee, agent or representative, if any, of an
issue of Senior Indebtedness.
"RESTRICTED SUBSIDIARY" means any Subsidiary of Advanstar other than an
Unrestricted Subsidiary.
"SALE/LEASEBACK TRANSACTION" means an arrangement relating to property now
owned or hereafter acquired whereby Advanstar or a Restricted Subsidiary
transfers such property to a Person and Advanstar or a Subsidiary leases it from
such Person.
"SENIOR CREDIT AGREEMENT" means
(1) the Credit Agreement dated as of October 11, 2000, among Advanstar, as
borrower, the various financial institutions party thereto as lenders,
Fleet National Bank as the administrative agent and DLJ Capital
Funding, Inc. as syndication agent, documentation agent, sole book runner
and lead arranger, as the same has been or may be amended, supplemented
or otherwise modified from time to time and any guarantees issued
thereunder and
(2) any renewal, extension, refunding, restructuring, replacement or
refinancing thereof, whether with the original administrative agent and
lenders or another administrative agent or agents or other lenders,
whether provided under the original Senior Credit Agreement or any other
credit or other agreement or indenture and whether entered into
concurrently with or subsequent to the termination of the prior Senior
Credit Agreement.
"SENIOR SUBORDINATED INDEBTEDNESS" means the notes and any other
Indebtedness of Advanstar that specifically provides for such Indebtedness is to
rank Pari Passu with the notes in right of payment and
102
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of Advanstar which is not Senior Indebtedness.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "Significant
Subsidiary" of Advanstar within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
"SUBORDINATED OBLIGATION" means any Indebtedness of Advanstar (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the notes pursuant to a written agreement.
"SUBSIDIARY" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled, without regard to the occurrence of any contingency, to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person. Unless otherwise specified
herein, each reference to a Subsidiary will refer to a Subsidiary of
Advanstar.
"UNRESTRICTED SUBSIDIARY" means
(1) any Subsidiary of Advanstar that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of Advanstar (including any
newly acquired or newly formed Subsidiary of Advanstar) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or owns or holds any Lien on any property of,
Advanstar or any Restricted Subsidiary of Advanstar that is not a Subsidiary of
the Subsidiary to be so designated; PROVIDED, HOWEVER, that either
(A) the Subsidiary to be so designated has total consolidated assets of
$10,000 or less or
(B) if such Subsidiary has consolidated assets greater than $10,000, then
such designation would be permitted under "Limitation on Restricted
Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED, HOWEVER, that immediately after giving effect
to such designation
(x) Advanstar could Incur $1.00 of additional Indebtedness pursuant to
paragraph (a) under "Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the trustee by promptly
filing with the trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"VOTING STOCK" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"WHOLLY-OWNED SUBSIDIARY" means a Restricted Subsidiary of Advanstar, all of
the Capital Stock of which (other than directors' qualifying shares) is owned by
Advanstar or another Wholly-Owned Subsidiary.
"WHOLLY-OWNED GUARANTOR" means a Wholly-Owned Subsidiary that is a
Guarantor.
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THE EXCHANGE OFFER
In a registration rights agreement between Advanstar and the initial
purchasers of the old notes, we agreed
(1) to file a registration statement on or prior to 90 days after the
closing of the offering of the old notes with respect to an offer to
exchange the old notes for a new issue of securities, with terms
substantially the same as of the old notes but registered under the
Securities Act,
(2) to use our reasonable best efforts to cause the registration statement
to be declared effective by the SEC on or prior to 180 days after the
closing of the old notes offering and
(3) use our reasonable best efforts to consummate the exchange offer and
issue the new notes within 30 business days after the registration
statement is declared effective.
The registration rights agreement provides that, in the event we fail to
file the registration statement within 90 days after the closing date, have it
declared effective within 180 days of the closing date or consummate the
exchange offer within 40 business days thereafter, we will be required to pay
liquidated damages on the old notes over and above the regular interest on the
notes. Once we complete this exchange offer, we will no longer be required to
pay liquidated damages on the old notes.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or acceptance of the exchange offer would violate the securities or blue
sky laws of that jurisdiction.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
This prospectus and the accompanying letter of transmittal contain the terms
and conditions of the exchange offer. Upon the terms and subject to the
conditions included in this prospectus and in the accompanying letter of
transmittal, which together are the exchange offer, we will accept for exchange
old notes which are properly tendered on or prior to the expiration date, unless
you have previously withdrawn them.
- When you tender to us old notes as provided below, our acceptance of the
old notes will constitute a binding agreement between you and us upon the
terms and subject to the conditions in this prospectus and in the
accompanying letter of transmittal.
- For each $1,000 principal amount of old notes surrendered to us in the
exchange offer, we will give you $1,000 principal amount of new notes.
- We will keep the exchange offer open for not less than 20 business days,
or longer if required by applicable law, after the date that we first mail
notice of the exchange offer to the holders of the old notes. We are
sending this prospectus, together with the letter of transmittal, on or
about the date of this prospectus to all of the registered holders of old
notes at their addresses listed in the trustee's security register with
respect to the old notes.
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2001; PROVIDED, HOWEVER, that we, in our sole discretion,
may extend the period of time for which the exchange offer is open. The
term "expiration date" means , 2001 or, if extended by us, the
latest time and date to which the exchange offer is extended.
- As of the date of this prospectus, $160,000,000 in aggregate principal
amount of the old notes were outstanding. The exchange offer is not
conditioned upon any minimum principal amount of old notes being tendered.
- Our obligation to accept old notes for exchange in the exchange offer is
subject to the conditions that we describe in the section called
"Conditions to the Exchange Offer" below.
104
- We expressly reserve the right, at any time, to extend the period of time
during which the exchange offer is open, and thereby delay acceptance of
any old notes, by giving oral or written notice of an extension to the
exchange agent and notice of that extension to the holders as described
below. During any extension, all old notes previously tendered will remain
subject to the exchange offer unless withdrawal rights are exercised. Any
old notes not accepted for exchange for any reason will be returned
without expense to the tendering holder as promptly as practicable after
the expiration or termination of the exchange offer.
- We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes that we have not yet accepted
for exchange, if any of the conditions of the exchange offer specified
below under "Conditions to the Exchange Offer" are not satisfied.
- We will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the old notes
as promptly as practicable. If we extend the expiration date, we will give
notice by means of a press release or other public announcement no later
than 9:00 a.m., New York City time, on the business day after the
previously scheduled expiration date. Without limiting the manner in which
we may choose to make any public announcement and subject to applicable
law, we will have no obligation to publish, advertise or otherwise
communicate any public announcement other than by issuing a release to the
Dow Jones News Service.
- Holders of old notes do not have any appraisal or dissenters' rights in
connection with the exchange offer.
- Old notes which are not tendered for exchange or are tendered but not
accepted in connection with the exchange offer will remain outstanding and
be entitled to the benefits of the indenture, but will not be entitled to
any further registration rights under the registration rights agreement.
- We intend to conduct the exchange offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder.
- By executing, or otherwise becoming bound by, the letter of transmittal,
you will be making the representations described below to us. See
"--Resales of the New Notes."
IMPORTANT RULES CONCERNING THE EXCHANGE OFFER
You should note that:
- All questions as to the validity, form, eligibility, time of receipt and
acceptance of old notes tendered for exchange will be determined by
Advanstar in its sole discretion, which determination shall be final and
binding.
- We reserve the absolute right to reject any and all tenders of any
particular old notes not properly tendered or to not accept any particular
old notes which acceptance might, in our judgment or the judgment of our
counsel, be unlawful.
- We also reserve the absolute right to waive any defects or irregularities
or conditions of the exchange offer as to any particular old notes either
before or after the expiration date, including the right to waive the
ineligibility of any holder who seeks to tender old notes in the exchange
offer. Unless we agree to waive any defect or irregularity in connection
with the tender of old notes for exchange, you must cure any defect or
irregularity within any reasonable period of time as we shall determine.
- Our interpretation of the terms and conditions of the exchange offer as to
any particular old notes either before or after the expiration date shall
be final and binding on all parties.
- Neither Advanstar, the exchange agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect
to any tender of old notes for exchange, nor shall any of them incur any
liability for failure to give any notification.
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PROCEDURES FOR TENDERING OLD NOTES
WHAT TO SUBMIT AND HOW
If you, as the registered holder of an old note, wish to tender your old
notes for exchange in the exchange offer, you must transmit a properly completed
and duly executed letter of transmittal to Wells Fargo Minnesota Bank, N.A. at
the address set forth below under "Exchange Agent" on or prior to the expiration
date.
In addition,
(1) certificates for old notes must be received by the exchange agent along
with the letter of transmittal, OR
(2) a timely confirmation of a book-entry transfer of old notes, if such
procedure is available, into the exchange agent's account at DTC using
the procedure for book-entry transfer described below, must be received
by the exchange agent prior to the expiration date OR
(3) you must comply with the guaranteed delivery procedures described below.
The method of delivery of old notes, letters of transmittal and notices of
guaranteed delivery is at your election and risk. If delivery is by mail, we
recommend that registered mail, properly insured, with return receipt requested,
be used. In all cases, sufficient time should be allowed to assure timely
delivery. No letters of transmittal or old notes should be sent to Advanstar.
HOW TO SIGN YOUR LETTER OF TRANSMITTAL AND OTHER DOCUMENTS
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the old notes being surrendered for exchange
are tendered
(1) by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or
(2) for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantees must be by any of the
following eligible institutions:
- a firm which is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or
- a commercial bank or trust company having an office or correspondent in
the United States
If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of old notes, the old notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the old
notes and with the signature guaranteed.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers or corporations or others acting in a fiduciary or representative
capacity, the person should so indicate when signing and, unless waived by
Advanstar, proper evidence satisfactory to Advanstar of its authority to so act
must be submitted.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Once all of the conditions to the exchange offer are satisfied or waived, we
will accept, promptly after the expiration date, all old notes properly tendered
and will issue the new notes promptly after acceptance of the old notes. See
"Conditions to the Exchange Offer" below. For purposes of the
106
exchange offer, our giving of oral or written notice of our acceptance to the
exchange agent will be considered our acceptance of the exchange offer.
In all cases, we will issue new notes in exchange for old notes that are
accepted for exchange only after timely receipt by the exchange agent of:
- certificates for old notes, OR
- a timely book-entry confirmation of transfer of old notes into the
exchange agent's account at DTC using the book-entry transfer procedures
described below, AND
- a properly completed and duly executed letter of transmittal.
If we do not accept any tendered old notes for any reason included in the
terms and conditions of the exchange offer or if you submit certificates
representing old notes in a greater principal amount than you wish to exchange,
we will return any unaccepted or non-exchanged old notes without expense to the
tendering holder or, in the case of old notes tendered by book-entry transfer
into the exchange agent's account at DTC using the book-entry transfer
procedures described below, non-exchanged old notes will be credited to an
account maintained with DTC as promptly as practicable after the expiration or
termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the old notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus. Any financial institution that is a participant in
DTC's systems may make book-entry delivery of old notes by causing DTC to
transfer old notes into the exchange agent's account in accordance with DTC's
Automated Tender Offer Program procedures for transfer. However, the exchange
for the old notes so tendered will only be made after timely confirmation of
book-entry transfer of old notes into the exchange agent's account, and timely
receipt by the exchange agent of an agent's message, transmitted by DTC and
received by the exchange agent and forming a part of a book-entry confirmation.
The agent's message must state that DTC has received an express acknowledgment
from the participant tendering old notes that are the subject of that book-entry
confirmation that the participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce the agreement
against that participant.
Although delivery of old notes may be effected through book-entry transfer
into the exchange agent's account at DTC, the letter of transmittal, or a
facsimile copy, properly completed and duly executed, with any required
signature guarantees, must in any case be delivered to and received by the
exchange agent at its address listed under "--Exchange Agent" on or prior to the
expiration date.
If your old notes are held through DTC, you must complete a form called
"instructions to registered holder and/or book-entry participant," which will
instruct the DTC participant through whom you hold your securities of your
intention to tender your old notes or not tender your old notes. Please note
that delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent and we will not be able to accept your
tender of securities until the exchange agent receives a letter of transmittal
and a book-entry confirmation from DTC with respect to your securities. A copy
of that form is available from the exchange agent.
GUARANTEED DELIVERY PROCEDURES
If you are a registered holder of old notes and you want to tender your old
notes but your old notes are not immediately available, or time will not permit
your old notes to reach the exchange agent before the expiration date, or the
procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if
107
(1) the tender is made through an eligible institution,
(2) prior to the expiration date, the exchange agent receives, by facsimile
transmission, mail or hand delivery, from that eligible institution a
properly completed and duly executed letter of transmittal and notice of
guaranteed delivery, substantially in the form provided by us, stating:
- the name and address of the holder of old notes
- the amount of old notes tendered
- the tender is being made by delivering that notice and guaranteeing
that within three New York Stock Exchange trading days after the date
of execution of the notice of guaranteed delivery, the certificates of
all physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, will be deposited by that
eligible institution with the exchange agent, and
(3) the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, are
received by the exchange agent within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
You can withdraw your tender of old notes at any time on or prior to the
expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at one of the addresses listed below under
"Exchange Agent." Any notice of withdrawal must specify:
- the name of the person having tendered the old notes to be withdrawn,
- the old notes to be withdrawn,
- the principal amount of the old notes to be withdrawn,
- if certificates for old notes have been delivered to the exchange agent,
the name in which the old notes are registered, if different from that of
the withdrawing holder,
- if certificates for old notes have been delivered or otherwise identified
to the exchange agent, then, prior to the release of those certificates,
you must also submit the serial numbers of the particular certificates to
be withdrawn and a signed notice of withdrawal with signatures guaranteed
by an eligible institution unless you are an eligible institution, and
- if old notes have been tendered using the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name
and number of the account at DTC to be credited with the withdrawn old
notes and otherwise comply with the procedures of that facility.
Please note that all questions as to the validity, form, eligibility and
time of receipt of notices of withdrawal will be determined by us, and our
determination shall be final and binding on all parties. Any old notes so
withdrawn will be considered not to have been validly tendered for exchange for
purposes of the exchange offer.
If you have properly withdrawn old notes and wish to re-tender them, you may
do so by following one of the procedures described under "Procedures for
Tendering Old Notes" above at any time on or prior to the expiration date.
108
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, we will not be
required to accept for exchange, or to issue new notes in exchange for, any old
notes and may terminate or amend the exchange offer, if at any time before the
acceptance of old notes for exchange or the exchange of the new notes for old
notes, that acceptance or issuance would violate applicable law or any
interpretation of the staff of the SEC.
That condition is for our sole benefit and may be asserted by us regardless
of the circumstances giving rise to that condition. Our failure at any time to
exercise the foregoing rights shall not be considered a waiver by us of that
right. Our rights described in the prior paragraph are ongoing rights which we
may assert at any time and from time to time.
In addition, we will not accept for exchange any old notes tendered, and no
new notes will be issued in exchange for any old notes, if at that time any stop
order shall be threatened or in effect with respect to the exchange offer to
which this prospectus relates or the qualification of the indenture under the
Trust Indenture Act.
EXCHANGE AGENT
Wells Fargo Bank Minnesota, N.A. has been appointed as the exchange agent
for the exchange offer. All executed letters of transmittal should be directed
to the exchange agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this prospectus or of
the letter of transmittal and requests for notices of guaranteed delivery should
be directed to the exchange agent, addressed as follows:
By Registered or Certified Mail: By Overnight Delivery or Regular Mail:
Wells Fargo Bank Minnesota, N.A. Wells Fargo Bank Minnesota, N.A.
Corporate Trust Operations Corporate Trust Operations
MAC N9303-121 MAC N9303-121
PO Box 1517 Sixth and Marquette
Minneapolis, MN 55479 Minneapolis, MN 55479
Attn: Tim Mowdy Attn: Tim Mowdy
FACSIMILE TRANSMISSIONS:
(612) 667-4927
TO CONFIRM BY TELEPHONE
OR FOR INFORMATION:
(800) 344-5128
Delivery to an address other than as listed above or transmission of
instructions via facsimile other than as listed above does not constitute a
valid delivery.
FEES AND EXPENSES
The principal solicitation is being made by mail; however, additional
solicitation may be made by telegraph, telephone or in person by our officers,
regular employees and affiliates. We will not pay any additional compensation to
any of our officers and employees who engage in soliciting tenders. We will not
make any payment to brokers, dealers, or others soliciting acceptances of the
exchange offer. However, we 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 with the exchange offer.
109
The estimated cash expenses to be incurred in connection with the exchange
offer, including legal, accounting, SEC filing, printing and exchange agent
expenses, will be paid by us and are estimated in the aggregate to be $ .
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct us
to register new notes in the name of, or request that old notes not tendered or
not accepted in the exchange offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
RESALE OF THE NEW NOTES
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the new notes would in general be freely
transferable after the exchange offer without further registration under the
Securities Act. The relevant no-action letters include the Exxon Capital
Holdings Corporation letter, which was made available by the SEC on May 13,
1988, and the Morgan Stanley & Co. Incorporated letter, made available on
June 5, 1991.
However, any purchaser of old notes who is an "affiliate" of Advanstar under
the Securities Act or who intends to participate in the exchange offer for the
purpose of distributing the new notes
(1) will not be able to rely on the interpretation of the staff of the SEC,
(2) will not be able to tender its old notes in the exchange offer and
(3) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any sale or transfer of the
securities unless that sale or transfer is made using an exemption from
those requirements.
By executing, or otherwise becoming bound by, the Letter of Transmittal each
holder of the old notes will represent that:
(1) it is not our "affiliate";
(2) any new notes to be received by it were acquired in the ordinary course
of its business; and
(3) it has no arrangement or understanding with any person to participate,
and is not engaged in and does not intend to engage, in the
"distribution," within the meaning of the Securities Act, of the new
notes.
In addition, in connection with any resales of new notes, any broker-dealer
participating in the exchange offer who acquired securities for its own account
as a result of market-making or other trading activities must deliver a
prospectus meeting the requirements of the Securities Act. The SEC has taken the
position in the Shearman & Sterling no-action letter, which it made available on
July 2, 1993, that participating broker-dealers may fulfill their prospectus
delivery requirements with respect to the new notes, other than a resale of an
unsold allotment from the original sale of the old notes, with the prospectus
contained in the exchange offer registration statement. Under the registration
rights agreement, we are required to allow participating broker-dealers and
other persons, if any, subject to similar prospectus delivery requirements to
use this prospectus as it may be amended or supplemented from time to time, in
connection with the resale of new notes.
110
MATERIAL UNITED STATES TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of old notes for new notes in the exchange offer will not
result in any United States federal income tax consequences to holders. When a
holder exchanges an old note for a new note in the exchange offer, the holder
will have the same adjusted basis and holding period in the new note as in the
old note immediately before the exchange.
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where old notes
were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of 90 days after the expiration
date, we will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any resale of new notes received by it
in exchange for old notes.
We will not receive any proceeds from any sale of new notes by
broker-dealers.
New notes received by broker-dealers for their own account in the exchange
offer may be sold from time to time in one or more transactions
- in the over-the-counter market
- in negotiated transactions
- through the writing of options on the new notes or
- a combination of those methods of resale
at market prices prevailing at the time of resale, at prices related to
prevailing market prices or negotiated prices.
Any 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 broker-dealer or the purchasers of
any new notes.
Any broker-dealer that resells new notes that were received by it for its
own account in the exchange offer and any broker or dealer that participates in
a distribution of those new notes may be considered to be an "underwriter"
within the meaning of the Securities Act. Any profit on any resale of those new
notes and any commission or concessions received by any of those persons may be
considered 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 broker-dealer will not be considered to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests those documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the securities, other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the securities, including any broker-dealers, against some
liabilities, including liabilities under the Securities Act.
111
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for Advanstar
by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements and schedules of Advanstar
Communications Inc. included in this prospectus and elsewhere in the
registration statement as of December 31, 1999 and 2000, for the years ended
December 31, 1998 and 1999, for the period from January 1, 2000 through
October 11, 2000 and for the period from October 12, 2000 through December 31,
2000 have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Act with respect to our offering of the new
notes. This prospectus does not contain all the information included in the
registration statement and the exhibits and schedules thereto. You will find
additional information about us and the new notes in the registration statement.
The registration statement and the exhibits and schedules thereto may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the public reference facilities of the SEC's Regional Offices: New York
Regional Office, Seven World Trade Center, Suite 1300, New York, New York 10048;
and Chicago Regional Office, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of this material may also be obtained from the Public
Reference Section of the Securities and Exchange Commission at 450 Fifth Street,
N.W., Washington, D.C. 20545 at prescribed rates. The SEC also maintains a site
on the World Wide Web (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, including
Advanstar, that file electronically with the SEC. Statements made in this
prospectus about legal documents may not necessarily be complete and you should
read the documents which are filed as exhibits to the registration statement or
otherwise filed with the SEC.
If for any reason we are not required to comply with the reporting
requirements of the Securities Exchange Act of 1934, as amended, we are still
required under the indenture to furnish the holders of the new notes with the
information, documents and other reports specified in Sections 13 and 15(d) and
of the Exchange Act. In addition, we have agreed that, for so long as any notes
remain outstanding, we will furnish to the holders of the notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered by Rule 144A(d)(4) under the Securities
Act.
112
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of December 31, 2000...................................... P-3
Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet
as of December 31, 2000................................... P-4
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 2000........... P-5
Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31,
2000...................................................... P-6
P-1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma statements of operations for the year ended
December 31, 2000 give effect to:
(1) various acquisitions and dispositions by Advanstar, including:
- the acquisition of the DMS tradeshow and INFO 21 magazine from Gruppe
21 Informations--GmbH in January 2000;
- the disposition of our Internet business, which we transferred to our
affiliate, Advanstar.com, in January 2000;
- the acquisition of the Brand Licensing London tradeshow in July 2000;
and
- the disposition of our plastics business in August 2000; and
- the acquisition of the outstanding minority interest in SeCA, our
French joint venture, in November 2000. (We refer to the acquisition,
together with the DMS, Info 21 and Brand Licensing London as the other
acquisitions)
(2) the acquisition by the DLJ Merchant Banking Funds and the related
financings, including this offering and the concurrent contribution of
the net proceeds from the additional Parent Company Units offering and
the application of the net proceeds therefrom,
as if each of these transactions had occurred at the beginning of 2000. You
should read "The Acquisition and Related Financings" for additional information
about the acquisition and the related financings.
The unaudited pro forma statements of operations do not reflect an
extraordinary loss of approximately $2.4 million, net of income tax benefit of
$1.6 million, that we will record in connection with the write-off of deferred
financing fees related to the bridge facility that was refinanced with the
proceeds of the offering of the old notes and the concurrent contribution of the
net proceeds from the additional parent company units offering.
The unaudited pro forma balance sheet as of December 31, 2000 gives effect
to the bridge financing, the offering of the old notes and the concurrent
contribution of the net proceeds from the additional parent company units
offering, as if each transaction had occurred on that date.
The unaudited pro forma financial data presented in this prospectus are
based on the assumptions and adjustments described in the accompanying notes.
The unaudited pro forma statements of operations do not purport to represent
what our results of operations actually would have been if the events described
above had occurred as of the dates indicated or what such results will be for
any future periods. The unaudited pro forma financial statements are based upon
assumptions and adjustments that we believe are reasonable. You should read the
unaudited pro forma financial statements, and the accompanying notes, in
conjunction with the historical financial statements, including the related
notes, included elsewhere in this prospectus.
All acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed have
been recorded at their fair values as of the dates of their respective
acquisitions. These amounts have been recorded based upon preliminary estimates
as of such dates. Further adjustments to the acquired assets and assumed
liabilities will be reflected as a change in goodwill.
P-2
ADVANSTAR COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
OFFERING
HISTORICAL ADJUSTMENTS AS ADJUSTED
---------- ----------- -----------
Current assets:
Cash and cash equivalents................................ $ 17,675 $ (16,669)(1) $ 1,006
Accounts receivable, net................................. 31,158 -- 31,158
Prepaid expenses......................................... 15,721 3,488 (2) 19,209
Other.................................................... 1,832 -- 1,832
-------- --------- --------
Total current assets................................... 66,386 (13,181) 53,205
Due from affiliate......................................... 19,769 -- 19,769
Deferred income taxes and other............................ 7,743 -- 7,743
Property, plant and equipment, net......................... 25,767 -- 25,767
Goodwill, intangibles and other long-term assets, net...... 836,755 2,134 (3) 838,889
Other assets............................................... 785 -- 785
-------- --------- --------
$957,205 $ (11,047) $946,158
======== ========= ========
Current liabilities
Current maturities of long-term debt..................... $ 13,150 $ (13,150)(4) $ --
Accounts payable......................................... 22,007 -- 22,007
Accrued compensation..................................... 9,707 -- 9,707
Deferred revenue......................................... 67,955 -- 67,955
Other accrued liabilities................................ 11,643 (5,781)(5) 5,862
-------- --------- --------
Total current liabilities.............................. 124,462 (18,931) 105,531
Long-term debt, net of current maturities.................. 401,850 (31,850)(4) 370,000
9 1/4% senior subordinated notes, net...................... 150,000 (150,000)(6) --
Senior subordinated notes offered hereby................... -- 160,000 (6) 160,000
Other long term liabilities................................ 5,448 -- 5,448
Minority interests......................................... 10,434 -- 10,434
Stockholder's equity:
Common stock............................................. 10 -- 10
Capital in excess of par................................. 280,842 33,950 (7) 314,792
Accumulated deficit...................................... (16,745) (4,216)(8) (20,961)
Accumulated other comprehensive income................... 904 -- 904
-------- --------- --------
Total stockholder's equity............................... 265,011 29,734 294,745
-------- --------- --------
$957,205 $ (11,047) $946,158
======== ========= ========
P-3
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Represents adjustments to cash as a result of the bridge financing, the old
notes offering and the concurrent contribution of the net proceeds from the
parent company units offering as follows:
AMOUNTS
(IN THOUSANDS)
--------------
Repayment of the outstanding 9 1/4% senior subordinated
notes at 101%............................................. $(151,500)
Repayment of term loans under the new credit facility....... (45,000)
Payment of accrued interest on the 9 1/4% senior
subordinated notes........................................ (5,781)
Payment of fees and expenses (including initial purchasers'
discounts and commissions) associated with the senior
subordinated notes and bridge financing................... (8,338)
Proceeds from senior subordinated notes..................... 160,000
Contribution of the net proceeds from the Parent Company
Units offering............................................ 33,950
---------
$ (16,669)
=========
(2) Represents the establishment at an assumed rate of 40% of a deferred tax
benefit of $1.9 million associated with a fair value adjustment to the
9 1/4% senior subordinated notes deferred financing fees, and the tax
benefit associated with the write-off of financing fees and expenses from
the bridge commitment of approximately $4.0 million and from bridge
commitment fees of approximately $4.0 million.
(3) Represents the adjustment to the goodwill and other intangibles as a result
of the offering as follows:
AMOUNT
(IN THOUSANDS)
--------------
Write-off of ACI deferred financing fees and expenses on the
9 1/4% senior subordinated notes.......................... $(1,873)
Fair value adjustment related to the original issue discount
on the 9 1/4% senior subordinated notes................... (293)
Write-off of ACI bridge commitment and takedown fees and
expenses.................................................. (4,038)
Transaction fees and expenses (including initial purchasers'
discounts and commissions) associated with the senior
subordinated notes and bridge financing................... 8,338
-------
$ 2,134
=======
(4) Represents prepayment of $45.0 million of term loan principal, including
$13.2 million of current maturities, with the proceeds from the old notes
offering, the concurrent parent company units offering and available cash.
(5) Represents the repayment of the accrued interest on the 9 1/4% senior
subordinated notes at the date of repayment.
(6) Represents the repayment of the 9 1/4% senior subordinated notes of
$150.0 million and the proceeds from the issuance of the old notes.
(7) Represents the contributed capital, net of fees and expenses from the
additional parent company units offering.
(8) Represents the write-off of the unamortized discount on the extinguished
9 1/4% senior subordinated notes of approximately $0.3 million, the premium
paid to the holders of the 9 1/4% senior subordinated notes at the time of
repayment of approximately $1.5 million and the write-off of bridge fees of
$4.0 million net of the tax benefit.
P-4
ADVANSTAR COMMUNICATIONS INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(AMOUNTS IN THOUSANDS)
ACQUISITION
OTHER PRO FORMA AND OFFERING
ACTUAL (1) BUSINESSES (2) ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- -------------- ----------- ------------ ---------
Net revenue..................................... $377,479 $ -- $ -- $ -- $377,479
Cost of production and selling.................. 235,145 (241) 222 (3) 235,126
General and administrative expenses............. 52,809 -- (2,320)(7) 50,489
Stock option compensation expense............... (2,485) -- (2,485)
Amortization of goodwill and intangible
assets........................................ 47,844 -- 78 (4) 7,836 (8) 55,758
-------- ------ ------ -------- --------
Operating income.............................. 44,166 241 (300) (5,516) 38,591
Interest expense................................ (51,926) -- -- (6,623)(9) (58,549)
Other expense................................... (2,179) -- -- -- (2,179)
-------- ------ ------ -------- --------
Income (loss) before income taxes and minority
interest.................................... (9,939) 241 (300) (12,139) (22,137)
Provision (benefit) for income taxes............ 6,418 90 (114)(5) (1,721)(10) 4,673
Minority interest in income (loss) of
subsidiary.................................... 878 -- (1,097)(6) (219)
-------- ------ ------ -------- --------
Income (loss) from continuing operations...... $(17,235) $ 151 $ 911 $(10,418) $(26,591)
======== ====== ====== ======== ========
OTHER DATA:
EBITDA (11)................................... $ 96,311 $ 241 $ 875 $ 2,320 $ 99,747
Adjusted EBITDA (12).......................... 93,826 241 875 2,320 97,262
Adjusted EBITDA margin........................ 24.9% 25.8%
Capital expenditures.......................... $ 11,882 $ -- $ -- $ -- $ 11,882
Cash interest expense......................... 56,272
P-5
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(1) Represents the combined unaudited results of operations of Advanstar for
the period from January 1, 2000 through October 11, 2000 and October 12,
2000 through December 31, 2000.
(2) Represents the results of operations for other acquisitions from January 1,
2000 through the effective date of the respective acquisitions and from the
disposition of our Internet business, which we transferred to our
affiliate, Advanstar.com, in January 2000, and the disposition of our
plastics business in July 2000. These are collectively referred to as the
"other businesses."
(3) Represents trade show management expenses related to the acquisition of the
other businesses.
(4) Represents incremental amortization of goodwill and other intangibles
arising from the acquisitions included in the other businesses by
Advanstar. The incremental goodwill and other intangibles are being
amortized on a straight line basis over periods ranging from one to 23
years.
(5) Represents incremental income tax adjustment to reflect pro forma income
taxes for the other businesses at an estimated effective tax rate of 40%.
(6) Represents the elimination of the minority interest expense related to our
acquisition of the outstanding interest in SeCA, our French joint venture.
(7) Represents the elimination of non-recurring executive transaction bonuses
related to the DLJ Merchant Banking Funds acquisition.
(8) Represents incremental amortization of goodwill and other intangibles
arising from the acquisition of Advanstar, Inc., our direct parent company,
by the DLJ Merchant Banking funds. The incremental goodwill and other
intangibles of approximately $178.6 million are being amortized on a
straight line basis over periods ranging from one to 23 years.
(9) Represents incremental interest expense arising from the acquisition of
Advanstar, Inc., our direct parent company, by the DLJ Merchant Banking
funds, and the offering. The adjustment to interest has been calculated as
follows:
AMOUNT
--------------
(IN THOUSANDS)
Interest expense on new credit facility..................... $(37,072)
Interest expense on the notes............................... (19,200)
Amortization of deferred financing costs.................... (2,277)
Less existing interest expense on debt repaid............... 51,926
--------
Total..................................................... $ (6,623)
========
For purposes of calculating pro forma interest expense we assumed the
following:
Notes................................................... 12.00%
New credit facility
Term A................................................ LIBOR plus 3.00%
Term B................................................ LIBOR plus 3.50%
A 0.125% change in the average interest rate on the debt issued in
connection with the acquisition of Advanstar, Inc., our direct parent
company, by the DLJ Merchant Banking funds would have
P-6
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 2000
resulted in an approximately $0.7 million change in the pro forma interest
expense adjustment. For purposes of calculating pro forma interest expense,
we used LIBOR as of December 31, 2000.
(10) Represents incremental income tax adjustment arising from the acquisition
of Advanstar, Inc., our direct parent company, by the DLJ Merchant Banking
funds, and the offering at an estimated effective tax rate of 40%,
excluding the effects of non-deductible goodwill.
(11) "EBITDA" is defined as operating income plus depreciation and amortization
less amounts attributable to minority interest. EBITDA is a key financial
measure but should not be construed as an alternative to operating income
or cash flows from operating activities (as determined in accordance with
generally accepted accounting principles). We believe that EBITDA is a
useful supplement to net income and other income statement data in
understanding cash flows generated from operations that are available or
taxes, debt service and capital expenditures. However, our method of
computation may not be comparable to other similarly titled measures of
other companies.
The following table demonstrates our calculation of EBITDA.
ACQUISITION
OTHER PRO FORMA AND OFFERING
ACTUAL BUSINESSES ADJUSTMENTS ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ------------ ---------
Operating income................ $44,166 $ 241 $ (300) $(5,516) $38,591
Depreciation and amortization... 54,100 -- 78 7,836 62,014
Minority interest............... (1,955) -- 1,097 -- (858)
------- ------ ------ ------- -------
EBITDA.......................... $96,311 $ 241 $ 875 $ 2,320 $99,747
======= ====== ====== ======= =======
(12) "Adjusted EBITDA" is defined as EBITDA plus stock option compensation
expense, or less any stock option compensation benefit. We believe that
Adjusted EBITDA is a useful supplement to net income and other income
statement data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures, as it
excludes stock option compensation expense which, in all historic periods,
was a non-cash expense.
P-7
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
Report of Arthur Andersen LLP............................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... F-3
Consolidated Statements of Operations for each of the two
years in the period ended December 31, 1999, for the
period from January 1, 2000 through October 11, 2000 and
for the period from October 12, 2000 through December 31,
2000...................................................... F-4
Consolidated Statements of Stockholder's Equity for each of
the two years in the period ended December 31, 1999, for
the period from January 1, 2000 through October 11, 2000
and for the period from October 12, 2000 through
December 31, 2000......................................... F-5
Consolidated Statements of Cash Flows for each of the two
years in the period ended December 31, 1999, for the
period from January 1, 2000 through October 11, 2000 and
for the period from October 12, 2000 through December 31,
2000...................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Advanstar Communications Inc.:
We have audited the accompanying consolidated balance sheets of Advanstar
Communications Inc. (a Delaware corporation) and Subsidiaries as of
December 31, 1999 and 2000, and the related consolidated statements of
operations, stockholder's equity and cash flows for the years ended
December 31, 1998 and 1999, the period from January 1, 2000 through October 11,
2000, and the period from October 12, 2000 through December 31, 2000. These
consolidated financial statements and schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanstar
Communications Inc. and Subsidiaries as of December 31, 1999 and 2000, and the
results of their operations and their cash flows for the years ended
December 31, 1998 and 1999, the period from January 1, 2000 through October 11,
2000, and the period from October 12, 2000 through December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule included in Item 16(b) is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Minneapolis, Minnesota,
February 26, 2001
F-2
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PREDECESSOR SUCCESSOR
---------- ----------
DECEMBER DECEMBER
31, 31,
1999 2000
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 11,237 $ 17,675
Accounts receivable, net of allowance of $709 and $725.... 30,889 31,158
Prepaid expenses.......................................... 14,595 15,721
Other..................................................... 2,220 1,832
-------- --------
Total current assets.................................... 58,941 66,386
DUE FROM AFFILIATE.......................................... -- 19,769
PROPERTY, PLANT AND EQUIPMENT, net.......................... 20,866 25,767
INTANGIBLE ASSETS, net
Goodwill.................................................. 590,912 752,235
Other intangibles......................................... 93,635 84,520
-------- --------
Total intangible assets................................. 684,547 836,755
DEFERRED INCOME TAXES....................................... 16,442 7,743
OTHER ASSETS................................................ 785 785
-------- --------
$781,581 $957,205
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 13,740 $ 13,150
Accounts payable.......................................... 18,691 22,007
Accrued compensation...................................... 6,595 9,707
Deferred income taxes..................................... 1,481 --
Other accrued liabilities................................. 12,453 11,643
Deferred revenue.......................................... 61,963 67,955
-------- --------
Total current liabilities............................... 114,923 124,462
LONG-TERM DEBT, net of current maturities................... 509,414 551,850
OTHER LONG-TERM LIABILITIES................................. 9,122 5,448
MINORITY INTERESTS.......................................... 15,161 10,434
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 40,000,000 shares
authorized; 1,000,000 shares issued and outstanding at
December 31, 1999 and 2000.............................. 10 10
Capital in excess of par value............................ 186,904 280,842
Accumulated deficit....................................... (48,330) (16,745)
Accumulated other comprehensive income (loss)............. (5,623) 904
-------- --------
Total stockholder's equity.............................. 132,961 265,011
-------- --------
$781,581 $957,205
======== ========
See notes to consolidated financial statements.
F-3
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
SUCCESSOR
PREDECESSOR -----------
--------------------------------- FOR THE
FOR THE PERIOD
PERIOD FROM
FROM OCTOBER 12,
JANUARY 1, 2000
FOR THE YEARS ENDED 2000 THROUGH
DECEMBER 31 THROUGH DECEMBER
------------------- OCTOBER 11, 31,
1998 1999 2000 2000
-------- -------- ----------- -----------
NET REVENUE.................................... $259,825 $328,372 $314,045 $ 63,434
OPERATING EXPENSES:
Cost of production........................... 54,330 66,237 61,687 15,017
Selling, editorial and circulation........... 114,213 138,868 126,162 32,279
General and administrative................... 36,883 43,527 34,285 9,783
Amortization of goodwill and other
intangibles................................ 48,752 49,214 35,133 12,711
Depreciation................................. 3,071 4,044 4,520 1,736
-------- -------- -------- --------
Total operating expenses................... 257,249 301,890 261,787 71,526
-------- -------- -------- --------
OPERATING INCOME (LOSS)........................ 2,576 26,482 52,258 (8,092)
OTHER INCOME (EXPENSE):
Interest expense, net........................ (27,862) (39,888) (38,161) (13,765)
Other income (expense), net.................. (1,926) (198) (2,394) 215
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY
INTERESTS.................................... (27,212) (13,604) 11,703 (21,642)
PROVISION (BENEFIT) FOR INCOME TAXES........... 1,264 (11,431) 11,190 (4,772)
MINORITY INTERESTS IN (INCOME) LOSS OF
SUBSIDIARIES................................. 40 1,588 (1,003) 125
-------- -------- -------- --------
NET LOSS....................................... $(28,436) $ (585) $ (490) $(16,745)
======== ======== ======== ========
See notes to consolidated financial statements.
F-4
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
ACCUMULATED
COMMON CAPITAL IN OTHER
-------------------- EXCESS OF COMPREHENSIVE ACCUMULATED
SHARES AMOUNT PAR VALUE INCOME (LOSS) DEFICIT TOTAL
--------- -------- ---------- ------------- ----------- --------
BALANCE, December 31, 1997 (Predecessor)... 1,000,000 $10 $108,990 $ 43 $(19,309) $ 89,734
Comprehensive loss-
Net loss............................... -- -- -- -- (28,436)
Translation adjustment................. -- -- -- (915) --
Total comprehensive loss............. -- -- -- -- -- (29,351)
Stock option compensation expense........ -- -- 3,397 -- -- 3,397
Capital contribution..................... -- -- 70,980 -- -- 70,980
--------- --- -------- ------- -------- --------
BALANCE, December 31, 1998 (Predecessor)... 1,000,000 10 183,367 (872) (47,745) 134,760
Comprehensive income-
Net loss............................... -- -- -- -- (585)
Translation adjustment................. -- -- -- (4,751) --
Total comprehensive loss............. -- -- -- -- -- (5,336)
Stock option compensation expense and
other.................................. -- -- 3,536 -- -- 3,536
Capital contribution..................... -- -- 1 -- -- 1
--------- --- -------- ------- -------- --------
BALANCE, December 31, 1999 (Predecessor)... 1,000,000 10 186,904 (5,623) (48,330) 132,961
Comprehensive loss-
Net loss............................... -- -- -- -- (490)
Translation adjustment................. -- -- -- (3,231) --
Total comprehensive loss............. -- -- -- -- -- (3,721)
Stock option compensation (income) and
other.................................. -- -- (6,933) -- -- (6,933)
--------- --- -------- ------- -------- --------
BALANCE, October 11, 2000 (Predecessor).... 1,000,000 $10 $179,971 $(8,854) $(48,820) $122,307
========= === ======== ======= ======== ========
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, October 12, 2000 (Successor)...... 1,000,000 $10 $280,842 $ -- $ -- $280,852
Comprehensive loss-
Net loss............................... -- -- -- -- (16,745)
Translation adjustment................. -- -- -- 904 --
Total comprehensive loss............. -- -- -- -- -- (15,841)
--------- --- -------- ------- -------- --------
BALANCE, December 31, 2000 (Successor)..... 1,000,000 $10 $280,842 $ 904 $(16,745) $265,011
========= === ======== ======= ======== ========
See notes to consolidated financial statements.
F-5
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
PREDECESSOR SUCCESSOR
------------------------------------ ---------------
FOR THE FOR THE PERIOD
PERIOD FROM FROM
FOR THE YEARS ENDED JANUARY 1, OCTOBER 12,
DECEMBER 31, 2000 THROUGH 2000 THROUGH
--------------------- OCTOBER 11, DECEMBER 31,
1998 1999 2000 2000
--------- --------- ------------ ---------------
OPERATING ACTIVITIES:
Net loss....................................... $ (28,436) $ (585) $ (490) $(16,745)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................ 39,158 49,114 39,653 14,447
Noncash interest............................. 960 1,209 899 748
Asset impairment write-downs................. 12,665 4,144 -- --
Noncash stock compensation................... 3,397 3,925 (2,485) --
Loss (gain) on sales of assets and other..... 1,968 (659) 3,092 (4,580)
Deferred income taxes........................ -- (12,631) 3,231 (1,040)
Changes in operating assets and liabilities:
Accounts receivable, net................... (6,064) (2,830) (887) (161)
Inventories................................ 657 (318) 384 (5)
Prepaid expenses........................... (670) 1,736 1,270 (2,969)
Accounts payable and accrued liabilities... 7,338 (555) 15,314 (21,947)
Deferred revenue........................... 3,674 10,521 (18,863) 23,999
Other...................................... (1,079) 449 (2,320) 123
--------- --------- -------- --------
Net cash provided by (used in) operating
activities............................. 33,568 53,520 38,798 (8,130)
--------- --------- -------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment..... (4,154) (9,722) (9,304) (2,578)
Acquisition of publications and trade shows,
net of cash acquired......................... (358,315) (141,479) (13,264) (6,408)
Increase in long-term receivable from
affiliate.................................... -- -- (10,749) (9,020)
Proceeds from sale of assets and other......... 4,208 299 3,767 66
--------- --------- -------- --------
Net cash used in investing activities.... (358,261) (150,902) (29,550) (17,940)
--------- --------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from (payments on) revolving
credit loan.................................. 27,000 (29,000) -- --
Proceeds from long-term debt................... 399,613 138,000 -- --
Payments of long-term debt..................... (163,993) (12,752) (16,828) --
Proceeds from capital contributions and
other........................................ 69,980 (1,344) -- --
--------- --------- -------- --------
Net cash provided by (used in) financing
activities............................. 332,600 94,904 (16,828) --
--------- --------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.......... (915) (301) 280 (986)
--------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 6,992 (2,779) (7,300) (27,056)
CASH AND CASH EQUIVALENTS, beginning of period... 7,024 14,016 11,237 44,731
--------- --------- -------- --------
CASH AND CASH EQUIVALENTS, end of period......... $ 14,016 $ 11,237 $ 3,937 $ 17,675
========= ========= ======== ========
See notes to consolidated financial statements.
F-6
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 2000
1 NATURE OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Advanstar Communications Inc. and its majority-owned subsidiaries (collectively,
Advanstar or the Company). All intercompany accounts and transactions between
consolidated entities have been eliminated.
The Company operates and manages trade shows and conferences; publishes
controlled circulation trade and professional periodicals; and markets a broad
range of marketing, direct mail and database products and services.
On October 11, 2000, a group of investors, including DLJ Merchant Banking
Partners III L.P. (DLJMB), certain of its affiliated funds and certain members
of management, formed Advanstar Holdings Corp. (Holdings) to acquire
substantially all of the outstanding shares of Advanstar's direct parent,
Advanstar, Inc., for an aggregate purchase price of approximately
$917.6 million (the DLJ Acquisition) including the assumption of outstanding
indebtedness and debt repaid on the date of sale. The acquisition has been
accounted for using the purchase method of accounting and, accordingly, all
assets and liabilities of the Company have been recorded at their fair values as
of the date of acquisition. The excess of the purchase price over the fair value
of the assets and liabilities of the Company has been recorded as goodwill.
Certain of the assets, including identifiable intangibles, have been recorded
based upon preliminary estimates as of the date of acquisition. The Company does
not believe the final allocation of purchase price will be materially different
from preliminary allocations. Any changes to the preliminary estimates during
the allocation period will be reflected as an adjustment to goodwill.
Due to the effects of the DLJ Acquisition on the recorded bases of goodwill,
intangibles, property and stockholder's equity, the financial statements prior
to and subsequent to the DLJ Acquisition are not comparable. Periods prior to
October 12, 2000 represent the accounts of the Predecessor and from that date,
the Successor. The effects of the DLJ Acquisition have not been included in the
accompanying statements of cash flows as the acquisition was deemed to have
occurred at a date that is not part of either the Predecessor or Successor
company operations.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit and highly liquid
investments with original maturities of three months or less. Cash equivalents
are stated at cost, which approximates fair market value.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses consist primarily of prepaid trade show and conference
expenses, prepaid publication production costs and miscellaneous deposits. Event
and publication expenses are charged to operations at the time of the occurrence
of the related event and at the time of publication issuance. Other current
assets consist of paper inventories and notes receivable.
F-7
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
PREDECESSOR SUCCESSOR
---------- ----------
DECEMBER DECEMBER
31, 31,
1999 2000
---------- ----------
Land and improvements............................... $ 2,538 $ 2,401
Buildings........................................... 5,359 4,686
Furniture, machinery and equipment.................. 17,443 16,454
Leasehold improvements.............................. 3,967 3,973
------- -------
29,307 27,514
Accumulated depreciation............................ (8,441) (1,747)
------- -------
Net property, plant and equipment................. $20,866 $25,767
======= =======
Property, plant and equipment is depreciated on the straight-line basis over
the following estimated useful lives:
ESTIMATED
USEFUL LIVES
-------------
Land improvements........................................... 10-15 years
Buildings................................................... 20-40 years
Furniture, machinery and equipment.......................... 3-10 years
Leasehold improvements...................................... Life of lease
For tax reporting purposes, certain assets have different estimated useful
lives and depreciation methods.
Maintenance and repairs are charged to expense as incurred. Major
betterments and improvements which extend the useful life of the item are
capitalized and depreciated. The cost and accumulated depreciation of property,
plant and equipment retired or otherwise disposed of are removed from the
related accounts, and any residual values are charged or credited to income.
GOODWILL
Goodwill, which is being amortized on a straight-line basis over an average
of 23 years, is recorded in the accompanying consolidated balance sheets net of
accumulated amortization of $53.7 million and $8.3 million at December 31, 1999
and 2000, respectively.
INTANGIBLE ASSETS
Intangible assets are being amortized on a straight-line basis over 1 to
20 years. Intangible assets consist primarily of identifiable intangibles
including advertiser, paid subscriber and trade show exhibitor lists, computer
software, the value assigned to Advanstar's assembled workforce and fulfillment
agreements. Accumulated amortization was $60.4 million and $4.8 million at
December 31, 1999 and 2000, respectively.
F-8
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the carrying value of long-lived assets, including
identifiable intangibles and goodwill, for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If impairment indicators are present and the estimated future
undiscounted cash flows are less than the carrying value of the assets and any
related goodwill, the carrying value is reduced to the estimated fair value as
measured by the associated discounted cash flows.
During 1998 and 1999, the Company identified certain properties which, due
to changes in market conditions and portfolio management direction, the Company
elected to discontinue. As a result, a total noncash charge of $12.7 million and
$4.1 million was recorded in 1998 and 1999, respectively, to write down the
carrying value of the related operating assets and intangibles, and is included
in amortization of goodwill and other intangibles on the consolidated statements
of operations. There were no impairment write-downs for the period from
January 1, 2000 through October 11, 2000 or for the period from October 12, 2000
through December 31, 2000.
REVENUE RECOGNITION
Trade show and conference revenue is recognized in the accounting period in
which the event is conducted. Subscription revenue is recognized on a pro rata
basis as publications are issued to fulfill the subscription obligations.
Advertising revenue is recognized as the publication with the respective
advertisement is published. Deferred revenue is recorded when cash is received
in advance of providing the related service.
Deferred revenue consisted of the following (in thousands):
PREDECESSOR SUCCESSOR
---------- ----------
DECEMBER DECEMBER
31, 31,
1999 2000
---------- ----------
Deferred trade show and conference revenue.......... $57,727 $63,937
Deferred advertising and subscription revenue....... 4,236 4,018
------- -------
Total deferred revenue............................ $61,963 $67,955
======= =======
FOREIGN CURRENCY TRANSLATION
The Company accounts for translation investments in foreign entities in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52,
"Foreign Currency Translation."
FINANCIAL DERIVATIVE INSTRUMENTS
The Company's policy is to generally use financial derivative instruments
only to manage exposure to fluctuations in interest and foreign currency
exchange rates. The Company does not use derivative financial instruments for
speculative or trading purposes.
The Company periodically enters into forward exchange contracts principally
to hedge the eventual dollar results of foreign currency-denominated
transactions (primarily British pounds, Euros and
F-9
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Brazilian reals). Gains and losses on forward exchange contracts entered into to
hedge foreign currency transactions are included in revenue in the consolidated
statements of operations when the underlying transaction is closed. There were
open forward exchange contracts with a notional amount totaling $23.3 million
and $20.1 million, and unrealized gains (losses) of $0.1 million and $(0.8)
million, at December 31, 1999 and 2000, respectively.
The Company has entered into interest rate collar and cap agreements with
remaining maturities of up to 18 months to manage its exposure to interest rate
movements on a portion of its variable rate debt obligations. Interest rate
differentials paid or received under these agreements are recognized as an
adjustment to interest expense in the period realized. The notional amount of
these contracts was $113.8 million and $105.5 million at December 31, 1999 and
2000, respectively.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company has elected to account for stock options and awards to employees under
the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations.
COMPREHENSIVE INCOME (LOSS)
The Company follows the provisions of SFAS No. 130, "Reporting Comprehensive
Income." This statement established rules for the reporting of comprehensive
income and its components. Comprehensive income reflects the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from nonowner sources. Comprehensive income (loss) consists of net
income (loss) and foreign currency translation adjustments and is presented in
the consolidated statements of stockholder's equity.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 periods. Ultimate results could differ from these
estimates. On an ongoing basis, management reviews its estimates, including
those affecting doubtful accounts, valuation of goodwill and intangible assets
and income taxes. Changes in facts and circumstances may result in revised
estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts reported in prior
periods in order to conform to the current period presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, is effective for fiscal years beginning after June 15,
2000. The statement establishes accounting and
F-10
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
reporting standards requiring that each derivative instrument be recorded in the
balance sheet as either an asset or liability measured at fair value. Changes in
the derivative financial instrument's fair value must be recognized currently in
earnings unless specific hedge accounting criteria are met. For derivative
financial instruments which meet the criteria, gains and losses may be
recognized in other comprehensive income rather than current earnings. The
Company adopted SFAS No. 133 on January 1, 2001, which did not have a material
impact on the Company's financial position or results of operations.
3 ACQUISITIONS
On April 30, 1998, the Company acquired Men's Apparel Guild in
California, Inc. (MAGIC), which operates apparel trade shows (the MAGIC
Acquisition). The purchase price was approximately $234.3 million in cash and
assumed liabilities. Concurrent with the MAGIC Acquisition, the Company
renegotiated its credit agreement to provide additional borrowing capacity. The
Company also received an additional equity contribution of approximately
$71.0 million.
On August 17, 1998, the Company acquired certain travel-related publication
and trade show assets of Universal Media Inc., including Travel Agent
(collectively, Travel Agent). The purchase price was approximately
$68.0 million in cash plus approximately $1.0 million in assumed liabilities.
Concurrent with the Travel Agent acquisition, the Company undertook an
additional amendment to its credit agreement to further increase its borrowing
capacity and financed the balance of the cash purchase price with its available
cash and revolving credit facility.
From January 1, 1998 through December 31, 1998, the Company completed 11
other acquisitions of trade shows, conferences and publishing properties, with a
cumulative purchase price totaling approximately $89.1 million. Certain entities
acquired in 1998 have minority ownership interests.
On July 28, 1999, the Company acquired certain trade shows and publishing
properties of Larkin-Pluznik-Larkin, LLC and LPL/Style Group, LLC,
(collectively, Larkin), which operates apparel trade shows. The purchase price
was approximately $135.4 million in cash and assumed liabilities. Concurrent
with the Larkin acquisition, the Company amended and restated its credit
agreement to provide additional borrowing capacity to finance the acquisition.
From January 1, 1999 through December 31, 1999, the Company completed three
other acquisitions of trade shows, conferences and publishing properties, with a
cumulative purchase price totaling approximately $17.3 million in cash and
assumed liabilities.
On January 7, 2000, the Company acquired the Documents, Messaging and
Security (DMS) tradeshow and Info 21 magazine from Gruppe 21 Informations-GmbH
for approximately $7.8 million in cash and assumed liabilities.
On July 26, 2000, the Company acquired the Brand Licensing London tradeshow
for approximately $4.6 million in cash and assumed liabilities.
On November 26, 2000, the Company purchased the outstanding minority
interest in SeCA, its French joint venture, for approximately $9.0 million in
cash.
F-11
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
3 ACQUISITIONS (CONTINUED)
Each of the acquisitions discussed above have been accounted for using the
purchase method of accounting and, accordingly, the assets acquired and
liabilities assumed have been recorded at their fair values as of the dates of
the acquisitions. The excess of the purchase price over the fair value of the
assets acquired and liabilities assumed has been recorded as goodwill. Certain
of the liabilities assumed in connection with 2000 acquisitions have been
recorded based upon preliminary estimates as of the dates of acquisition. The
Company does not believe the final allocation of purchase price will be
materially different from preliminary allocations. Any changes to the
preliminary estimates during the allocation period will be reflected as an
adjustment to goodwill. Results of operations for these acquisitions have been
included in the accompanying consolidated financial statements since their
respective dates of acquisition.
The following are unaudited pro forma operating results as if the
acquisitions had taken place at the beginning of the following periods (in
thousands):
YEARS ENDED DECEMBER 31
------------------------------
1998 1999 2000
-------- -------- --------
Total revenues................................ $342,606 $353,777 $377,479
Operating income.............................. 21,000 32,593 46,349
Net loss...................................... (17,923) (2,346) (14,828)
The unaudited pro forma financial information is provided for informational
purposes only. It is based on historical information and does not purport to be
indicative of the results that would have occurred had the acquisitions occurred
at such dates, of the Company's future results of operations at January 1, 1998,
or of future results of operations.
4 DEBT
CREDIT FACILITY
In connection with the DLJ Acquisition, the Company's Amended Credit
Facility was replaced with a syndicated senior secured credit facility (the New
Credit Facility) with a group of financial institutions. The New Credit Facility
consists of (i) $415 million of term loans payable in quarterly installments
beginning March 31, 2001 and continuing through October 11, 2007 and
(ii) $80 million of revolving loan availability. The New Credit Facility
contains a number of covenants that, among other things, requires the Company to
maintain certain financial ratios, including leverage and fixed charge coverage
ratios, as defined. Failure of the Company to comply with any of these covenants
may cause an Event of Default under the New Credit Facility. The Company was in
compliance with all covenants as of December 31, 2000. Borrowings under the New
Credit Facility are secured by substantially all of the Company's assets. In
addition, at December 31, 2000, the Company has purchased interest rate
protection agreements for a notional amount of $105.5 million that effectively
guarantee that the Company's interest rate on $105.5 million of the Company's
New Credit Facility will not exceed 12 percent, nor be less than 8.75 percent.
F-12
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
4 DEBT (CONTINUED)
SENIOR SUBORDINATED NOTES
The senior subordinated notes (the Notes) issued in conjunction with the
MAGIC Acquisition are unsecured obligations of Communications, limited to
$150.0 million aggregate principal amount, and will mature on May 1, 2008. Each
Note bears interest at 9 1/4 percent, payable semiannually. On January 9, 2001,
the Notes were tendered at an offer price in cash equal to 101 percent of the
aggregate principal amount, plus accrued interest. The Company financed the
repurchase of the Notes with bridge financing and subsequently replaced the
bridge financing with the issuance of 12 percent senior subordinated notes, due
2011 (see Note 10).
Long-term debt consists of the following (in thousands):
PREDECESSOR SUCCESSOR
---------- ----------
DECEMBER DECEMBER
31, 31,
1999 2000
---------- ----------
Tranche A term loan, interest at LIBOR plus 2.25 percent.... $ 90,210 $ --
Tranche B term loan, interest at LIBOR plus 2.50 percent.... 147,223 --
Tranche C term loan, interest at LIBOR plus 3.00 percent.... 136,043 --
Term loan A, interest at LIBOR plus 3.00%, 9.72% at December
31, 2000, due quarterly through April 11, 2007............ -- 100,000
Term loan B, interest at LIBOR plus 3.50%, 10.14% at
December 31, 2000, due quarterly through October 11,
2008...................................................... -- 315,000
Senior subordinated notes at 9.25%, due May 31, 2008........ 149,678 150,000
-------- --------
523,154 565,000
Less--Current maturities.................................... (13,740) (13,150)
-------- --------
$509,414 $551,850
======== ========
Based on the borrowing rates currently available to the Company for debt
instruments with similar terms and average maturities, the fair value of
long-term debt was substantially the same as its carrying value at December 31,
1999 and would have been below its carrying value by approximately
$20.0 million at December 31, 2000. Cash paid during 1998, 1999, the period from
January 1, 2000 through October 11, 2000 and the period from October 12, 2000
through December 31, 2000 for interest was $25.3 million, $38.8 million,
$34.0 million and $15.3 million, respectively.
Annual maturities of long-term debt for the next five years are as follows
(in thousands):
2001....................................................... $ 13,150
2002....................................................... 18,150
2003....................................................... 18,150
2004....................................................... 20,294
2005....................................................... 20,294
Thereafter................................................. 474,962
F-13
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
5 STOCKHOLDER'S EQUITY
STOCK OPTION PLANS
The Company's stock option plans consist of the 1996 Stock Option Plan and
the 2000 Management Incentive Plan.
1996 STOCK OPTION PLAN
The Company accounts for the options using the intrinsic value method
outlined in APB Opinion No. 25. Accordingly, and because of certain variable
features of the 1996 Stock Option Plan (the Plan), the Company measures
compensation cost as the difference between the exercise price of the options
and the fair value of the shares under option at the end of each period, and
recognizes compensation expense to provide for such difference. In connection
with the DLJ Acquisition, all of the outstanding options under the Plan became
fully vested and were purchased and cancelled by the Company at fair market
value and the Plan was terminated. For the year ended December 31, 1999 and the
period from January 1, 2000 through October 11, 2000, the Company recognized
compensation expense of $3.9 million and a benefit of $2.5 million,
respectively, under the Plan. The compensation expense is presented in the
consolidated statement of stockholder's equity net of the Company's repurchase
of the options.
2000 MANAGEMENT INCENTIVE PLAN
On October 12, 2000, Holdings adopted the 2000 Management Incentive Plan. A
maximum of 3,422,789 shares of Holdings are authorized for grant to participants
under the 2000 Management Incentive Plan. Options are granted by Holdings' board
of directors at an exercise price of not less than the fair market value of
Holdings common stock at the date of grant and vest over a maximum of nine
years. Shares available for grant under the 2000 Management Incentive Plan
totaled 167,789 at December 31, 2000.
If the Company had elected to recognize compensation cost based on the fair
value of the options granted as prescribed by SFAS No. 123, net loss would have
been increased to the pro forma amounts indicated in the table below (in
thousands):
PREDECESSOR
--------------------------------- SUCCESSOR
FOR THE ------------
PERIOD FOR THE
FROM PERIOD
JANUARY 1, FROM
FOR THE YEARS ENDED 2000 OCTOBER 12,
DECEMBER 31 THROUGH 2000 THROUGH
------------------- OCTOBER 11, DECEMBER 31,
1998 1999 2000 2000
-------- -------- ----------- ------------
Net loss--as reported......... $(28,436) $(2,027) $ (490) $(16,745)
Net loss--pro forma........... (29,005) (2,858) (2,434) (17,065)
F-14
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
5 STOCKHOLDER'S EQUITY (CONTINUED)
For purposes of computing compensation cost of stock options granted, the
fair value of each stock option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
SUCCESSOR
-----------
PREDECESSOR FOR THE
------------------- PERIOD
FROM
FOR THE YEARS OCTOBER 12,
ENDED 2000
DECEMBER 31 THROUGH
------------------- DECEMBER 31,
1998 1999 2000
-------- -------- -----------
Expected dividend yield....................... -- -- --
Expected stock price volatility............... 30.6% 34.7% 41.6%
Risk-free interest rate....................... 5.6% 6.5% 6.0%
Expected life of options...................... 5 years 5 years 7.5 years
A summary of stock option activity under the 1996 Stock Option Plan and the
2000 Management Incentive Plan is as follows:
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING PRICE
----------- --------
Outstanding at December 31, 1997 (Predecessor).......... 1,470,800 $ 5.82
Granted............................................... 720,300 6.09
Cancelled............................................. (380,000) 5.87
---------- ------
Outstanding at December 31, 1998 (Predecessor).......... 1,811,100 6.42
Granted............................................... 410,000 12.68
Cancelled............................................. (190,000) 6.67
---------- ------
Outstanding at December 31, 1999 (Predecessor).......... 2,031,100 8.24
Granted............................................... 50,000 12.68
Repurchased in connection with DLJ Acquisition........ (2,081,100) 9.00
---------- ------
Outstanding at October 11, 2000 (Predecessor)........... -- $ --
========== ======
- --------------------------------------------------------------------------------
Outstanding at October 12, 2000 (Successor)............. -- $ --
Granted............................................... 3,255,000 10.00
---------- ------
Outstanding at December 31, 2000 (Successor)............ 3,255,000 $10.00
========== ======
As of December 31, 2000, the outstanding stock options had a weighted
average remaining contractual life of 9.8 years. None of the options outstanding
at December 31, 2000 were exercisable. The weighted average fair value of
grants, as estimated using the Black-Scholes option pricing model, for the years
ended December 31, 1998 and 1999, and for the period from October 12, 2000
through December 31, 2000 was $2.40, $3.14 and $5.54 per option, respectively.
F-15
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
5 STOCKHOLDER'S EQUITY (CONTINUED)
DIVIDENDS
The Company has not declared or paid any cash dividends in the past. Under
terms of the Company's New Credit Facility, the Company is prohibited from
paying cash dividends without prior approval of the financial institutions.
6 401(k) PLAN
The Company has an Employees' 401(k) Plan and Trust (the 401(k) Plan)
available to employees of the Company and its domestic subsidiaries. All current
and future domestic employees who have completed one year of service and are at
least 21 years of age are eligible to participate in the 401(k) Plan. The
Company is required to make a matching contribution to the 401(k) Plan and may,
at its discretion, make discretionary contributions to the 401(k) Plan. Eligible
employees are vested 100 percent in their own contributions. Contributions made
by the Company vest in equal installments over five years. Total contribution
expense was $1.0 million and $1.2 million for the years ended December 31, 1998
and 1999, respectively, and $1.1 million and $0.2 million for the period from
January 1, 2000 through October 11, 2000 and the period from October 12, 2000
through December 31, 2000, respectively.
7 INCOME TAXES
The Company's operations are included in the consolidated federal income tax
return of Advanstar, Inc. Federal income taxes are paid to or refunded by
Advanstar, Inc. as if taxes were computed on a separate company basis. Taxes
receivable from Advanstar, Inc. of approximately $7.0 million and $2.7 million
at December 31, 1999 and 2000, respectively, are included in prepaid expenses in
the accompanying consolidated balance sheets.
The summary of loss before provision (benefit) for income taxes and minority
interest were as follows (in thousands):
PREDECESSOR SUCCESSOR
------------------------------------ --------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JANUARY 1, OCTOBER 12,
FOR THE YEARS ENDED 2000 2000
DECEMBER 31 THROUGH THROUGH
------------------- OCTOBER 11, DECEMBER 31,
1998 1999 2000 2000
-------- -------- -------------- --------------
Domestic................................ $(28,219) $(10,247) $15,163 $(20,138)
Foreign................................. 1,007 (3,357) (3,460) (1,504)
-------- -------- ------- --------
Total............................... $(27,212) $(13,604) $11,703 $(21,642)
======== ======== ======= ========
F-16
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
7 INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes is comprised of the following (in
thousands):
PREDECESSOR SUCCESSOR
------------------------------------ --------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JANUARY 1, OCTOBER 12,
FOR THE YEARS ENDED 2000 2000
DECEMBER 31 THROUGH THROUGH
------------------- OCTOBER 11, DECEMBER 31,
1998 1999 2000 2000
-------- -------- -------------- --------------
Current:
Federal................................ $ -- $ 268 $ 5,792 $(6,595)
State.................................. 217 65 811 (44)
Foreign................................ 1,047 867 1,355 156
Deferred................................. -- (12,631) 3,232 1,711
------ -------- ------- -------
Total provision (benefit)................ $1,264 $(11,431) $11,190 $(4,772)
====== ======== ======= =======
The Company accounts for income taxes following the provisions of SFAS
No. 109, "Accounting for Income Taxes," which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using currently enacted tax rates.
Significant components of the Company's deferred income taxes were as
follows (in thousands):
PREDECESSOR SUCCESSOR
---------- ----------
DECEMBER DECEMBER
31, 31,
1999 2000
---------- ----------
Deferred tax liabilities:
Prepaid expenses.......................................... $(2,570) $(2,021)
------- -------
Total deferred tax liabilities.......................... (2,570) (2,021)
------- -------
Deferred tax assets:
Net operating loss carryforwards.......................... 3,965 --
Foreign tax credit carryforwards.......................... 1,593 513
Depreciation and amortization............................. 8,819 6,861
Stock options and warrants................................ 2,637 --
Accrued expenses and other................................ 2,110 2,903
------- -------
Total deferred tax assets............................... 19,124 10,277
------- -------
Valuation allowance......................................... (1,593) (513)
------- -------
Net deferred income taxes................................... $14,961 $ 7,743
======= =======
During 1999, the Company established deferred tax assets of $2.3 million
related to its 1998 and prior acquisitions. Due to the difference in the income
tax and financial reporting bases of assets acquired and liabilities assumed in
these acquisitions, the tax benefit has been reflected as a reduction of
goodwill in the accompanying consolidated balance sheet as of December 31, 1999.
F-17
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
7 INCOME TAXES (CONTINUED)
The valuation allowance for deferred tax assets decreased by $1.1 million in
2000. The decrease in the allowance is primarily attributable to foreign tax
credit carryforwards which expired in 2000. A valuation allowance has been
provided on foreign tax credit carryforwards which substantially expire in 2001.
Based on management's assessment, it is more likely than not that all the
deferred tax assets, net of the valuation allowance at December 31, 2000, will
be realized.
A reconciliation of the Company's provision (benefit) for income taxes at
the federal statutory rate to the reported income tax provision (benefit) is as
follows (in thousands):
PREDECESSOR SUCCESSOR
------------------------------------ ---------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JANUARY 1, OCTOBER 12,
FOR THE YEARS ENDED 2000 2000
DECEMBER 31 THROUGH THROUGH
------------------- OCTOBER 11, DECEMBER 31,
1998 1999 2000 2000
-------- -------- -------------- ---------------
Income tax expense (benefit) at
statutory rates....................... $(9,510) $ (4,710) $ 3,638 $(7,358)
Change in valuation allowance........... 9,060 (13,817) -- --
Nondeductible amortization.............. 2,875 4,127 3,339 904
Foreign provision in excess of U.S.
rates................................. 220 468 2,215 1,509
State taxes, net of federal benefit..... 143 102 754 (386)
Change in deferred tax rates............ -- 488 -- --
Other, net.............................. (1,524) 1,911 1,244 559
------- -------- ------- -------
Total............................... $ 1,264 $(11,431) $11,190 $(4,772)
======= ======== ======= =======
8 COMMITMENTS AND CONTINGENCIES
LEASES
The Company has long-term operating leases for office space and office
equipment. The leases generally require the Company to pay maintenance,
insurance, taxes and other expenses in addition to minimum annual rentals.
Building and equipment rent expense was $3.4 million, $5.2 million,
$5.0 million and $1.3 million for the years ending December 31, 1998 and 1999,
the period from January 1, 2000 through October 11, 2000, and the period from
October 12, 2000 through December 31, 2000, respectively. Future minimum lease
commitments under operating leases with initial terms of one year or more are as
follows (in thousands):
2001........................................................ $ 6,056
2002........................................................ 5,584
2003........................................................ 4,697
2004........................................................ 3,802
2005........................................................ 3,818
Thereafter.................................................. 15,032
F-18
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
8 COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
The Company is a defendant in legal proceedings arising in the ordinary
course of business. Although the outcome of these proceedings cannot presently
be determined, in the opinion of management, disposition of these proceedings
will not have a material effect on the results of operations or financial
position of the Company.
9 SEGMENTS
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," and has three reportable
segments: trade shows and conferences, trade publications and marketing
services. The trade show and conference segment allows exhibitors a
cost-effective means to showcase and sell products and services while developing
business relationships with many potential customers in a short time period. The
Company's trade publications segment provides key new product and educational
information to readers and allows advertisers to reach highly targeted and
select business audiences. The marketing services segment offers customers
mailing lists from the Company's subscriber and attendee databases; editorial
and advertising reprints; direct mail postcards; and classified, recruitment and
industry directory advertising.
The Company evaluates the performance of, and allocates resources to, its
segments based on gross profit. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. There are no intersegment sales or transfers. Segment
assets are primarily intangible assets, prepaid expenses and accounts
receivables (in thousands):
TRADE
SHOWS AND TRADE MARKETING CORPORATE
CONFERENCES PUBLICATIONS SERVICES AND OTHER TOTALS
----------- ------------ --------- ----------- --------
Year ended December 31, 1998 (Predecessor):
Revenues................................. $113,066 $130,442 $15,647 $ 670 $259,825
Gross profit............................. 45,020 37,715 8,102 445 91,282
Segment assets........................... 356,655 248,291 2,254 53,026 660,226
Year ended December 31, 1999 (Predecessor):
Revenues................................. 161,007 147,714 18,581 1,070 328,372
Gross profit............................. 71,593 41,991 9,290 393 123,267
Segment assets........................... 468,018 236,062 3,020 74,481 781,581
Period from January 1, 2000 through
October 11, 2000 (Predecessor):
Revenues................................. 178,606 120,706 13,794 939 314,045
Gross profit............................. 83,815 35,209 6,233 939 126,196
Segment assets........................... 453,299 224,829 2,291 67,565 747,984
- ------------------------------------------------------------------------------------------------------------
Period from October 12, 2000 through
December 31, 2000 (Successor):
Revenues................................. 19,752 38,281 5,206 195 63,434
Gross profit............................. 2,399 10,959 2,585 195 16,138
Segment assets........................... 281,666 568,639 3,003 103,897 957,205
F-19
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
9 SEGMENTS (CONTINUED)
The reconciliation of total segment gross profit to consolidated pretax
income (loss) are as follows (in thousands):
PREDECESSOR SUCCESSOR
------------------------------------ --------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JANUARY 1, OCTOBER 12,
FOR THE YEARS ENDED 2000 2000
DECEMBER 31 THROUGH THROUGH
------------------- OCTOBER 11, DECEMBER 31,
1998 1999 2000 2000
-------- -------- -------------- --------------
Total segment gross profit............. $ 91,282 $123,267 $126,196 $ 16,138
General and administrative expense..... (36,883) (43,527) (34,285) (9,783)
Depreciation and amortization.......... (51,823) (53,258) (39,653) (14,447)
Other expense.......................... (29,788) (40,086) (40,555) (13,550)
-------- -------- -------- --------
Consolidated pretax income (loss)...... $(27,212) $(13,604) $ 11,703 $(21,642)
======== ======== ======== ========
Financial information relating to the Company's operations by geographic
area are as follows (in thousands):
REVENUES
PREDECESSOR SUCCESSOR
------------------------------------ --------------
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JANUARY 1, OCTOBER 12,
FOR THE YEARS ENDED 2000 2000
DECEMBER 31 THROUGH THROUGH
------------------- OCTOBER 11, DECEMBER 31,
1998 1999 2000 2000
-------- -------- -------------- --------------
United States.......................... $225,104 $287,850 $280,836 $53,319
International.......................... 34,721 40,522 33,209 10,115
-------- -------- -------- -------
Total.............................. $259,825 $328,372 $314,045 $63,434
======== ======== ======== =======
Revenues are primarily attributed to countries based on the location of
customers.
LONG-LIVED ASSETS
PREDECESSOR
------------------- SUCCESSOR
----------
DECEMBER 31 DECEMBER
------------------- 31,
1998 1999 2000
-------- -------- ----------
United States............................................... $573,734 $688,112 $817,078
International............................................... 27,619 17,301 45,444
-------- -------- --------
$601,353 $705,413 $862,552
======== ======== ========
10 EVENTS SUBSEQUENT TO DECEMBER 31, 2000 (UNAUDITED)
The DLJ Acquisition constituted a change in control under the Notes. Upon
occurrence of a change of control, each holder of the Notes may require the
Company to repurchase all or any part of
F-20
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
10 EVENTS SUBSEQUENT TO DECEMBER 31, 2000 (UNAUDITED) (CONTINUED)
the Notes held by such holder at an offer price in cash equal to 101 percent of
the aggregate principal amount thereof, plus accrued interest and other
specified costs to the date of repurchase. On January 4, 2001, all of the Notes
were tendered. The Company obtained bridge financing in order to fund the
repurchase price of the Notes. On February 21, 2001, the Company issued
$160.0 million of unsecured, 12 percent senior subordinated notes, due 2011(the
Replacement Notes). Interest on the Replacement Notes is payable semiannually
commencing August 2001. The Replacement Notes are fully and unconditionally
guaranteed on a senior subordinated basis, jointly and severally, by the Company
and its wholly-owned domestic subsidiaries. As part of tendering of the Notes,
the Company wrote off remaining deferred financing costs of approximately
$2.4 million, net of related tax benefits.
Concurrent with the issuance of the Replacement Notes, Advanstar, Inc.
issued units comprised of 15 percent senior discount notes (the Discount Notes)
with an aggregate principal amount at maturity of $68.6 million, and warrants to
purchase shares of common stock of Holdings, for consideration of approximately
$34.8 million. The Discount Notes bear interest at 15 percent, payable
semiannually beginning October 2005, and have an implied yield to maturity of
17.2 percent. The Discount Notes are redeemable at the Company's option at
specified premiums through 2007, and at par thereafter. The Discount Notes may
also be redeemed at a premium upon a qualifying change of control of the
Company. The Discount Notes have been excluded from the Company's consolidated
financial statements, as the Company is not a guarantor under the Discount
Notes.
The Company used the proceeds from issuance of the Replacement Notes and the
Discount Notes to repay and terminate the bridge financing and to repay
approximately $45.0 million of term loan borrowings under the New Credit
Facility. Concurrent with the issuance of the Discount Notes, DLJIP exchanged
its senior discount notes, issued by Advanstar, Inc. as part of the DLJ
Acquisition, for like units valued at $52.7 million.
11 RELATIONSHIP WITH ADVANSTAR.COM
Advanstar.com, an affiliate, is developing vertical community web sites to
serve the Company's industry sectors and is operating the Company's event and
publication-related web sites. The Company provides Advanstar.com with certain
administrative support services in accounting, finance, legal, human resource
management, information technology and business development. During 2000, the
Company began to charge for these services based on a general overhead charge.
There was approximately $0.5 million and $0.2 million charged for the period
from January 1, 2000 through October 11, 2000 and the period from October 12,
2000 through December 31, 2000, respectively. In addition, selected staff in
editorial and other functions in Advanstar are shared with Advanstar.com.
Beginning in 2001, appropriate allocations of staff costs will be made to
Advanstar.com. No such charges have been made during 2000. The Company also
provides Advanstar.com with marketing and promotional support through
advertising pages in its trade publications and exhibit space in its trade
shows. These are provided at rates which fully cover the Company's incremental
costs. In return, Advanstar.com provides support on its web sites for
Advanstar's trade publications and trade shows at rates which reflect
incremental costs. Advanstar.com operates specific web sites in support of
Advanstar's trade publications and trade shows. Among other functions, these
sites provide essential services, such as trade show and conference registration
and publication subscription and reader services, in support of the Company's
products. Advanstar.com has the right to use the content from
F-21
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 2000
11 RELATIONSHIP WITH ADVANSTAR.COM (CONTINUED)
the Company's publications and events, its brands and its customer lists for the
purpose of building and operating the web sites. The Company has a long-term
receivable of $19.8 million from Advanstar.com as of December 31, 2000. There
are no specific repayment terms for this receivable.
12 SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The Replacement Notes are fully and unconditionally guaranteed on a senior
subordinated basis, jointly and severally, by the Company and its wholly owned
domestic subsidiaries. The subsidiary guarantors are Art Expositions
International, Inc., MAGIC and Applied Business TeleCommunications. The
condensed consolidating financial statements of the guarantors are presented
below and should be read in connection with the consolidated financial
statements of the Company. Separate financial statements of the guarantors are
not presented because the guarantors are jointly, severally and unconditionally
liable under the guarantees and the Company believes the condensed consolidating
financial statements presented are more meaningful in understanding the
financial position of the guarantors. Management has determined that such
information is not material to investors.
Due to the effects of the DLJ Acquisition on the recorded bases of goodwill,
intangibles, property and shareholder's equity, the financial statements prior
to and subsequent to the DLJ Acquisition are not comparable. Periods prior to
October 12, 2000 represent the accounts of the Predecessor and from that date,
the Successor. The DLJ Acquisition effects have not been included in the
accompanying statements of cash flows as it was deemed to have occurred at a
date that is not part of either the Predecessor or Successor company operations.
There are no significant restrictions on the ability of the subsidiary
guarantors to make distributions to the Company.
F-22
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2000
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents..... $ 10,736 $ 1 $ 6,938 $ -- $ 17,675
Accounts receivable, net...... 28,061 329 2,768 -- 31,158
Prepaid expenses.............. 8,223 2,712 4,786 -- 15,721
Intercompany receivable
(payable)................... (72,727) 100,811 (28,084) -- --
Other......................... 1,491 -- 341 -- 1,832
-------- -------- ------- --------- --------
Total current assets........ (24,216) 103,853 (13,251) -- 66,386
Noncurrent assets:
Due from affiliate............ 19,769 -- -- -- 19,769
Property, plant and equipment,
net......................... 23,654 713 1,400 -- 25,767
Intangible assets, net........ 701,250 56,435 79,070 -- 836,755
Deferred income taxes and
other....................... 8,446 -- 82 -- 8,528
Investments in subsidiaries... 182,395 -- -- (182,395) --
-------- -------- ------- --------- --------
$911,298 $161,001 $67,301 $(182,395) $957,205
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities:
Current maturities of
long-term debt.............. $ 13,150 $ -- $ -- $ -- $ 13,150
Accounts payable.............. 13,800 1,793 6,414 -- 22,007
Deferred revenue.............. 37,389 21,526 9,040 -- 67,955
Accrued liabilities........... 15,120 3,707 2,523 -- 21,350
-------- -------- ------- --------- --------
Total current liabilities... 79,459 27,026 17,977 -- 124,462
Long-term debt, net of current
maturities.................... 551,850 -- -- -- 551,850
Other long-term liabilities..... 5,448 -- -- -- 5,448
Minority interest............... 10,434 -- -- -- 10,434
Stockholder's equity:
Common stock.................. 10 3 403 (406) 10
Capital in excess of par
value....................... 280,842 134,110 49,988 (184,098) 280,842
Accumulated deficit........... (16,745) (138) (1,971) 2,109 (16,745)
Accumulated other
comprehensive income........ -- -- 904 -- 904
-------- -------- ------- --------- --------
Total stockholder's
equity.................... 264,107 133,975 49,324 (182,395) 265,011
-------- -------- ------- --------- --------
$911,298 $161,001 $67,301 $(182,395) $957,205
======== ======== ======= ========= ========
F-23
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH OCTOBER 11, 2000
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Net revenue..................... $210,239 $63,738 $40,068 $ -- $314,045
Operating expenses:
Cost of sales and selling,
editorial and circulation... 135,918 20,149 31,782 -- 187,849
General and administrative.... 28,636 728 4,921 -- 34,285
Depreciation and
amortization................ 27,259 9,491 2,903 -- 39,653
-------- ------- ------- -------- --------
Total operating
expenses................ 191,813 30,368 39,606 -- 261,787
-------- ------- ------- -------- --------
Operating income (loss)......... 18,426 33,370 462 -- 52,258
Other income (expense):
Interest income (expense),
net......................... (36,928) -- (1,233) -- (38,161)
Other income (expense), net... (595) -- (1,799) -- (2,394)
-------- ------- ------- -------- --------
Income (loss) before income
taxes:........................ (19,097) 33,370 (2,570) -- 11,703
Provision (benefit) for income
taxes....................... 6,213 (15,710) (1,693) -- (11,190)
Minority interests in
earnings.................... (1,003) -- -- -- (1,003)
Equity in earnings (loss) of
subsidiaries................ 13,397 -- -- (13,397) --
-------- ------- ------- -------- --------
Net income (loss)......... $ (490) $17,660 $(4,263) $(13,397) $ (490)
======== ======= ======= ======== ========
F-24
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 12, 2000 THROUGH DECEMBER 31, 2000
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Net revenue..................... $ 48,638 $4,260 $10,536 $ -- $ 63,434
Operating expenses:
Cost of sales and selling,
editorial and circulation... 34,102 3,506 9,688 -- 47,296
General and administrative.... 8,425 281 1,077 -- 9,783
Depreciation and
amortization................ 12,649 528 1,270 -- 14,447
-------- ------ ------- ------ --------
Total operating expenses.... 55,176 4,315 12,035 -- 71,526
-------- ------ ------- ------ --------
Operating income (loss)......... (6,538) (55) (1,499) -- (8,092)
Other income (expense):
Interest income (expense),
net......................... (14,027) -- 262 -- (13,765)
Other income (expense), net... 828 -- (613) -- 215
-------- ------ ------- ------ --------
Income (loss) before income
taxes:........................ (19,737) (55) (1,850) -- (21,642)
Provision (benefit) for income
taxes....................... (4,976) 83 121 -- (4,772)
Minority interests in
earnings.................... 125 -- -- -- 125
Equity in earnings (loss) of
subsidiaries................ (2,109) -- -- 2,109 --
-------- ------ ------- ------ --------
Net income (loss)........... $(16,745) $ (138) $(1,971) $2,109 $(16,745)
======== ====== ======= ====== ========
F-25
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH OCTOBER 11, 2000
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Operating activities:
Net income (loss)................ $ (490) $ 17,660 $ (4,263) $(13,397) $ (490)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Undistributed earnings of
subsidiaries................. (13,397) -- -- 13,397 --
Depreciation and
amortization................. 27,259 9,491 2,903 -- 39,653
Non cash Items................. 4,737 -- -- -- 4,737
Change in working capital
items........................ (70,721) 74,914 (9,295) -- (5,102)
-------- --------- -------- -------- --------
Net cash provided by (used
in) operating activities... (52,612) 102,065 (10,655) -- 38,798
-------- --------- -------- -------- --------
Investing activities:
Investment in subsidiaries....... 84,997 -- -- (84,997) --
Additions to property, plant and
equipment, net................. (8,508) (338) (458) -- (9,304)
Acquisitions of publications and
trade shows.................... 1,204 500 (11,201) -- (9,497)
Increase in long-term receivable
from affiliate................. (10,749) -- -- -- (10,749)
-------- --------- -------- -------- --------
Net cash provided by (used
in) investing activities... 66,944 162 (11,659) (84,997) (29,550)
-------- --------- -------- -------- --------
Financing activities:
Proceeds from sale of common
stock and capital contributions
and other...................... -- (102,256) 17,259 84,997 --
Payments of long-term debt,
net............................ (16,828) -- -- -- (16,828)
-------- --------- -------- -------- --------
Net cash provided by (used
in) financing activities... (16,828) (102,256) 17,259 84,997 (16,828)
-------- --------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH............................. (3,230) -- 3,510 -- 280
-------- --------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS:................ (5,726) (29) (1,545) -- (7,300)
CASH AND CASH EQUIVALENTS,
beginning of period:............. 5,612 33 5,592 -- 11,237
-------- --------- -------- -------- --------
CASH AND CASH EQUIVALENTS, end of
period:.......................... $ (114) $ 4 $ 4,047 $ -- $ 3,937
======== ========= ======== ======== ========
F-26
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 12, 2000 THROUGH DECEMBER 31, 2000
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Operating activities:
Net income (loss)............... $(16,745) $(138) $(1,971) $ 2,109 $(16,745)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities--
Undistributed earnings of
subsidiaries................ 2,109 -- -- (2,109) --
Depreciation and
amortization................ 12,649 528 1,270 -- 14,447
Non cash Items................ (3,496) -- -- -- (3,496)
Change in working capital
items....................... 1,614 (355) (3,595) -- (2,336)
-------- ----- ------- ------- --------
Net cash provided by
(used in) operating
activities................ (3,869) 35 (4,296) -- (8,130)
-------- ----- ------- ------- --------
Investment activities:
Investment in subsidiaries...... (13,783) -- -- 13,783 --
Additions to property, plant and
equipment, net................ (2,304) (67) (207) -- (2,578)
Acquisitions of publications and
trade shows................... (298) -- (6,044) -- (6,342)
Increase in long-term receivable
from affiliate................ (9,020) -- -- -- (9,020)
-------- ----- ------- ------- --------
Net cash provided by
(used in) investing
activities................ (25,405) (67) (6,251) 13,783 (17,940)
-------- ----- ------- ------- --------
Financing activities:
Proceeds from sale of common
stock and capital
contributions and others...... -- -- 13,783 (13,783) --
-------- ----- ------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH............................ 904 -- (1,890) -- (986)
-------- ----- ------- ------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:........... (28,370) (32) 1,346 -- (27,056)
CASH AND CASH EQUIVALENTS,
beginning of period:............ 39,106 33 5,592 -- 44,731
-------- ----- ------- ------- --------
CASH AND CASH EQUIVALENTS, end
of period:...................... $ 10,736 $ 1 $ 6,938 $ -- $ 17,675
======== ===== ======= ======= ========
F-27
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1999
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents..... $ 5,612 $ 33 $ 5,592 $ -- $ 11,237
Accounts receivable, net...... 27,571 (301) 3,619 -- 30,889
Prepaid expenses.............. 8,989 2,268 3,338 -- 14,595
Intercompany receivable
(payable)................... (60,989) 75,724 (14,735) -- --
Other......................... 1,940 -- 280 -- 2,220
-------- -------- -------- --------- --------
Total current assets........ (16,877) 77,724 (1,906) -- 58,941
Noncurrent assets:
Deferred income taxes and
other....................... 17,227 -- -- -- 17,227
Property, plant and equipment,
net......................... 18,859 673 1,334 -- 20,866
Investments in subsidiaries... 304,269 -- -- (304,269) --
Intangible assets, net........ 423,020 215,603 45,924 -- 684,547
-------- -------- -------- --------- --------
$746,498 $294,000 $ 45,352 $(304,269) $781,581
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S
EQUITY
Current liabilities:
Current maturities of
long-term debt.............. $ 13,740 $ -- $ -- $ -- $ 13,740
Accounts payable.............. 13,748 880 4,063 -- 18,691
Deferred revenue.............. 30,933 24,576 6,454 -- 61,963
Accrued liabilities........... 15,796 3,085 1,648 -- 20,529
-------- -------- -------- --------- --------
Total current liabilities... 74,217 28,541 12,165 -- 114,923
Long-term debt, net of current
maturities.................... 509,414 -- -- -- 509,414
Other long-term liabilities..... 9,122 -- -- -- 9,122
Minority interest............... 15,161 -- -- -- 15,161
Stockholder's equity:
Common stock.................. 10 3 382 (385) 10
Capital in excess of par
value....................... 186,904 236,366 44,890 (281,256) 186,904
Retained earnings (deficit)... (48,330) 29,090 (6,462) (22,628) (48,330)
Accumulated other
comprehensive income........ -- -- (5,623) -- (5,623)
-------- -------- -------- --------- --------
Total stockholder's
equity.................... 138,584 265,459 33,187 (304,269) 132,961
-------- -------- -------- --------- --------
$746,498 $294,000 $ 45,352 $(304,269) $781,581
======== ======== ======== ========= ========
F-28
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Net revenue..................... $223,042 $58,221 $47,109 $ -- $328,372
Operating expenses:
Cost of sales and selling,
editorial and circulation... 150,114 20,357 34,634 -- 205,105
General and administrative.... 35,742 1,955 5,830 -- 43,527
Depreciation and
amortization................ 33,676 12,129 7,453 -- 53,258
-------- ------- ------- -------- --------
Total operating expenses.... 219,532 34,441 47,917 -- 301,890
-------- ------- ------- -------- --------
Operating income (loss)......... 3,510 23,780 (808) -- 26,482
Other income (expense):
Interest income (expense),
net......................... (38,578) 2 (1,312) -- (39,888)
Other income (expense), net... 4,707 2 (4,907) -- (198)
-------- ------- ------- -------- --------
Income (loss) before income
taxes:........................ (30,361) 23,784 (7,027) -- (13,604)
Provision (benefit) for income
taxes....................... (12,180) -- 749 -- (11,431)
Minority interests in
earnings.................... 1,588 -- -- -- 1,588
Equity in earnings (loss) of
subsidiaries................ 16,008 -- -- (16,008) --
-------- ------- ------- -------- --------
Net income (loss)........... $ (585) $23,784 $(7,776) $(16,008) $ (585)
======== ======= ======= ======== ========
F-29
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Operating activities:
Net income (loss)............. $ (585) $23,784 $(7,776) $(16,008) $ (585)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities-
Depreciation and
amortization.............. 33,665 12,138 7,455 -- 53,258
Non cash Items.............. (9,605) -- 7 -- (9,598)
Change in working capital
items..................... 27,395 (36,448) 3,490 16,008 10,445
--------- ------- ------- -------- ---------
Net cash provided by (used
in) operating
activities.............. 50,870 (526) 3,176 -- 53,520
--------- ------- ------- -------- ---------
Investment activities:
Additions to property, plant
and equipment, net.......... (8,287) (444) (887) -- (9,618)
Acquisitions of publications
and trade shows............. (139,472) 1,099 (2,911) -- (141,284)
--------- ------- ------- -------- ---------
Net cash provided by (used
in) investing
activities.............. (147,759) 655 (3,798) -- (150,902)
--------- ------- ------- -------- ---------
Financing activities:
Dividends paid to minority
interest holders............ (1,344) -- -- -- (1,344)
Borrowings of long-term debt,
net......................... 96,248 -- -- -- 96,248
--------- ------- ------- -------- ---------
Net cash provided by (used
in) financing
activities.............. 94,904 -- -- -- 94,904
--------- ------- ------- -------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH....................... (301) -- -- -- (301)
--------- ------- ------- -------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:......... (2,286) 129 (622) -- (2,779)
CASH AND CASH EQUIVALENTS,
beginning of period:.......... 7,898 (96) 6,214 -- 14,016
--------- ------- ------- -------- ---------
CASH AND CASH EQUIVALENTS, end
of period:.................... $ 5,612 $ 33 $ 5,592 $ -- $ 11,237
========= ======= ======= ======== =========
F-30
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Net revenue..................... $181,709 $35,700 $42,416 $ -- $259,825
Operating expenses:
Cost of sales and selling,
editorial and circulation... 123,426 17,081 28,528 -- 169,035
General and administrative.... 27,818 2,758 6,307 -- 36,883
Depreciation and
amortization................ 38,713 10,241 2,377 -- 51,331
-------- ------- ------- ------- --------
Total operating expenses.... 189,957 30,080 37,212 -- 257,249
-------- ------- ------- ------- --------
Operating income (loss)......... (8,248) 5,620 5,204 -- 2,576
Other income (expense):
Interest income (expense),
net......................... (27,602) 60 (320) -- (27,862)
Other income (expense), net... 2,812 (884) (3,854) -- (1,926)
-------- ------- ------- ------- --------
Income (loss) before income
taxes:........................ (33,038) 4,796 1,030 -- (27,212)
Provision (benefit) for income
taxes....................... 288 13 963 -- 1,264
Minority interests in
earnings.................... 40 -- -- -- 40
Equity in earnings (loss) of
subsidiaries................ 4,850 -- -- (4,850) --
-------- ------- ------- ------- --------
Net income (loss)........... $(28,436) $ 4,783 $ 67 $(4,850) $(28,436)
======== ======= ======= ======= ========
F-31
ADVANSTAR COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
GUARANTOR NONGUARANTOR CONSOLIDATED
COMMUNICATIONS SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
-------------- ------------ ------------ ------------ ------------
Operating activities:
Net income (loss)............. $(28,436) $ 4,783 $ 67 $(4,850) $ (28,436)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities-
Depreciation and
amortization.............. 39,205 10,241 2,377 -- 51,823
Noncash Items............... 6,305 20 -- -- 6,325
Change in working capital
items..................... (247,166) 214,561 31,611 4,850 3,856
-------- -------- ------- ------- ---------
Net cash provided by (used
in) operating
activities.............. (230,092) 229,605 34,055 -- 33,568
-------- -------- ------- ------- ---------
Investment activities:
Additions to property, plant
and equipment, net........ 1,243 (671) (518) -- 54
Acquisitions of publications
and trade shows........... (98,969) (229,085) (30,261) -- (358,315)
-------- -------- ------- ------- ---------
Net cash provided by (used
in) investing
activities.............. (97,726) (229,756) (30,779) -- (358,261)
-------- -------- ------- ------- ---------
Financing activities:
Proceeds from sale of common
stock and capital
contributions and other... 70,980 -- -- -- 70,980
Dividends paid to minority
interest holders.......... -- -- (1,000) -- (1,000)
Borrowings of long-term
debt, net................. 262,620 -- -- -- 262,620
-------- -------- ------- ------- ---------
Net cash provided by (used
in) financing
activities.............. 333,600 -- (1,000) -- 332,600
-------- -------- ------- ------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH....................... (915) -- -- -- (915)
-------- -------- ------- ------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS:......... 4,867 (151) 2,276 -- 6,992
CASH AND CASH EQUIVALENTS,
beginning of period:.......... 3,403 (317) 3,938 -- 7,024
-------- -------- ------- ------- ---------
CASH AND CASH EQUIVALENTS, end
of period:.................... $ 8,270 $ (468) $ 6,214 $ -- $ 14,016
======== ======== ======= ======= =========
F-32
[ADVANSTAR COMMUNICATIONS LOGO]
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR REFERRED TO IN THIS
DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF
THIS DOCUMENT.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
SUBJECT TO COMPLETION, DATED APRIL 20, 2001
PROSPECTUS
ADVANSTAR COMMUNICATIONS INC.
12% SERIES B SENIOR SUBORDINATED NOTES DUE 2011
Interest on the notes is payable every February 15 and August 15, beginning
August 15, 2001. The notes are redeemable on or after February 15, 2006 at the
prices specified in this prospectus. Up to 35% of the notes will be redeemable
on or prior to February 15, 2004 at the price specifed in this prospectus with
the net proceeds of a public equity offering. We may redeem the notes upon a
change of control prior to February 15, 2006 at a price equal to 100% plus an
applicable premium.
THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This prospectus will be used by Credit Suisse First Boston Corporation in
connection with offers and sales in market-making transactions at negotiated
prices related to prevailing market prices. There is currently no public market
for the notes. We do not intend to list the notes on any securities exchange.
Credit Suisse First Boston Corporation has advised us that it is currently
making a market in the notes; however, it is not obligated to do so and may stop
at any time. Credit Suisse First Boston Corporation may act as principal or
agent in any such transaction. We will not receive the proceeds of the sale of
the notes but will bear the expenses of registration.
CREDIT SUISSE FIRST BOSTON
THE DATE OF THIS PROSPECTUS IS , 2001.
[ALTERNATE SECTIONS FOR MARKET MAKING PROSPECTUS]
TABLE OF CONTENTS
PAGE
--------
PROSPECTUS SUMMARY..................... 1
RISK FACTORS........................... 9
THE ACQUISITION AND RELATED
FINANCINGS........................... 17
USE OF PROCEEDS........................ 21
CAPITALIZATION......................... 21
NOTE ON INDUSTRY AND MARKET DATA....... 22
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA....................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 25
BUSINESS............................... 36
MANAGEMENT............................. 51
EXECUTIVE COMPENSATION................. 53
PAGE
----
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT..... 58
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS......................... 59
DESCRIPTION OF CERTAIN INDEBTEDNESS.... 61
DESCRIPTION OF NOTES................... 65
PLAN OF DISTRIBUTION................... 110
LEGAL MATTERS.......................... 111
INDEPENDENT PUBLIC ACCOUNTANTS.........
AVAILABLE INFORMATION.................. 111
INDEX TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.... P-1
INDEX TO FINANCIAL STATEMENTS.......... F-1
RISK FACTORS
THERE IS NO EXISTING TRADING MARKET FOR THE NOTES, WHICH COULD MAKE IT DIFFICULT
FOR YOU TO SELL YOUR NOTES AT AN ACCEPTABLE PRICE OR AT ALL.
There is no existing trading market for the notes, and we cannot assure you
about the future development of a market for the notes or your ability to sell
their new notes or the price at which you may be able to sell your notes. If
such market were to develop, the notes could trade at prices that may be higher
or lower than their initial offering price depending on many factors, including
prevailing interest rates, our operating results and the market for similar
securities. Although it is not obligated to do so, Credit Suisse First Boston
Corporation intends to make a market in the notes. Any such market-making
activity may be discontinued at any time, for any reason, without notice at the
sole discretion of Credit Suisse First Boston Corporation. No assurance can be
given as to the liquidity of or the trading market for the notes.
Credit Suisse First Boston Corporation may be deemed to be our "affiliate",
as defined the Securities Act, and, as a result, may be required to deliver a
prospectus in connection with its market-making activities in the notes. In the
registration rights agreement that we signed with Credit Suisse First Boston
Corporation in connection with the initial sale of the notes, we agreed to use
our best efforts to file and maintain a registration statement that would allow
Credit Suisse First Boston Corporation to engage in market-making transactions
in the notes. We have agreed to bear substantially all the costs and expenses
related to registration.
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the notes by
Credit Suisse First Boston Corporation in market-making transactions. We will
not receive any of the proceeds from such transactions.
2
PLAN OF DISTRIBUTION
This prospectus is to be used by Credit Suisse First Boston Corporation in
connection with offers and sales of the new notes in market-making transactions
effected from time to time. Credit Suisse First Boston Corporation may act as a
principal or agent in such transactions, including as agent for the counterparty
when acting as principal or as agent for both counterparties, and may receive
compensation in the form of discounts and commissions, including from both
counterparties when it acts as agent for both. Such sales will be made at
prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices.
DLJ Merchant Banking, an affiliate of Credit Suisse First Boston
Corporation, and its affiliates beneficially own substantially all of the common
stock of our parent. David Wittels, James Quella and OhSang Kwan, each of whom
is an employee of DLJ Merchant Banking, are members of the board of directors of
our company. The DLJ Investment Partners funds, which own a substantial portion
of the parent company notes, are also affiliates of Credit Suisse First Boston
Corporation. Further, an affiliate of Credit Suisse First Boston Corporation
acted as lead arranger and syndication agent in connection with the new credit
facility for which it received customary fees and expenses and another affiliate
of Credit Suisse First Boston Corporation purchased the bridge notes, for which
it received customary fees and expenses. Credit Suisse First Boston Corporation
has, from time to time, provided investment banking and other financial advisory
services to Advanstar in the past for which it has received customary
compensation, and will provide such services and financial advisory services to
our company in the future. Credit Suisse First Boston Corporation acted as
purchaser in connection with the initial sale of the old notes and parent
company units and received an underwriting discount in connection therewith. See
"Certain Relationships and Related Transactions."
Credit Suisse First Boston Corporation has informed us that it does not
intend to confirm sales of the new notes to any accounts over which it exercises
discretionary authority without the prior specific written approval of such
transactions by the customer.
We have been advised by Credit Suisse First Boston Corporation that, subject
to applicable laws and regulations, Credit Suisse First Boston Corporation
currently intends to make a market in the new notes following completion of the
exchange offer. However, Credit Suisse First Boston Corporation is not obligated
to do so and any such market-making may be interrupted or discontinued at any
time without notice. In addition, such market-making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act. There can be no
assurance that an active trading market will develop or be sustained. See "Risk
Factors--Risks Related to the Notes--There is no existing trading market for the
notes, which could make it difficult for you to sell your notes at an acceptable
price or at all."
Credit Suisse First Boston Corporation and Advanstar have entered into a
registration rights agreement with respect to the use by Credit Suisse First
Boston Corporation of this prospectus. In that agreement, we agreed to bear all
registration expenses incurred under such agreement, and we agreed to indemnify
Credit Suisse First Boston Corporation against a variety of liabilities,
including liabilities under the Securities Act.
3
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all estimated expenses incurred or
expected to be incurred by the Registrants in connection with the issuance and
distribution of the securities being registered hereby.
ITEM AMOUNT
- ---- ------
SEC Registration Fee........................................ $40,000
Printing and Engraving Costs................................ -
Trustee Fees................................................ -
Legal Fees and Expenses..................................... -
Accounting Fees and Expenses................................ -
Miscellaneous............................................... -
-------
Total................................................... $ -
=======
- ------------------------
- To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Advanstar Communications Inc. (the "Company") is a New York Corporation.
Section 402(b) of the New York Business Corporation ("NYBCL") statute generally
provides that a company's certificate of incorporation may set forth a provision
eliminating or limiting the personal liability of its directors for damages for
any breach of duty in such capacity, provided that no such provision shall
eliminate or limit: the liability of any director if a judgment or other final
adjudication adverse to him establishes (i) that his acts or omissions were in
bad faith or involved intentional misconduct or a knowing violation of law; or
(ii) that he personally gained in fact a financial profit or other advantage to
which he was not legally entitled; or (iii) that his acts violated section 719
of the NYBCL.
In addition, section 722(a) of the NYBCL generally provides that a
corporation may indemnify officers made, or threatened to be made, a party to an
action or proceeding, other than one by or in the right of the corporation to
procure a judgment in its favor, including an action by or in the right of any
other corporation, or other enterprise, which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he was a director or officer of the corporation, or served such
other corporation, or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys
fees, if such director or officer acted in good faith.
Section 722(c), in general, further provides that a corporation may
indemnify any person made, or threatened to be made, a party to an action by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director or officer of the corporation, or is or
was serving at the request of the corporation as a director or officer of any
other corporation, or other enterprise, against amounts paid in settlement and
reasonable expenses, including attorneys fees in connection with the defense or
settlement of such action if such director or officer acted in good faith.
Generally, the Company's certificate of incorporation eliminates the
personal liability of its directors to the fullest extent permitted by the
provisions of paragraph (b) of Section 402 of the NYBCL. In addition, the
Company's bylaws indemnify its directors and officers in connection with any
proceeding, including an action by or in the right of the corporation, by reason
of the fact that such person is or was a director or officer of the Company, or
is or was serving at the request of the Company as a director, officer, trustee,
employee or agent of another corporation or other enterprise,
II-1
except in relation to matters as to which a director or officer is adjudged to
have breached his duty of care or to have acted in bad faith.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On February 21, 2001 the Registrant sold $160,000,000 in aggregate principal
amount of its 12% Senior Subordinated Notes due 2011 (the old notes), to Credit
Suisse First Boston Corporation, Fleet Securities, Inc., Barclays Capital Inc.,
BMO Nesbitt Burns Inc. and Dresdner Kleinwort Benson North America LLC (the
"initial purchasers") in a private placement in reliance on Section 4(2) under
the Securities Act. The old notes were immediately resold by the initial
purchasers in transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT NO. DOCUMENT
----------- --------
1.1 Registration Rights Agreement dated as of February 21, 2001
between Advanstar Communications Inc. and Credit Suisse
First Boston Corporation, Fleet Securities, Inc., Barclays
Capital Inc., BMO Nesbitt Burns Inc. and Dresdon Kleinwort
Benson North America LLC, as Initial Purchasers
2.1 Agreement and Plan of Merger dated August 14, 2000, among
Advanstar, Inc., Advanstar Holdings Corp. (formerly known as
Jetman Acquisition Corp.), Junior Jetman Corp. and AHI
Advanstar LLC (filed as Exhibit 2.1 to Form 8-K of
Advanstar, Inc. filed with the Securities and Exchange
Commission on October 26, 2000, and incorporated by
reference herein)
3.1 Certificate of Incorporation of Advanstar Communications
Inc. (Previously filed as an exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-57201) and
incorporated by reference herein)
3.1.1 Certificate of Amendment of the Certificates of
Incorporation of Advanstar Communications Inc. (Previously
filed as an exhibit to the Company's Annual Report on
Form 10-K for 2000 and incorporated by reference herein)
3.2 By-Laws of Advanstar Communications Inc. (Previously filed
as an exhibit to the Company's Registration Statement on
Form S-4 (File No. 333-57201) and incorporated by reference
herein)
3.3 Certificate of Incorporation of Men's Apparel Guild in
California, Inc. (Previously filed as an exhibit to the
Company's Registration Statement on Form S-4 (File No.
333-57201) and incorporated by reference herein)
3.4 By-Laws of Men's Apparel Guild in California, Inc.
(Previously filed as an exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-57201) and
incorporated by reference herein)
3.5 Certificate of Incorporation of Applied Business
TeleCommunications Inc. (Previously filed as an exhibit to
the Company's Registration Statement on Form S-4 (File No.
333-57201) and incorporated by reference herein)
3.6 By-Law's of Applied Business TeleCommunications, Inc.
(Previously filed as an exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-57201) and
incorporated by reference herein)
II-2
EXHIBIT NO. DOCUMENT
----------- --------
4.1 Indenture, dated as of February 21, 2001 among Advanstar
Communications Inc., the Guarantor party thereto and the
Trustee. (Previously filed as an exhibit to the Company's
Annual Report on Form 10-K for 2000 and incorporated by
reference herein)
5.1 Opinion of Davis Polk & Wardwell with respect to the new
notes*
10.1 Advanstar Holdings Corp. 2000 Management Plan Incentive
dated as of October 11, 2000. (Previously filed as an
exhibit to the Company's Annual Report on Form 10-K for 2000
and incorporated by reference herein)
10.2 Advanstar Holdings Corp. Shareholders Agreement dated as of
October 11, 2000. (Previously filed as an exhibit to the
Company's Annual Report on Form 10-K for 2000 and
incorporated by reference herein)
10.2.1 First Amendment and Waiver to Shareholders' Agreement dated
as of February 21, 2001.
10.2.2 Second Amendment and Waiver to Stockholders' Agreement dated
as of April 4, 2001
10.3 Credit Agreement, dated as of October 11, 2000, as amended
and restated November 7, 2000, among, Advanstar
Communications Inc., the guarantors party thereto and the
lenders party thereto. (Previously filed as an exhibit to
the Company's Annual Report on Form 10-K for 2000 and
incorporated by reference herein)
10.4 Employment Agreement, dated August 14, 2000, between
Advanstar, Inc. and Robert Krakoff. (Previously filed as
Exhibit 10.1 to Form 10-Q of Advanstar, Inc. filed with the
Securities and Exchange Commission on November 14, 2000, and
incorporated by reference herein)
10.5 Employment Agreement, dated August 14, 2000, between
Advanstar, Inc. and James M. Alic. (Previously filed as
Exhibit 10.2 to Form 10-Q of Advanstar, Inc. filed with the
Securities and Exchange Commission on November 14, 2000, and
incorporated by reference herein)
10.6 Employees' 401(k) Plan and Trust, as amended. (Previously
filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-57201) and incorporated by
reference herein)
10.7 Agreement, dated July 31, 1997, between Advanstar
Communications Inc. and Banta Publications. (Previously
filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-57201) and incorporated by
reference herein)
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of Advanstar Communications, Inc. (Previously
filed as an exhibit to the Company's Annual Report on
Form 10-K for 2000 and incorporated by reference herein)
23.1 Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility of Wells Fargo Bank Minnessota,
N.A. on Form T-1.
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Clients
II-3
EXHIBIT NO. DOCUMENT
----------- --------
99.4 Form of Letter to Nominees
99.5 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- ------------------------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
SCHEDULE II-- VALUATION AND QUALIFYING ACCOUNTS.
ADVANSTAR COMMUNICATIONS INC.
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
------------ ---------- ---------- ------------- ----------
Period of October 12, 2000 to
December 31, 2000
Allowance for doubtful accounts... $703,000 $ 956,500 -- $ 934,500 $725,000
Period of January 1, 2000 to
October 11, 2000
Allowance for doubtful accounts... $709,000 $1,406,500 -- $1,412,500 $703,000
Year ended December 31, 1999
Allowance for doubtful accounts... $574,000 $1,878,000 -- $1,743,000 $709,000
Year ended December 31, 1998
Allowance for doubtful accounts... $553,000 $1,148,000 -- $1,127,000 $574,000
- ------------------------
(1) Uncollectible accounts written off.
All other financial schedule are omitted because they are not applicable or
the information is included in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
(a) The undersigned hereby undertakes:
(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of 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. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price
II-4
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(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 that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by one of our directors,
officers or controlling persons 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, we will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Advanstar
Communications, Inc. has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on April 19, 2001.
ADVANSTAR COMMUNICATIONS INC.
By: /s/ DAVID W. MONTGOMERY
-----------------------------------------
Name: David W. Montgomery
Title: Vice President - Finance,
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David W. Montgomery his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement and any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT L. KRAKOFF
------------------------------------------- Chairman of the Board and April 19, 2001
Robert L. Krakoff Chief Executive Officer
Vice President-Finance,
/s/ DAVID W. MONTGOMERY Chief Financial Officer
------------------------------------------- Secretary and Principal April 19, 2001
David W. Montgomery Accounting Officer
/s/ JAMES M. ALIC
------------------------------------------- Director April 19, 2001
James M. Alic
/s/ OHSANG KWON
------------------------------------------- Director April 19, 2001
OhSang Kwon
/s/ JAMES A. QUELLA
------------------------------------------- Director April 19, 2001
James A. Quella
/s/ DAVID M. WITTELS
------------------------------------------- Director April 19, 2001
David M. Wittels
II-6
EXHIBIT INDEX
EXHIBIT NO.
-----------
1.1 Registration Rights Agreement dated as of February 21, 2001
between Advanstar Communications Inc. and Credit Suisse
First Boston Corporation, Fleet Securities, Inc., Barclays
Capital Inc., BMO Nesbitt Burns Inc. and Dresdon Kleinwort
Benson North America LLC, as Initial Purchasers
2.1 Agreement and Plan of Merger dated August 14, 2000, among
Advanstar, Inc., Advanstar Holdings Corp. (formerly known as
Jetman Acquisition Corp.), Junior Jetman Corp. and AHI
Advanstar LLC (filed as Exhibit 2.1 to Form 8-K of
Advanstar, Inc. filed with the Securities and Exchange
Commission on October 26, 2000, and incorporated by
reference herein)
3.1 Certificate of Incorporation of Advanstar Communications
Inc. (Previously filed as an exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-57201) and
incorporated by reference herein)
3.1.1 Certificate of Amendment of the Certificates of
Incorporation of Advanstar Communications Inc. (Previously
filed as an exhibit to the Company's Annual Report on
Form 10-K for 2000 and incorporated by reference herein)
3.2 By-Laws of Advanstar Communications Inc. (Previously filed
as an exhibit to the Company's Registration Statement on
Form S-4 (File No. 333-57201) and incorporated by reference
herein)
3.3 Certificate of Incorporation of Men's Apparel Guild in
California, Inc. (Previously filed as an exhibit to the
Company's Registration Statement on Form S-4 (File No.
333-57201) and incorporated by reference herein)
3.4 By-Laws of Men's Apparel Guild in California, Inc.
(Previously filed as an exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-57201) and
incorporated by reference herein)
3.5 Certificate of Incorporation of Applied Business
TeleCommunications Inc. (Previously filed as an exhibit to
the Company's Registration Statement on Form S-4 (File No.
333-57201) and incorporated by reference herein)
3.6 By-Law's of Applied Business TeleCommunications, Inc.
(Previously filed as an exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-57201) and
incorporated by reference herein)
4.1 Indenture, dated as of February 21, 2001 among Advanstar
Communications Inc., the Guarantor party thereto and the
Trustee (Previously filed as an exhibit to the Company's
Annual Report on Form 10-K for 2000 and incorporated by
reference herein)
5.1 Opinion of Davis Polk & Wardwell with respect to the new
notes*
10.1 Advanstar Holdings Corp. 2000 Management Plan Incentive
dated as of October 11, 2000. (Previously filed as an
exhibit to the Company's Annual Report on Form 10-K for
2000 and incorporated by reference herein)
10.2 Advanstar Holdings Corp. Shareholders Agreement dated as of
October 11, 2000. (Previously filed as an exhibit to the
Company's Annual Report on Form 10-K for 2000 and
incorporated by reference herein)
10.2.1 First Amendment and Waiver to Shareholders' Agreement dated
as of February 21, 2001.
EXHIBIT NO.
-----------
10.2.2 Second Amendment and Waiver to Stockholders' Agreement dated
as April 4, 2001
10.3 Credit Agreement, dated as of October 11, 2000, as amended
and restated November 7, 2000, among, Advanstar
Communications Inc., the guarantors party thereto and the
lenders party thereto. (Previously filed as an exhibit to
the Company's Annual Report on Form 10-K for 2000 and
incorporated by reference herein)
10.4 Employment Agreement, dated August 14, 2000, between
Advanstar, Inc. and Robert Krakoff. (Previously filed as
Exhibit 10.1 to Form 10-Q of Advanstar, Inc. filed with the
Securities and Exchange Commission on November 14, 2000, and
incorporated by reference herein)
10.5 Employment Agreement, dated August 14, 2000, between
Advanstar, Inc. and James M. Alic. (Previously filed as
Exhibit 10.2 to Form 10-Q of Advanstar, Inc. filed with the
Securities and Exchange Commission on November 14, 2000, and
incorporated by reference herein)
10.6 Employees' 401(k) Plan and Trust, as amended. (Previously
filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-57201) and incorporated by
reference herein)
10.7 Agreement, dated July 31, 1997, between Advanstar
Communications Inc. and Banta Publications. (Previously
filed as an exhibit to the Company's Registration Statement
on Form S-4 (File No. 333-57201) and incorporated by
reference herein)
12.1 Computation of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of Advanstar Communications, Inc. (Previously
filed as an exhibit to the Company's Annual Report on
Form 10-K for 2000 and incorporated by reference herein)
23.1 Consent of Davis Polk & Wardwell (contained in their opinion
filed as Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility of Wells Fargo Bank Minnessota,
N.A. on Form T-1.
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Clients
99.4 Form of Letter to Nominees
99.5 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Participant from Owner
- ------------------------
* To be filed by amendment