PROSPECTUS [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 June 1, 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. May 1, 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 June 1, 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 June 1, 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. 26 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 27 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. 28 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 29 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. 30 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. 31 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." 32 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." 33 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. 34 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. 35 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. 59 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 60 - 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. 61 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. 62 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 66 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, 68 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. 69 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; 70 (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. 71 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; 72 (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. 73 (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 76 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 77 (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 78 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 79 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; 80 (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: 81 (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, 82 (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 (6) of the preceding paragraph, the declaration of acceleration of the Notes shall be automatically annulled if the holders of any Indebtedness described in clause (6) 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 83 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, 84 (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 85 "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. 86 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 87 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. 88 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. 89 "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, 91 (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. 97 "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. 98 "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; 100 (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 101 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. 103 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 June 1, 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 June 1, 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. 105 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: Michael T. Lechner Attn: Michael T. Lechner 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 $240,000. 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.