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File Pursuant to Rule 424(b)(3)
Registration No. 333-70132
PROSPECTUS
$185,000,000
[PENTON LOGO]
Offer to Exchange
All Outstanding 10 3/8% Senior Subordinated Notes Due 2011
For 10 3/8% Senior Subordinated Notes Due 2011
of
Penton Media, Inc.
This Exchange Offer Will Expire at 5:00 P.M.,
New York City Time, on November 15, 2001.
---------------------
THE EXCHANGE NOTES
- The terms of the exchange notes to be issued are substantially identical
to the outstanding notes that Penton issued on June 28, 2001, except for
transfer restrictions, registration rights and liquidated damages
provisions relating to the outstanding notes that will not apply to the
exchange notes.
- Interest on the exchange notes accrues at the rate of 10 3/8% per year,
payable in cash every six months on June 15 and December 15, with the
first payment on December 15, 2001.
- The exchange notes are not secured by any collateral.
- There is no existing market for the exchange notes, and we do not intend
to apply for their listing on any securities exchange or to seek approval
for quotation through any automated quotation system.
MATERIAL TERMS OF THE EXCHANGE OFFER
- Expires at 5:00 p.m., New York City time, on November 15, 2001, unless
extended.
- The exchange offer is not subject to any condition other than that it
must not violate applicable law or any applicable interpretation of the
Staff of the Securities and Exchange Commission.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged for an equal principal amount of exchange notes that
are registered under the Securities Act of 1933.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- Penton will not receive any cash proceeds from the exchange offer.
- Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The
letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933. 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 exchange notes
received in exchange for outstanding notes where such outstanding notes
were acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, for a period
of 180 days after the expiration date of the exchange offer, we will make
this prospectus available to any broker-dealer for use in connection with
any such resale.
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PLEASE CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS
PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE DISTRIBUTED IN
THE EXCHANGE OFFER OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this prospectus is October 12, 2001.
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REFERENCES TO ADDITIONAL INFORMATION
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. You may
obtain documents that are filed by us with the Securities and Exchange
Commission and incorporated by reference in this prospectus by requesting the
documents, in writing or by telephone, from the Commission or:
Penton Media, Inc.
1300 East Ninth Street
Cleveland, Ohio 44114
Attention: Mary Abood, Director of Corporate Communications
Telephone: (216) 696-7000
If you would like to request copies of these documents, please do so by
November 8, 2001 in order to receive them before the expiration of the exchange
offer. See "Where You Can Find More Information."
TABLE OF CONTENTS
<Table>
<Caption>
Page
----
INCORPORATION BY REFERENCE............ i
WHERE YOUR CAN FIND MORE
INFORMATION......................... ii
FORWARD-LOOKING STATEMENTS............ iii
INDUSTRY AND MARKET DATA.............. iii
SUMMARY............................... 1
RISK FACTORS.......................... 11
USE OF PROCEEDS....................... 18
CAPITALIZATION........................ 18
SELECTED HISTORICAL FINANCIAL
INFORMATION......................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 21
</Table>
<Table>
<Caption>
Page
----
BUSINESS.............................. 36
MANAGEMENT............................ 43
PRINCIPAL STOCKHOLDERS................ 46
DESCRIPTION OF SENIOR SECURED CREDIT
FACILITY............................ 48
THE EXCHANGE OFFER.................... 50
DESCRIPTION OF NOTES.................. 59
FEDERAL INCOME TAX CONSEQUENCES....... 92
PLAN OF DISTRIBUTION.................. 95
LEGAL MATTERS......................... 95
INDEPENDENT ACCOUNTANTS............... 95
INDEX TO FINANCIAL STATEMENTS......... F-1
</Table>
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS MAY ONLY BE
ACCURATE ON THE DATE OF THIS PROSPECTUS.
---------------------
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" into this prospectus the documents that we file with the Commission.
This means that we can disclose important information to you by referring you to
those documents. Any information that we incorporate in this manner is
considered a part of this prospectus except to the extent updated and superseded
by information contained in this prospectus. Information that we later file with
the Commission prior to the consummation of the offering under this prospectus
will automatically modify, update or supersede information in this prospectus,
in an amendment or supplement to this prospectus or in a document incorporated
or deemed to be incorporated by reference herein. Any statements so modified,
updated or superseded shall not be deemed, except as modified, updated or
superseded, to constitute a part of this prospectus. We incorporate by reference
the documents listed below and any filings we make with the Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this prospectus and before the termination of this exchange offer:
- our Annual Report on Form 10-K for the fiscal year ended December 31,
2000;
- our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001;
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- our Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2001;
- our Quarterly Report on Form 10-Q for the quarter ended March 31, 2001;
- our Current Report on Form 8-K dated September 20, 2001 and filed with
the Commission on September 21, 2001;
- our Current Report on Form 8-K dated June 21, 2001 and filed with the
Commission on June 22, 2001; and
- our Current Report on Form 8-K dated and filed with the Commission on
June 8, 2001.
We will provide without charge, upon written or oral request, a copy of any
or all of the documents that are incorporated by reference into this prospectus
other than exhibits to the documents, unless such exhibits are specifically
incorporated by reference. Requests should be directed to: Penton Media, Inc.,
Attention: Mary Abood, Director of Corporate Communications, 1300 East Ninth
Street, Cleveland, Ohio, 44114, telephone number: (216) 696-7000.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. These reports, proxy statements and other information
can be read and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-
0330 for further information on the Public Reference Room. The Commission
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission, including Penton. In addition, our common
stock is listed on the New York Stock Exchange and our reports and other
information can be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York, 10005.
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FORWARD-LOOKING STATEMENTS
A number of statements made in this prospectus are not historical or
current facts, but deal with potential future circumstances and developments.
Those statements are qualified by the inherent risks and uncertainties
surrounding future expectations generally, and also may materially differ from
our actual future experience involving any one or more of these matters and
subject areas. We attempted to identify, in context, some of the factors that we
currently believe may cause future experience and results to differ from our
current expectations regarding the relevant matter or subject area. We have
identified some of these forward-looking statements with words such as
"anticipates," "estimates," "believes," "expects," "intends," "may," "will,"
"should" or the negative of those words or other comparable terminology. The
operation and results of our business also may be subject to the effect of other
risks and uncertainties, including but not limited to:
- our ability to maintain customer loyalty from both users and advertisers;
- our ability to leverage our existing products and infrastructure;
- our ability to maintain our diverse revenue sources;
- our ability to make strategic acquisitions and efficiently integrate them
into our existing businesses;
- our ability to launch new products and/or services that fit strategically
with and add value to our businesses;
- our ability to achieve market penetration of new markets both
domestically and internationally;
- the receptivity of our online media products business by our customers;
- our ability to execute our online media products strategy; and
- economic uncertainty caused by recent terrorist attacks on the United
States.
INDUSTRY AND MARKET DATA
Market data used throughout this prospectus, including information relating
to our relative position in the business-to-business media industry, is based on
the good faith estimate of our management based upon their review of internal
analyses, independent industry publications and other publicly available
information. Although we believe that these sources are reliable, the accuracy
and completeness of this information is not guaranteed and has not been
independently verified.
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SUMMARY
The following summary contains information about Penton and this offering.
It does not contain all of the information that may be important to you in
making a decision to exchange any outstanding notes. For a more complete
understanding of Penton and this offering, we urge you to read this entire
prospectus and the documents incorporated by reference carefully, including the
"Risk Factors" section and our consolidated financial statements and the notes
to those statements.
PENTON MEDIA
OUR BUSINESS
We are a leading business-to-business media company. We provide media
products that deliver proprietary business information to owners, operators,
managers and professionals in the industries we serve. Through these products,
we offer industry suppliers multiple ways to reach their customers and
prospects. We produce 73 specialized trade magazines, 167 trade shows and
conferences, and online media products. We benefit from a high level of revenue
diversification, primarily as a result of our business presence in 12 different
industry sectors consisting of over 20,000 advertisers and exhibitors. We have
an experienced management team with an average of 23 years in the media
industry. For the twelve months ended June 30, 2001, our revenues were $439.2
million and our Adjusted EBITDA, as defined, was $83.1 million.
We believe we have leading media products in each of the 12 industry
sectors we serve. We publish Electronic Design and Machine Design, two of the
top 15 trade magazines in the United States in 1999 based on advertising
revenues, according to Advertising Age magazine. We own four of the largest
trade shows in the United States based on net exhibit space, including the
Internet World Fall and Spring shows and Natural Products Expo East and West,
according to the 2001 Tradeshow Week 200 directory. We produce online media
products that provide unique, high-value content and that serve as an important
information exchange within the industries we serve.
Since our founding in 1892, we have grown from an industrial trade magazine
publishing company into a leading, integrated business-to-business media company
serving a range of industrial, service and technology markets. We are structured
along industry rather than product lines. This enables us to promote our related
group of products, including publications, trade shows and conferences and
online media products, to our more than 20,000 customers. We have successfully
introduced many new products in the industries we serve, and, since our spinoff
in August 1998, we have acquired 25 companies. These product launches and
acquisitions have diversified our operations by:
- strengthening our presence in our existing markets;
- providing us with strong market positions in new, growing markets;
- expanding our presence in higher-margin trade shows and conferences; and
- increasing our international product offerings.
In 2000, 56.9% of our revenues was from publications, 41.6% was from trade
shows and conferences and 1.5% was from online media products.
OUR PRODUCTS AND SERVICES
Publications. We are one of the largest specialized trade magazine
publishers in the United States, according to American Business Media. In 2000,
our publications represented $230.1 million of our revenues and $51.3 million of
our Adjusted EBITDA, before general and administrative expenses.
- We publish 73 specialized trade magazines with a total circulation of
over four million and 22 industry directories and buyer's guides.
- Advertising in 36 of our magazines is measured by audit services; of our
measured titles, 29, or about 81%, are ranked either #1 or #2 in their
industry segment.
- We control the circulation of our publications so that they reach the key
decision makers in each of the industries we serve.
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Trade Shows and Conferences. We have significantly expanded our trade shows
and conferences business in recent years. In 2000, our trade shows and
conferences represented $168.4 million of our revenues and $78.8 million of our
Adjusted EBITDA, before general and administrative expenses.
- We produce 167 trade shows and conferences worldwide.
- Our revenues from trade shows and conferences increased to 41.6% of our
revenues in 2000 from 32.4% of revenues in 1999, due in part to our
acquisitions of Streaming Media and Professional Trade Shows.
- We continuously launch new trade shows and conferences within the
industry sectors we serve. In 2001, we have launched two domestic
Internet World Wireless shows, Streaming Media events in Berlin, Hong
Kong and Tokyo, and the m-Commerce World Show.
Online Media Products. In response to the growing use of the Internet by
businesses, we are launching new product offerings that enable buyers and
sellers within each of our industry sectors to access product information and
news about their industry and to interact with each other through the Internet.
Our products offer proprietary content, targeted advertising, online trade
shows, e-mail newsletters, publication subscriber services and trade show and
conference information and registration. Online media products are a growing
part of our business and represented approximately 1.5% of our revenues in 2000.
OUR COMPETITIVE STRENGTHS
We believe we have the following competitive strengths:
- market leadership in industries served;
- ability to capitalize on our established industry positions;
- ability to successfully identify and integrate acquisitions;
- diversity of products, target industries and customers;
- attractive EBITDA margins and modest ongoing capital expenditure
requirements; and
- experienced management team.
OUR INDUSTRY
The business-to-business communications industry is an important segment of
the media industry. Veronis Suhler Media Merchant Bank reports that the
business-to-business communications industry will experience a 5.5% compound
annual growth rate between 2001 and 2005 and will surpass $22.1 billion in
spending in 2005. Over the same period, Veronis Suhler forecasts that business
magazine revenues will grow annually at a rate of 4.3% and trade show revenues
at a rate of 6.8%.
The domestic business-to-business communications industry is highly
fragmented. There were about:
- 1,500 publishing companies, according to American Business Media in 1999;
- 5,200 trade magazine titles, according to Standard Rate & Data Service
(SRDS) in June 2001; and
- 3,000 trade shows in the United States and Canada produced by about 1,500
independent companies and industry associations, according to Tradeshow
Week Research Services in June 2001.
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OUR MARKETS
The 12 industries we serve are set forth below:
<Table>
<Caption>
TRADE SHOWS % OF 2000
INDUSTRY PUBLICATION(S) AND CONFERENCES ONLINE MEDIA REVENUE
------------------------- ----------------------- -------------------- ----------------------- ---------
1. Internet/Broadband Internet World Internet World internetworld.com 36
Boardwatch ISPCON streamingmedia.com
Streaming Media
2. Manufacturing IndustryWeek Computers in newequipment.com 15
New Equipment Digest Manufacturing industryweek.com
American Machinist
3. Electronics Electronic Design Wireless/Portable PlanetEE.com 11
EE Product News Symposium &
Microwaves & RF Exhibition
4. Design/Engineering Machine Design A/E/C SYSTEMS machinedesign.com 9
Hydraulics & Pneumatics Motion Systems mechdesignshowplace.com
Design
Show
5. Natural Products Natural Foods Natural Products healthwell.com 7
Merchandiser Expos
Delicious Living! Nutracon
6. Food/Retail Convenience Store National Convenience c-storedecisions.com 5
Decisions Store Advisory foodservicesearch.com
Restaurant Hospitality Group Shows
Kids Marketing
Conference
7. Information Windows 2000 Service Management win2000mag.net 4
Technology NEWS/400 Europe as400network.com
ASP+ Connections
Conference
Exchange 2000
Connections
Conference
8. Supply Chain Transportation & Supply Chain Expo totalsupplychain.com 4
Distribution supplychainshowplace.com
Supply Chain Technology
News
9. Mechanical Systems/ Contracting Business HVAC Comfortech hvacrshowplace.com 3
Construction HPAC Engineering Show
10. Government/Compliance Government Product News govpro.com 3
Occupational Hazards occupationalhazards.com
11. Leisure/Hospitality Lodging Hospitality International LHOnline.com 2
Leisure
Industry Week
12. Aviation Air Transport World atwonline.com 1
</Table>
OUR GROWTH STRATEGY
Our objective is to be the leading business-to-business media company in
the industries we serve. To achieve this objective, we intend to continue to:
- strengthen our market positions;
- expand our trade shows and conferences business;
- acquire leading positions in new, growing markets;
- expand our market positions globally; and
- develop online media products that capture growing Internet spending by
businesses.
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THE EXCHANGE OFFER
THE EXCHANGE OFFER............ We are offering to exchange $185.0 million in
principal amount of our 10 3/8% senior
subordinated notes due June 15, 2011, which
have been registered under the federal
securities laws, for $185.0 million principal
amount of our outstanding unregistered 10 3/8%
senior subordinated notes due June 15, 2011,
which we issued on June 28, 2001 in a private
offering. You have the right to exchange your
outstanding notes for exchange notes with
substantially identical terms.
In order for your outstanding notes to be
exchanged, you must properly tender them prior
to the expiration of the exchange offer. All
outstanding notes that are validly tendered and
not validly withdrawn will be exchanged. We
will issue the exchange notes on or promptly
after the expiration of the exchange offer.
REGISTRATION RIGHTS
AGREEMENT..................... We issued the outstanding notes on June 28,
2001 to a limited number of initial purchasers.
At that time, we signed a registration rights
agreement with those initial purchasers, which
requires us to conduct this exchange offer.
This exchange offer is intended to satisfy
those rights set forth in the registration
rights agreement. After the exchange offer is
complete, you will not have any further rights
under the registration rights agreement,
including any right to require us to register
any outstanding notes that you do not exchange
or to pay you liquidated damages.
FAILURE TO EXCHANGE YOUR
OUTSTANDING NOTES............. If you do not exchange your outstanding notes
for exchange notes in the exchange offer, you
will continue to be subject to the restrictions
on transfer provided in the outstanding notes
and the indenture governing those notes. In
general, you may not offer or sell your
outstanding notes unless they are registered
under the federal securities laws or are sold
in a transaction exempt from or not subject to
the registration requirements of the federal
securities laws and applicable state securities
laws.
EXPIRATION DATE............... The exchange offer will expire at 5:00 p.m.,
New York City time, on November 15, 2001,
unless we decide to extend the expiration date.
See "The Exchange Offer--Expiration Date;
Extensions; Amendments."
CONDITIONS TO THE EXCHANGE
OFFER......................... The exchange offer is subject to conditions
that we may waive. The exchange offer is not
conditioned upon any minimum amount of
outstanding notes being tendered for exchange.
See "The Exchange Offer--Conditions."
We reserve the right, subject to applicable
law, at any time and from time to time:
- to extend the expiration date of the exchange
offer or to terminate the exchange offer if
specified conditions have not been satisfied;
and
- to amend the terms of the exchange offer in
any manner consistent with the registration
rights agreement. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments."
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PROCEDURES FOR TENDERING
NOTES......................... If you wish to tender your outstanding notes
for exchange, you must:
- complete and sign the enclosed letter of
transmittal by following the related
instructions; and
- send the letter of transmittal, as directed
in the instructions, together with any other
required documents, to the exchange agent,
either (1) with the outstanding notes to be
tendered or (2) in compliance with the
specific procedures for guaranteed delivery
of the outstanding notes.
Brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer.
Please do not send your letter of transmittal
or certificates representing your outstanding
notes to us. Those documents should only be
sent the exchange agent. Questions regarding
how to tender and requests for information
should be directed to the exchange agent. See
"The Exchange Offer--Exchange Agent."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. If your outstanding notes are registered in the
name of a broker, dealer, commercial bank,
trust company or other nominee, we urge you to
contact that person promptly if you wish to
tender your outstanding notes pursuant to the
exchange offer. See "The Exchange
Offer--Procedures for Tendering."
WITHDRAWAL RIGHTS............. You may withdraw the tender of your outstanding
notes at any time prior to the expiration date
of the exchange offer by delivering a written
notice of your withdrawal to the exchange
agent. You must also follow the withdrawal
procedures as described under the heading "The
Exchange Offer--Withdrawal of Tenders."
FEDERAL INCOME TAX
CONSIDERATIONS................ The exchange of outstanding notes for the
exchange notes in the exchange offer will not
be a taxable event for U.S. federal income tax
purposes.
RESALES OF EXCHANGE NOTES..... We believe that you will be able to offer for
resale, resell or otherwise transfer exchange
notes issued in the exchange offer without
compliance with the registration and prospectus
delivery requirements of the federal securities
laws, unless you are a broker-dealer receiving
exchange notes for your own account, provided
that:
- you are acquiring the exchange notes in the
ordinary course of business;
- you do not have any arrangement or
understanding with any person to participate
in the distribution of the outstanding notes
or the exchange notes;
- you are not engaged in, and do not intend to
engage in, a distribution of the exchange
notes;
- you are not one of our "affiliates," as
defined in Rule 405 of the Securities Act.
Our belief is based on interpretations by the
staff of the Commission, as set forth in no
action letters issued to third parties
unrelated to us. We have not considered this
exchange offer in the context of a no-
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action letter, and we cannot assure you that
the staff would make a similar determination
with respect to this exchange offer.
If our belief is not accurate and you transfer
an exchange note without delivering a
prospectus meeting the requirements of the
federal securities laws or without an exemption
from these laws, you may incur liability under
the federal securities laws. We do not and will
not assume or indemnify you against this
liability.
Each broker-dealer that receives exchange notes
for its own account in exchange for outstanding
notes, where such outstanding notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of exchange notes. See "Plan of
Distribution."
EXCHANGE AGENT................ The exchange agent for the exchange offer is
The Bank of New York. The address, telephone
number and facsimile number of the exchange
agent are set forth in "The Exchange
Offer--Exchange Agent" and in the letter of
transmittal.
THE EXCHANGE NOTES
EXCHANGE NOTES................ $185.0 million aggregate principal amount of
10 3/8% senior subordinated notes due 2011.
MATURITY DATE................. June 15, 2011.
INTEREST PAYMENTS............. The exchange notes will bear interest at the
rate of 10 3/8% per year, payable
semi-annually, in arrears, on June 15 and
December 15 of each year, commencing on
December 15, 2001.
OPTIONAL REDEMPTION........... We may redeem the exchange notes, in whole or
in part, on or after June 15, 2006 at the
redemption prices set forth in this prospectus,
plus accrued and unpaid interest and liquidated
damages, if any.
In addition, on or prior to June 15, 2004, we
may redeem up to 35% of the aggregate principal
amount of the exchange notes with the net
proceeds of one or more public equity
offerings. See "Description of Notes--Optional
Redemption" for more information.
SUBSIDIARY GUARANTEES......... A significant portion of our operations is
conducted through our subsidiaries. Our
obligations under the exchange notes will be
fully and unconditionally guaranteed on a
senior subordinated basis by all of our
domestic subsidiaries. For the six months ended
June 30, 2001, our domestic subsidiaries
generated approximately 54.3% of our Adjusted
EBITDA. At June 30, 2001, our domestic
subsidiaries represented approximately 85.5% of
our total assets.
CHANGE OF CONTROL............. Upon a change of control, you may require us to
repurchase all or a portion of your exchange
notes at a purchase price of 101% of their
principal amount, plus accrued and unpaid
interest and liquidated damages, if any. The
term "change of control" is defined in
"Description of Notes--Certain
Covenants--Repurchase of Notes at the Option of
the Holder Upon a Change of Control."
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RANKING....................... The exchange notes and the guarantees will be
our and the applicable guarantor's unsecured
general obligations and will be:
- junior in right of payment to all of our and
such guarantor's existing and future senior
indebtedness;
- equal in right of payment to all of our and
such guarantor's existing and future senior
subordinated indebtedness; and
- senior in right of payment to all of our and
such guarantor's existing and future
subordinated indebtedness.
As of June 30, 2001, we had outstanding an
aggregate of about $210.8 million of debt that
was senior or effectively senior to the
exchange notes, and we had $185.0 million of
available borrowings under our revolving credit
facility, subject to customary conditions.
See "Description of Notes--Brief Description of
the Notes and the Guarantees" and
"--Subordination."
RESTRICTIVE COVENANTS......... The indenture governing the exchange notes will
contain covenants that will limit our and our
subsidiaries' ability to, among other things:
- pay dividends, redeem capital stock and make
other restricted payments and investments;
- incur additional debt or issue preferred
stock;
- enter into agreements that restrict our
subsidiaries from paying dividends or other
distributions, making loans or otherwise
transferring assets to us or to any other
subsidiaries;
- create liens on assets;
- engage in transactions with affiliates;
- sell assets, including capital stock of
subsidiaries; and
- merge, consolidate or sell all or
substantially all of our assets and the
assets of our subsidiaries.
All of these limitations are subject to
important exceptions and qualifications
described under "Description of Notes--Certain
Covenants."
USE OF PROCEEDS............... We will not receive any cash proceeds from the
issuance of the exchange notes. See "Use of
Proceeds."
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RISK FACTORS
You should consider the matters set forth in this prospectus under the
heading "Risk Factors" before you decide to exchange any outstanding notes.
INFORMATION ABOUT THE COMPANY
We became an independent company, incorporated in the State of Delaware, as
a result of our spinoff from Pittway Corporation in August 1998. Our principal
executive office is located at 1300 East Ninth Street, Cleveland, Ohio 44114,
and our telephone number is (216) 696-7000. Our common stock is listed on The
New York Stock Exchange under the symbol "PME."
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SUMMARY HISTORICAL FINANCIAL DATA
The following tables present our summary historical financial data. The
summary historical statement of income data for each of the three years in the
period ended December 31, 2000 have been derived from our audited consolidated
financial statements and related notes, which appear elsewhere in this
prospectus. The summary historical statement of income data for the six months
ended June 30, 2000 and 2001 and the summary balance sheet data as of June 30,
2001 have been derived from our unaudited interim consolidated financial
statements and related notes, which appear elsewhere in this prospectus and, in
the opinion of management, include all adjustments that are necessary for a fair
presentation of our financial position and operating results for these periods.
The results of operations for interim periods are not necessarily indicative of
results for a full year's operations.
Pro forma interest expense, net is calculated as if the offering of the
outstanding notes and the application of the proceeds, net of financing fees, of
approximately $180.2 million had been used to repay outstanding indebtedness on
July 1, 2000 of approximately $12.8 million and $7.2 million of our term loan A
facility and term loan B facility, respectively, and approximately $136.0
million with respect to our revolving credit facility beginning September 1,
2000. No amounts were outstanding under our revolving credit facility prior to
September 1, 2000.
You should read the following information together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our historical consolidated financial statements and related notes appearing
elsewhere in this prospectus.
You should also consider the following when reading the summary data in the
tables below:
- All historical amounts have been restated to reflect the classification
of our Printing segment and Direct Mail segment as discontinued.
- Adjusted EBITDA is defined as net income (loss) before interest, taxes,
depreciation and amortization, and non-recurring items.
- Adjusted EBITDA margin equals Adjusted EBITDA divided by total revenues.
- Interest expense, net equals interest expense less interest income.
- Net debt equals total debt less cash and cash equivalents.
- Working capital (deficit) equals current assets, excluding cash and cash
equivalents, less current liabilities.
We have included Adjusted EBITDA because we believe that investors find it
to be a useful tool for measuring a company's ability to generate cash. Adjusted
EBITDA does not represent cash flow from operations, as defined by generally
accepted accounting principles, and is not calculated in the same way by all
companies. In addition, you should not consider Adjusted EBITDA as a substitute
for net income or net loss, as an indicator of our operating performance or cash
flow, or as a measure of liquidity. Our definition of Adjusted EBITDA is not
calculated in the same way EBITDA will be calculated under the indenture
governing the exchange notes. See "Descriptions of Notes--Certain
Definitions--Consolidated EBITDA" for more information on the calculation of
EBITDA under the indenture governing the exchange notes.
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<Table>
<Caption>
TWELVE
MONTHS
SIX MONTHS ENDED ENDED
YEAR ENDED DECEMBER 31, JUNE 30, JUNE 30,
------------------------------ ------------------- --------
1998 1999 2000 2000 2001 2001
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Revenues:
Publishing..................... $179,729 $202,472 $230,120 $108,935 $115,565 $236,750
Trade shows and conferences.... 27,953 97,444 168,436 74,801 97,367 191,002
Online media products.......... -- 908 6,015 1,147 6,538 11,406
-------- -------- -------- -------- -------- --------
Total revenues.............. 207,682 300,824 404,571 184,883 219,470 439,158
Operating expenses............... 181,464 261,434 349,860 156,925 211,929 404,864
-------- -------- -------- -------- -------- --------
Operating income................. 26,218 39,390 54,711 27,958 7,541 34,294
Interest expense, net............ (5,545) (21,131) (14,133) (5,176) (12,250) (21,207)
Gain on sale of investments...... -- 5,906 110,210 110,210 -- --
Writedown of Internet
investments.................... -- -- (9,490) -- -- (9,490)
Miscellaneous, net............... (45) (170) (64) (444) (1,450) (1,070)
Provision for income taxes....... (9,442) (16,065) (61,559) (57,430) (602) (4,731)
Income (loss) from discontinued
operations..................... (296) 33 -- -- -- --
Gain (loss) on sale of
discontinued operations........ -- 8,660 (85) (85) -- --
Extraordinary item -- early
extinguishment of debt......... -- (8,413) -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)................ $ 10,890 $ 8,210 $ 79,590 $ 75,033 $ (6,761) $ (2,204)
======== ======== ======== ======== ======== ========
OTHER DATA:
Adjusted EBITDA:
Operating income............... $ 26,218 $ 39,390 $ 54,711 $ 27,958 $ 7,541 $ 34,294
Depreciation and
amortization................ 7,791 27,918 33,431 15,029 22,714 41,116
Impairment of other assets..... -- -- 1,051 1,051 -- --
Impairment of Internet
assets...................... -- -- 2,095 -- -- 2,095
Restructuring charges.......... -- -- -- -- 5,567 5,567
Adjusted EBITDA............. 34,009 67,308 91,288 44,038 35,822 83,072
Adjusted EBITDA margin........... 16.4% 22.4% 22.6% 23.8% 16.3% 18.9%
Capital expenditures, excluding
businesses acquired............ $ 5,775 $ 5,884 $ 27,272 $ 5,833 $ 5,448 $ 26,887
Pro forma interest expense, net........................................................ 33,042
Ratio of Adjusted EBITDA to pro forma interest expense, net............................ 2.5x
Ratio of earnings to fixed
charges........................ 3.7x 1.9x 7.2x 14.0x --
</Table>
<Table>
<Caption>
AS OF JUNE 30, 2001
----------------------
ACTUAL
----------------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 55,669
Working capital (deficit)................................... (8,803)
Goodwill and other intangibles.............................. 626,614
Total assets................................................ 831,049
Total debt.................................................. 391,612
Stockholders' equity........................................ 322,146
</Table>
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RISK FACTORS
An investment in the exchange notes involves risk. In addition to the other
information contained or incorporated by reference in this prospectus, you
should carefully consider the following risk factors in deciding whether to
exchange any outstanding notes.
RISKS RELATING TO OUR DEBT, INCLUDING THE EXCHANGE NOTES
WE HAVE A SIGNIFICANT AMOUNT OF DEBT.
As of June 30, 2001, we had total indebtedness of approximately $391.6
million, excluding approximately $4.2 million of original issue discount
obligation relating to the exchange notes, and approximately $185.0 million of
available borrowings under our revolving credit facility. In addition, subject
to restrictions in our debt instruments, we may incur significant additional
indebtedness, which may be senior to the exchange notes. We currently have the
ability to increase our credit facility by $40.0 million prior to September 30,
2001.
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;
- making it more difficult to satisfy our obligations under the exchange
notes; 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.
WE MAY NOT BE ABLE TO SERVICE OUR DEBT.
Our ability to pay or to refinance our indebtedness, including the exchange
notes, will depend upon our future operating performance, which will be affected
by general economic, financial, competitive, business and other factors beyond
our control.
We anticipate that our operating cash flow, together with money we can
borrow under our 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 credit facility in amounts sufficient to enable us to
pay our indebtedness, including the exchange 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, sell assets or seek additional equity capital. We cannot assure
you that we will be able to accomplish those actions on satisfactory terms, if
at all.
Because a significant portion of our operations currently is conducted
through our subsidiaries, our ability to pay our indebtedness, including the
exchange notes, is also dependent on the cash flows of our subsidiaries and the
distribution of those cash flows to us, or upon loans or other payments of funds
by our subsidiaries to us. The ability of our subsidiaries to make distributions
or other payments to us will depend upon their operating results and applicable
laws and any contractual restrictions contained in the instruments governing
their indebtedness. If money generated by our subsidiaries is not available to
us, our ability to repay our indebtedness, including the exchange notes, may be
adversely affected.
In addition, our foreign subsidiaries, which will not guarantee the
exchange notes, will have no direct obligation to pay amounts due on the
exchange notes. As a result, the exchange notes will generally have the effect
of being subordinated to all indebtedness and other liabilities of those
subsidiaries, including obligations in respect of any preferred stock of such
subsidiaries.
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THE TERMS OF OUR DEBT INSTRUMENTS IMPOSE FINANCIAL AND OPERATING RESTRICTIONS.
Our credit facility and the indenture governing the outstanding notes and
the exchange notes contain restrictive covenants that limit our ability to
engage in a variety of transactions. Our credit facility prohibits us from
prepaying our subordinated indebtedness, including the exchange 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. Because of recent economic conditions, we expect that we will
be in violation of some of these financial ratios and tests in the near future.
We have informed the administrative agent of our credit facility of these
matters and are in negotiations to amend the credit facility or obtain a waiver
thereunder so that we will not be in violation of any financial ratios and
tests. However, we cannot assure you that we will be able to obtain an amendment
to or a waiver under our credit facility, and if we are unsuccessful in
obtaining such an amendment or waiver and we are unable to meet those financial
ratios and tests, we may be unable to borrow under our credit facility and, if
so, would not be able to fund our operations.
A breach of any of the covenants or other provisions in our credit facility
and/or the indenture could result in a default under our credit facility and/or
the indenture. We also expect that we will be in violation of some of the
financial covenants of our credit facility in the near future. If we are unable
to obtain an amendment to or a waiver under the credit facility so that we are
not in breach of these covenants, we would then be in default under our credit
facility. Upon the occurrence of an event of default under our credit facility,
the lenders could elect to declare all amounts outstanding thereunder to be
immediately due and payable and terminate all commitments to extend further
credit, which would adversely affect our ability to fund our operations. If we
are unable to repay any accelerated amounts, the lenders could proceed against
the collateral granted to them to secure that indebtedness. We have pledged
substantially all of our assets, including a portion of the stock but not the
assets of our foreign subsidiaries, as security under our credit facility. If
the lenders under our credit facility accelerate the repayment of borrowings, we
cannot assure you that we will have sufficient assets to repay our credit
facility and our other indebtedness, including the exchange notes.
YOUR RIGHT TO RECEIVE PAYMENT ON THE EXCHANGE NOTES FROM US OR OUR SUBSIDIARY
GUARANTORS WILL BE JUNIOR TO OUR AND THEIR EXISTING AND FUTURE SENIOR DEBT.
The exchange notes and the guarantees will rank junior to all of our and
the subsidiary guarantors' existing and future senior indebtedness, including
all indebtedness under our credit facility. As a result of the subordination of
the exchange notes, if we or our subsidiary guarantors 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.
At June 30, 2001, the exchange notes and the subsidiary guarantees would
have ranked junior or effectively junior in right of payment to $207.3 million
of senior indebtedness under our credit facility, $3.5 million of debt incurred
by one of our foreign subsidiaries, and $185.0 million that was available for
borrowing as additional senior debt under our revolving credit facility.
IF A CHANGE OF CONTROL OCCURS, WE MAY NOT HAVE SUFFICIENT FUNDS TO REPURCHASE
YOUR EXCHANGE NOTES.
Upon the occurrence of specified change of control events, you may require
us to repurchase all or a portion of your exchange notes. If a change of control
occurs, we may not be able to pay the repurchase price for all of the exchange
notes submitted for repurchase. In addition, the terms of our credit facility
generally prohibit us from purchasing any exchange notes until we have repaid
all debt outstanding under the credit facility. Future credit agreements or
other agreements relating to debt may contain similar provisions. We may not be
able to secure the consent of our lenders to repurchase the exchange notes or
refinance the borrowings that prohibit us from repurchasing the exchange notes.
If we do not obtain a consent or repay the borrowings, we could not repurchase
the exchange notes. In addition, some important corporate events, such as
leveraged recapitalizations that would increase the level of our debt, would not
constitute a change of control under the indenture governing the outstanding
notes and the exchange notes.
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For more details, see the heading "Certain Covenants--Repurchase of Notes
at the Option of the Holder Upon a Change of Control" in the "Description of
Notes" section.
UNDER SOME CIRCUMSTANCES, A COURT COULD CANCEL THE SUBSIDIARY GUARANTEES.
All of our domestic subsidiaries will guarantee the exchange notes. If,
however, any subsidiary becomes a debtor in a case under the United States
Bankruptcy Code or encounters other financial difficulty, under federal or state
fraudulent transfer law a court might avoid (that is, cancel) its guarantee. The
court might do so if it found that when the subsidiary entered into its
guarantee (or, in some states, when payments became due thereunder), it (a)
received less than reasonably equivalent value or fair consideration for the
guarantee and (b) either (1) was or was rendered insolvent, (2) was left with
inadequate capital to conduct its business, or (3) believed or should have
believed that it would incur debts beyond its ability to pay. The court might
also avoid a guarantee, without regard to those factors, if it found that the
subsidiary entered into its guarantee with actual intent to hinder, delay, or
defraud its creditors.
A court would likely find that a subsidiary did not receive reasonably
equivalent value or fair consideration for its guarantee unless it benefitted
directly or indirectly from the exchange notes' issuance. If a court avoided a
guarantee, you would no longer have a claim against the guarantor. In addition,
the court might direct you to repay any amounts already received from the
guarantor. If the court were to avoid any subsidiary's guarantee, we cannot
assure you that funds would be available to pay the exchange notes from another
subsidiary guarantor or from any other source.
The test for determining solvency for purposes of the foregoing will depend
on the law of the jurisdiction being applied. In general, a court would consider
an entity insolvent either if the sum of its existing debts exceeds the fair
value of all of its property, or if the present fair saleable value of its
assets is less than the amount required to pay the probable liability on its
existing debts as they become due. For this analysis, "debts" includes
contingent and unliquidated debts.
The indenture states that the liability of each subsidiary on its guarantee
is limited to the maximum amount that the subsidiary can incur without risk that
the guarantee will be subject to avoidance as a fraudulent transfer. We cannot
assure you that this limitation will protect the guarantees from fraudulent
transfer attack or, if it does, that the guarantees will be in amounts
sufficient, if necessary, to pay the exchange notes when due.
THERE MAY NOT BE A PUBLIC TRADING MARKET FOR THE EXCHANGE NOTES.
There is currently no existing public market for the exchange notes. If
such a market were to develop, the exchange notes could trade at prices that may
be lower than the initial offering price of the outstanding notes depending on
many factors, including prevailing interest rates, the market for similar
securities and other factors, including economic conditions and our financial
condition, performance and prospects.
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES, YOU MAY HAVE DIFFICULTY IN
TRANSFERRING THEM AT A LATER TIME.
We will issue exchange notes in exchange for the outstanding notes after
the exchange agent receives your outstanding notes, the letter of transmittal
and all related documents. You should allow adequate time for delivery if you
choose to tender your outstanding notes for exchange. Outstanding notes that are
not exchanged will remain subject to restrictions on transfer and will not have
any rights to registration.
If you do participate in the exchange offer for the purpose of
participating in the distribution of the exchange notes, you will not be
permitted to offer or sell your outstanding notes unless they are registered
under the federal securities laws or are sold in a transaction exempt from or
not subject to the registration requirements of the federal securities laws or
applicable state securities laws. Each broker-dealer who holds outstanding notes
for its own account due to market-making or other trading activities and who
receives exchange notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of the exchange notes. If any
outstanding notes are not tendered in the exchange or are tendered but not
accepted, the trading market for such outstanding notes could be negatively
affected due to the limited amount expected to remain outstanding following the
completion of the exchange offer.
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RISKS RELATING TO OUR BUSINESS
WE DEPEND ON ADVERTISING REVENUES, WHICH DECREASE DURING ECONOMIC DOWNTURNS AND
FLUCTUATE FROM PERIOD TO PERIOD.
For the year ended December 31, 2000, about 50.6% of our revenues came from
advertising. Our advertising revenues fluctuate with general economic cycles,
and any material decline in these revenues would have a material adverse effect
on our business, results of operations and financial condition. Historically,
advertising revenues have increased during economic recoveries and decreased
during both general economic downturns and regional economic recessions. In a
general economic downturn or a recession, advertisers reduce their advertising
budgets, intensify their attempts to negotiate lower advertising rates and pay
outstanding invoices slower, and conference attendees participate in fewer
events. We are experiencing some of these effects.
Our advertising revenues may fluctuate from period to period based on the
spending patterns of our customers. Many of our large customers may concentrate
their advertising expenditures around major new product launches. We cannot
always know or predict when our large customers intend to launch new products.
We cannot predict any related fluctuation in our advertising revenues.
RECENT TERRORIST ATTACKS ON THE UNITED STATES ARE LIKELY TO NEGATIVELY AFFECT
OUR TRADE SHOWS AND CONFERENCES.
On September 11, 2001, the United States was attacked by terrorists using
hijacked commercial airplanes. While it is too early to predict what effects
these events will have in the long-term, it is likely that there will be a
decline in air travel and trade shows and conferences due to, among other
things, the public's general reluctance to travel and fears regarding additional
acts of terrorism, as well as reduced operations by airlines due to, among other
things, decreased demands for air travel, new security directives and increased
costs. The magnitude and duration of those effects are unknown, although it is
likely that our trade shows and conferences will be negatively affected. Five of
our largest trade shows and conferences, including our Internet World Fall trade
show, are scheduled to be held in the fourth quarter of 2001. We have already
had to reschedule our Internet World Fall trade show, and it is uncertain
whether any of our other trade shows and conferences will have to be rescheduled
or canceled, though we currently do not have any plans to do so. Continued
negative market conditions due to the terrorist attacks, any future occurrences
of similar actions and potential responsive actions by the United States and
other countries that perpetuate a climate of war could cause more disruption of
our trade shows and conferences.
A SIGNIFICANT DECLINE IN OUR INTERNET/BROADBAND BUSINESS COULD ADVERSELY AFFECT
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
In 2000, our Internet/Broadband industry sector produced 36% of our
revenues. We have recently experienced a decline in the performance of a portion
of this sector. For example, in the first quarter of 2001, we saw a significant
decrease in revenue from our Internet World Spring trade show and Internet World
magazine from 2000. A continued decline in the performance of these product
offerings or a decline in other product offerings in this sector could adversely
affect our business, results of operations and financial condition.
IF WE ARE UNABLE TO COMPLETE ACQUISITIONS OR INTEGRATE ACQUISITIONS EFFECTIVELY,
OUR BUSINESS COULD BE ADVERSELY AFFECTED.
We intend to continue to grow in part through acquisitions. We may not be
able to identify suitable candidates or make acquisitions on terms that are
favorable to us. In addition, we may not be able to successfully complete some
acquisitions or integrate acquisitions into our existing operations or
effectively manage those businesses once integrated. If we are unable to
integrate our recent or future acquisitions successfully, our business could be
adversely affected.
ACQUISITIONS MAY DIVERT OUR MANAGEMENT'S ATTENTION AWAY FROM RUNNING OUR
COMPANY.
Acquisitions are an important part of our business strategy. Acquisitions
may require substantial attention from, and place substantial additional demands
upon, our senior management. This may divert their attention from our existing
businesses, making these businesses more difficult to manage effectively. In
addition,
14
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unanticipated events or liabilities relating to these acquisitions or the
failure to retain key personnel could have a material adverse effect on our
business, results of operations and financial condition.
INCREASES IN PAPER OR POSTAGE COSTS COULD CAUSE OUR EXPENSES TO INCREASE AND MAY
ADVERSELY AFFECT OUR BUSINESS.
Paper is a significant expense relating to our print products, accounting
for about 4.3% of our total operating expenses in 2000. Significant increases in
paper prices, which have been volatile in recent years, may have an adverse
effect on our business. We do not use forward contracts and all of our paper
supply vendor arrangements provide for price adjustments on a quarterly basis to
reflect then-prevailing market prices.
Postage for magazine distribution and direct mail solicitations is also a
significant expense for us, accounting for about 4.9% of our total operating
expenses in 2000. Significant increases in postage prices, including a postal
price increase of 2.2% that took effect in July 1, 2001, may have an adverse
effect on our business. We use the United States Postal Service for domestic
distribution of substantially all of our products and marketing materials.
THE PROFITABILITY AND SUCCESS OF OUR TRADE SHOWS AND CONFERENCES COULD BE
ADVERSELY AFFECTED IF WE LOSE SCHEDULED DATES AND LOCATIONS OR ARE UNABLE TO
INCREASE THE SIZE OF THOSE EVENTS.
For the year ended December 31, 2000, about 27.6% of our revenues came from
booth rentals at trade shows and conferences. As the trade shows and conferences
industry grows, we increasingly compete for desirable dates and venues for our
trade shows and conferences. As this competition intensifies, we could lose
important engagements. If we lose dates and venues for events, the profitability
and future success of these events could be adversely affected. Although we
generally reserve venues and dates more than one year in advance, these
reservations are not binding until we sign a contract with a facility operator.
These contracts generally hold venues and dates for only one year. In addition,
we may desire to increase the size of our trade shows and conferences to take
advantage of increasing demand in the future. If we are unable to secure larger
venues with suitable exhibit space to accommodate this demand, the growth of our
trade shows and conferences business could be adversely affected. Moreover,
circumstances beyond our control, like natural disasters, labor strikes and
transportation shutdowns, could present financial risks to our trade shows and
conferences, which could have an adverse effect on our business, results of
operations and financial condition.
OUR TRADE SHOWS AND CONFERENCES AND PUBLISHING REVENUES VARY DUE TO THE MOVEMENT
OF ANNUAL EVENT OR PUBLICATION MAILING DATES.
Our trade shows and conferences and publishing revenues are seasonal,
largely due to the historical timing of our large trade shows and conferences
and publication of our large industry directories and buyer's guides. Because
event revenues are recognized when a particular event is held, and publication
revenues are recognized in the month publications are mailed, we may also
experience fluctuations in quarterly revenues based on the movement of annual
events or mailing dates from one quarter to another. In 2000, about 18.7% of our
total revenues was generated during the first quarter, about 27.0% during the
second, about 19.0% during the third and about 35.3% of our revenues was
generated during the fourth.
CONTINGENT TAX LIABILITY RELATED TO THE SPINOFF OF OUR COMMON STOCK BY PITTWAY.
In connection with the tax-free spinoff of our common stock by Pittway to
its stockholders in August 1998, we agreed not to take any action that would
cause the spinoff to be taxable to Pittway under section 355 of the Internal
Revenue Code, and to indemnify Pittway for any liability suffered by it in that
event. The spinoff would be taxable to Pittway if, as part of a plan or series
of related transactions, one or more persons, acting independently or in
concert, have acquired 50.0% or more of our common stock. Since August 1998, our
common stock has been involved in a number of transactions. Proposed Treasury
regulations apply a facts and circumstances test to whether any of these
transactions was part of a plan or series of related transactions. Because the
proposed regulations are subject to change before becoming effective, and
because of the open-ended nature of the facts and circumstances test, we
believe, but we cannot assure you, that the Internal Revenue
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Service could not successfully assert that one or more transactions involving
our common stock were part of a plan or series of related transactions that has
caused the spinoff to be taxable to Pittway. If the spinoff were taxable to
Pittway, our payment to Pittway under our indemnity agreement could have a
material adverse effect on our financial condition.
COMPETITION MAY ADVERSELY AFFECT OUR EARNINGS AND RESULTS OF OPERATIONS.
We experience intense competition for our products and services. If we fail
to compete effectively, our earnings and results of operations could be
adversely affected. We compete with several much larger international companies
that operate in many markets and have broad product offerings in publishing and
trade shows and conferences. We compete for readers and advertisers in the
publishing marketplace and for trade show and conference venues, sponsorships,
exhibitors, and show attendees. Because our industry is relatively easy to
enter, we anticipate that additional competitors, some of whom may have greater
resources than us, may enter these markets and intensify competition.
OUR OVERALL OPERATIONS MAY BE ADVERSELY AFFECTED BY RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS.
We have operations outside the United States. We intend to expand further
into international markets. We have limited experience in developing localized
versions of our publications and trade shows and conferences and in marketing
and distributing them internationally. In addition, the following risks in
international markets could have a material adverse effect on our future
international operations and, consequently, on our business, results of
operations and financial condition:
- the uncertainty of product acceptance by different cultures;
- the risks of divergent business expectations or cultural incompatibility
inherent in establishing joint ventures with foreign partners;
- difficulties in staffing and managing multi-national operations;
- currency fluctuations;
- general economic and political uncertainties and potential for social
unrest;
- limitations on our ability to enforce legal rights and remedies;
- reduced protection for intellectual property rights in some countries;
- state-imposed restrictions on the repatriation of funds; and
- potentially adverse tax consequences.
NEW PRODUCT LAUNCHES OR ACQUIRED PRODUCTS MAY REDUCE OUR EARNINGS OR GENERATE
LOSSES.
Our future success will depend in part on our ability to continue offering
new products that successfully gain market acceptance by addressing the needs of
specific audience groups within our targeted industries. Our efforts to
introduce new or integrate acquired products may not be successful or
profitable. The process of internally researching and developing, launching,
gaining acceptance and establishing profitability for a new product, or
assimilating and marketing an acquired product, is both risky and costly. New
products generally incur initial operating losses.
In addition, we have invested in, and intend to continue to invest in, the
development of various online media products, which are currently generating
losses. The Internet is still in the early stages of development as a commercial
medium. These products may not be successful or profitable. For example, in the
fourth quarter of 2000, we wrote off $2.1 million of assets related to Internet
media initiatives.
Costs related to the development of new products are expensed as incurred
and, accordingly, our profitability from year to year may be adversely affected
by the number and timing of new product launches.
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RELIANCE ON PRINCIPAL VENDORS COULD ADVERSELY AFFECT OUR BUSINESS.
We rely on our principal vendors. Currently, our principal vendors are
paper suppliers, the United States Postal Service and printing suppliers. If any
of our principal vendors discontinues or temporarily terminates its services and
we are unable to find adequate alternatives, we may experience increased prices,
interruptions and delays in services. These factors could adversely affect our
business.
LOSS OF KEY PERSONNEL COULD IMPAIR OUR SUCCESS.
We benefit from the leadership and experience of our senior management
team, and we depend on their continued services in order to successfully
implement our business strategy. Although we have entered into employment
agreements with Thomas L. Kemp and Daniel J. Ramella and other management
members, they and other key personnel may not remain in our employment. The loss
of key personnel could have a material adverse effect on our business, results
of operations and financial condition.
THE INFRINGEMENT OR INVALIDATION OF OUR PROPRIETARY RIGHTS COULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS.
We regard our copyrights and trademarks, including our Internet domain
names, service marks and similar intellectual property, as critical to our
success. We rely on copyright and trademark laws in the United States and other
jurisdictions and on confidentiality agreements with some of our employees and
others to protect our proprietary rights. If any of these rights were infringed
or invalidated, our business could be adversely affected. In addition, our
business activities could infringe upon the proprietary rights of others, who
could assert infringement claims against us. If we are forced to defend against
any such claims, whether they are with or without merit or are determined in our
favor, then we may face costly litigation, diversion of technical and management
personnel, or product and service delays. As a result of such a dispute, we may
have to develop non-infringing technology or enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required, may be
unavailable on terms acceptable to us, or at all. If there is a successful claim
of infringement against us and we are unable to develop non-infringing
technology or enter into royalty or licensing agreements on a timely basis, our
business could be adversely affected.
We seek to register our trademarks in the United States and elsewhere.
These registrations could be challenged by others or invalidated through
administrative process or litigation. In addition, our confidentiality
agreements with some of our employees or others may not provide adequate
protection of our proprietary rights in the event of unauthorized use or
disclosure of our proprietary information or if our proprietary information
otherwise becomes known, or is independently developed, by competitors.
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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes. Because we are exchanging the exchange notes for the outstanding notes,
which have substantially identical terms, the issuance of the exchange notes
will not result in any increase in our indebtedness.
CAPITALIZATION
The following table presents the capitalization of Penton as of June 30,
2001. The capitalization information set forth in the table below should be read
together with the more detailed consolidated financial statements and related
notes appearing elsewhere in this prospectus.
<Table>
<Caption>
AS OF JUNE 30,
2001
----------------
(DOLLARS IN
THOUSANDS)
Cash........................................................ $ 55,669
========
Debt:
Revolving credit facility................................. --
Term loan A............................................... $133,000
Term loan B............................................... 74,250
Senior subordinated notes(1).............................. 180,836
Notes payable............................................. 3,526
--------
Total debt............................................. 391,612
Stockholders' equity:
Preferred stock, par value $0.01 per share; 2,000,000
shares authorized; none issued or outstanding.......... --
Common stock, par value $0.01 per share; 60,000,000 shares
authorized; 31,927,910 shares issued and outstanding... 319
Capital in excess of par value............................ 228,105
Retained earnings......................................... 104,069
Notes receivable officers/directors....................... (11,289)
Accumulated other comprehensive income.................... 942
--------
Total stockholders' equity............................. 322,146
--------
Total capitalization.............................. $713,758
========
</Table>
---------------
(1) Reflects approximately $4.2 million of original issue discount. Total
outstanding principal amount is $185.0 million.
18
24
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables present our selected historical financial data. The
statement of income data for each of the three years in the period ended
December 31, 2000 and the balance sheet data as of December 31, 1999 and 2000
have been derived from our audited consolidated financial statements and related
notes, which appear elsewhere in this prospectus. The statement of income data
for each of the two years in the period ended December 31, 1997 and the balance
sheet data as of December 31, 1996, 1997 and 1998 have been derived from our
audited consolidated financial statements and related notes that are not
included in this prospectus. The statement of income data for the six months
ended June 30, 2000 and 2001 and balance sheet data as of June 30, 2001 have
been derived from our unaudited interim consolidated financial statements and
related notes, which appear elsewhere in this prospectus. The balance sheet data
as of June 30, 2000 have been derived from our unaudited interim consolidated
financial statements and related notes that are not included in this prospectus.
In the opinion of management, our unaudited interim consolidated financial
statements include all adjustments that are necessary for a fair presentation of
our financial position and operating results for these periods. The results of
operations for interim periods are not necessarily indicative of results for a
full year's operations.
You should read the following information together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our historical consolidated financial statements and related notes appearing
elsewhere in this prospectus.
You should also consider the following when reading the selected data
below:
- All historical amounts have been restated to reflect the classification
of our Printing segment and Direct Mail segment as discontinued.
- Adjusted EBITDA is defined as net income (loss) before interest, taxes,
depreciation and amortization, and non-recurring items.
- Adjusted EBITDA margin equals Adjusted EBITDA divided by total revenues.
- Interest expense, net equals interest expense less interest income.
- Working capital (deficit) equals current assets, excluding cash and cash
equivalents, less current liabilities.
- For the purposes of determining the ratio of earnings to fixed charges,
earnings are defined as pre-tax income from continuing operations before
income (loss) from equity investees plus fixed charges. Fixed charges
consist of interest expense, amortized finance fees and one-third of the
rental expense, which is considered representative of the interest
component of rental expense. On a pro forma basis, ratio of earnings to
fixed charges is 4.5x for the 12 months ended December 31, 2000. On both
a historical and pro forma basis, earnings were insufficient to cover
fixed charges by $4.9 million and $8.5 million, respectively, for the six
months ended June 30, 2001.
We have included Adjusted EBITDA because we believe that investors find it
to be a useful tool for measuring a company's ability to generate cash. Adjusted
EBITDA does not represent cash flow from operations, as defined by generally
accepted accounting principles, and is not calculated in the same way by all
companies. In addition, you should not consider Adjusted EBITDA as a substitute
for net income or net loss, as an indicator of our operating performance or cash
flow, or as a measure of liquidity. Our definition of Adjusted EBITDA is not
calculated in the same way EBITDA will be calculated under the indenture
governing the exchange notes. See "Description of Notes--Certain
Definitions--Consolidated EBITDA" for more information on the definition of
EBITDA under the indenture governing the exchange notes.
19
25
<Table>
<Caption>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Revenues........................... $166,631 $181,109 $207,682 $300,824 $404,571 $184,883 $219,470
Operating expenses................. 148,950 156,255 181,464 261,434 349,860 156,925 211,929
-------- -------- -------- -------- -------- -------- --------
Operating income................... 17,681 24,854 26,218 39,390 54,711 27,958 7,541
Interest expense, net.............. (3) (823) (5,545) (21,131) (14,133) (5,176) (12,250)
Gain on sale of investments........ -- 1,040 -- 5,906 110,210 110,210 --
Writedown of Internet
investments...................... -- -- -- -- (9,490) -- --
Miscellaneous, net................. 2 (2) (45) (170) (64) (444) (1,450)
Provision for income taxes......... (7,205) (10,457) (9,442) (16,065) (61,559) (57,430) (602)
Income (loss) from discontinued
operations....................... 481 262 (296) 33 -- -- --
Gain on sale of discontinued
operations....................... -- -- -- 8,660 (85) (85) --
Extraordinary item -- early
extinguishment of debt........... -- -- -- (8,413) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................. $ 10,956 $ 14,874 $ 10,890 $ 8,210 $ 79,590 $ 75,033 $ (6,761)
======== ======== ======== ======== ======== ======== ========
Basic earnings per share........... $ 0.52 $ 0.70 $ 0.50 $ 0.29 $ 2.51 $ 2.36 $ (0.21)
Diluted earnings per share......... $ 0.52 $ 0.70 $ 0.50 $ 0.29 $ 2.49 $ 2.34 $ (0.21)
Basic average shares outstanding... 21,240 21,240 21,882 28,108 31,730 31,769 31,904
Diluted average shares
outstanding...................... 21,240 21,240 21,882 28,209 32,010 32,006 31,904
CASH FLOW DATA:
Operating.......................... $ 20,507 $ 23,186 $ 25,749 $ 34,357 $ 9,240 $(10,534) $(15,016)
Investing, includes capital
expenditures..................... (4,722) (53,192) (271,157) (27,770) (111,168) 93,895 (25,708)
Financing.......................... (15,888) 30,854 246,993 19,879 83,306 (1,218) 84,874
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents.......... $ 1,571 $ 2,419 $ 3,953 $ 30,370 $ 11,605 $112,414 $ 55,669
Working capital (deficit).......... 12,792 (27,735) (24,662) (64,936) (42,367) (27,055) (8,803)
Goodwill and other intangibles..... 21,940 71,822 387,612 451,236 628,748 439,454 626,614
Total assets....................... 108,799 156,426 479,301 809,379 781,757 700,949 831,049
Total debt......................... -- 34,170 307,000 215,000 302,125 215,000 391,612
Stockholders' equity............... 59,151 69,613 87,489 402,601 336,569 358,338 322,146
OTHER DATA:
Adjusted EBITDA.................... $ 21,016 $ 28,757 $ 34,009 $ 67,308 $ 91,288 $ 44,038 $ 35,822
Adjusted EBITDA margin............. 12.6% 15.9% 16.4% 22.4% 22.6% 23.8% 16.3%
Capital expenditures, excluding
businesses acquired.............. $ 4,822 $ 5,450 $ 5,775 $ 5,884 $ 27,272 $ 5,833 $ 5,448
Depreciation and amortization...... 3,335 3,903 7,791 27,918 33,431 15,029 22,714
Ratio of earnings to fixed
charges.......................... 10.9x 11.0x 3.7x 1.9x 7.2x 14.0x --
</Table>
20
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Set forth below is a discussion and analysis of our financial condition and
results of operations. You should read this discussion and analysis together
with the financial statements and the related notes appearing elsewhere in this
prospectus. Historical results and percentage relationships set forth in the
consolidated financial statements, including trends that might appear, should
not be taken as indicative of future operations.
OVERVIEW
We were spun off from Pittway Corporation and acquired Donohue Meehan
Publishing in August 1998; we then acquired Mecklermedia Corporation, now known
as Internet World Media, in November 1998; MFG Publishing, Inc. in February
1999; Jon Peddie Associates in May 1999; New Hope Communications, Inc. in May
1999; Multimedia Week in August 1999; Stardust.com in October 1999; Nutracon in
December 1999; Profit.Net, Inc. in February 2000; ComMunic in May 2000; National
Advisory Group in July 2000; Meko Ltd. in July 2000; Duke Communications
International in September 2000; Professional Trade Shows, Inc. in September
2000; Streaming Media, Inc. in September 2000; Group Computing in November 2000;
2000 Tutor.com in February 2001; Functional Foods in February 2001; Nutritional
Business International, LLC in February 2001; Hillgate Communications Ltd. in
February 2001; Tech Conferences, Incorporated in March 2001; Contractor Magazine
and Expo Instalaciones Para la Construccion in April 2001; DWR Media Pty Ltd. in
May 2001; and Wireless Developer Conference in June 2001. As we acquire
additional companies, our sales mix, market focus, cost structure, operating
leverage and the seasonality of our business may change significantly.
Consequently, our historical and future results of operations reflect and will
reflect the impact of acquisitions, and period-to-period comparisons may not be
meaningful in certain respects. Historical information for companies subsequent
to their acquisition may include integration and other costs that are not
expected to continue in the future.
On November 30, 1999, we completed the sale of our Printing segment to R.R.
Donnelley & Sons Company for approximately $31.0 million in cash. We recorded a
gain on the sale of $15.5 million, or $9.3 million, $0.33 per share, after tax.
During the first quarter of 2000, we completed the sale of the net assets of our
Direct Mail segment for $4.0 million in cash. An additional operating loss
through the date of sale of $0.08 million, net of a tax benefit of $0.06
million, was recorded in 2000. This was in addition to the $0.06 million that
was accrued in 1999. Operating results and net assets for the Printing and
Direct Mail segments have been reflected as discontinued operations in the
accompanying financial statements. Net income for the Printing segment was $0.9
million, $0.5 million and $0.3 million in 1997, 1998 and 1999, respectively, or
$0.04, $0.02 and $0.01 per share, on revenues of $10.5 million, $11.7 million
and $10.4 million, respectively. Net losses for the Direct Mail segment were
$0.7 million, $0.8 million and $0.3 million in 1997, 1998 and 1999,
respectively, or $0.03, $0.04 and $0.01 per share, on revenues of $13.3 million,
$13.8 million and $12.2 million, respectively.
21
27
RESULTS OF OPERATIONS
The following table sets forth our income statement data expressed as a
percentage of revenues for the periods indicated:
<Table>
<Caption>
THREE MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
--------------------- ------------- -------------
1998 1999 2000 2000 2001 2000 2001
----- ----- ----- ----- ----- ----- -----
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Editorial, production and
circulation...................... 41.5 38.9 36.3 32.0 40.4 35.3 38.3
Selling, general and
administrative................... 42.2 38.8 41.1 37.7 44.7 40.9 45.4
Impairment of Internet assets....... -- -- 0.5 -- -- -- --
Impairment of other assets.......... -- -- 0.3 1.0 -- .6 --
Restructuring charges............... -- -- -- -- -- -- 2.5
Depreciation and amortization....... 3.7 9.2 8.3 6.8 10.4 8.1 10.3
----- ----- ----- ----- ----- ----- -----
87.4 86.9 86.5 77.5 95.5 84.9 96.5
----- ----- ----- ----- ----- ----- -----
Operating income...................... 12.6 13.1 13.5 22.5 4.5 15.1 3.5
----- ----- ----- ----- ----- ----- -----
Other income (expenses):
Interest expense, net............... (2.7) (7.0) (3.5) (2.2) (5.9) (2.8) (5.6)
Gain on sale of investments......... -- 2.0 27.2 -- -- 59.6 --
Writedown of Internet investments... -- -- (2.3) -- -- -- --
Miscellaneous, net.................. -- (0.1) -- (.4) (1.3) (.2) (.7)
----- ----- ----- ----- ----- ----- -----
(2.7) (5.1) 21.4 (2.6) (7.2) 56.6 (6.3)
----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations before income taxes...... 9.9 8.0 34.9 19.9 (2.7) 71.7 (2.8)
Provision for income taxes............ (4.5) (5.4) (15.2) (11.9) (2.4) (31.1) (.3)
----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations.......................... 5.4 2.6 19.7 8.0 (5.1) 40.6 (3.1)
Discontinued operations............... (0.2) 2.9 -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Income before extraordinary item...... 5.2 5.5 19.7 8.0 (5.1) 40.6 (3.1)
Extraordinary item--early
extinguishment of debt.............. -- (2.8) -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Net income (loss)..................... 5.2% 2.7% 19.7% 8.0% (5.1)% 40.6% (3.1)%
===== ===== ===== ===== ===== ===== =====
</Table>
THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2000
REVENUES
Total revenues decreased $2.3 million, or 2.1%, from $109.1 million for the
three months ended June 30, 2000 to $106.8 million for the same period in 2001.
Publishing revenues increased $2.4 million, or 4.3%, from $56.0 million for
the three months ended June 30, 2000 to $58.4 million in the same period in
2001, due primarily to the following: (1) the addition of Windows 2000 Magazine,
Business Finance Magazine, SQL Server Magazine and NEWS/400 magazine, which were
part of the Duke acquisition in September 2000; (2) the addition of IT
Consultant, m-CommerceWorld, ISPWorld, and Service Management magazines, which
were part of the Hillgate acquisition in February 2001; (3) the addition of
Contractor magazine, which was acquired in April 2001; (4) the addition of
iTgraphics Magazine, and the Australian editions of Computer Reseller News and
Information Week magazines, which were all part of the DWR Media acquisition
completed in May 2001; (5) the addition of Group Computing magazine, which was
acquired in December 2000; (6) the launch of Streaming Media magazine in the
fourth quarter of 2000 and (7) significant year-over-year increases in Air
Transport World and Expansion Management magazines. These
22
28
increases were partially offset by revenue declines on technology magazines,
especially Internet World magazine, as well as on select magazines serving the
manufacturing industry.
Trade show and conference revenues decreased $7.2 million, or 13.8%, from
$52.3 million for the three months ended June 30, 2000 to $45.1 million for the
same period in 2001, due primarily to the timing of the Internet World Spring
and eCRM trade shows, which were held in the first quarter of 2001 compared with
the second quarter of 2000. These decreases were partially offset by (1)
substantial year-on-year gains posted by key trade shows held in the quarter,
including Internet World UK and Natural Products Expo Europe; (2) results from
acquired properties, including Internet World Berlin, Streaming Media West, and
PTS regional events and (3) trade show launches including Steaming Media events
in Berlin, Hong Kong and Tokyo.
Online media revenues increased $2.6 million from $0.7 million for the
three months ended June 30, 2000 to $3.3 million for the same period in 2001,
due primarily to the addition of Duke's online media business, which was
acquired in September 2000.
OPERATING EXPENSES
Operating expenses increased $17.5 million, or 20.7%, from $84.5 million
for the three months ended June 30, 2000 to $102.0 million for the same period
in 2001. As a percentage of revenues, operating costs increased from 77.5% in
2000 to 95.5% in 2001. The increase in operating expenses as a percentage of
revenues was due primarily to the move of the highly successful Internet World
Spring show and the eCRM show from the second quarter in 2000 to the first
quarter in 2001, and higher depreciation and amortization expense related to
acquisitions and capitalized costs related to the relocation of our corporate
headquarters.
Editorial, Production and Circulation. Total editorial, production and
circulation expenses grew to $43.2 million for the three months ended June 30,
2001 compared with $34.9 million for the same period in 2000, representing an
increase of $8.3 million, or 23.7%. The increase was due primarily to the
acquisitions of Duke, Streaming Media and PTS in September 2000, and was
partially offset by the impact of the Internet World Spring and eCRM trade
shows, which were held in the second quarter of 2000 compared to the first
quarter of 2001.
As a percentage of revenues, editorial, production and circulation expenses
increased from 32.0% in 2000 to 40.4% in 2001. The increase was due largely to
the timing of the trade shows, as noted above.
Selling, General and Administrative. Total selling, general and
administrative expenses grew $6.5 million, or 15.9%, from $41.2 million for the
three months ended June 30, 2000 to $47.7 million for the same period in 2001.
The increase was due primarily to the acquisition of Duke, Streaming Media and
PTS in September 2000, and was partially offset by the impact of the Internet
World Spring and eCRM trade shows, which were held in the second quarter of 2000
compared to the first quarter of 2001.
As a percentage of revenues, selling, general and administrative expenses
increased from 37.7% in 2000 to 44.7% in 2001. The increase was due largely to
the timing of the trade shows, as noted above.
Impairment of Assets. Based upon our review of the impairment of long-lived
assets in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," we recorded a $1.0 million non-cash charge in the second
quarter of 2000 to write down the carrying value of certain leasehold
improvements, furniture and fixtures, and computer equipment to fair value.
Depreciation and Amortization. Depreciation and amortization increased $3.7
million, or 51.0%, to $11.1 million for the three months ended June 30, 2001.
The higher expense primarily was the result of the amortization of goodwill and
intangible assets from acquisitions and increased depreciation associated with
capital expenditures, primarily related to the corporate headquarters relocation
in the fourth quarter of 2000.
23
29
OPERATING INCOME
Overall, our operating income decreased $19.8 million, or 80.6%, from $24.6
million for the three months ended June 30, 2000 to $4.8 million for the same
period in 2001. Operating income as a percentage of revenue decreased from 22.5%
in 2000 to 4.5% in 2001.
OTHER INCOME (EXPENSE)
Interest expense, net of interest earned, increased $3.8 million to $6.2
million for the three months ended June 30, 2001 compared with the same prior
year period, due to a higher average debt balance outstanding for the three
months ending June 30, 2001 when compared with the same prior year period, as
well as a decrease in interest earned on Penton's lower average cash balance
compared with the prior year.
EFFECTIVE TAX RATES
The effective tax rates were (85.0%) and 60.0% for the three months ended
June 30, 2001 and 2000, respectively. During the second quarter, we changed our
method for calculating our interim tax provision from the use of the annual
effective tax rate approach to the discrete period approach. The tax provision
change was made due to the limited forward visibility on results of operations
for the remainder of 2001.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2000
REVENUES
Total revenues increased $34.6 million, or 18.7%, from $184.9 million for
the six months ended June 30, 2000 to $219.5 million for the same period in
2001.
Publishing revenues increased $6.7 million, or 6.2%, from $108.9 million
for the six months ended June 30, 2000 to $115.6 million in the same period in
2001, due primarily to the following: (1) the addition of Windows 2000 Magazine,
Business Finance Magazine, SQL Server Magazine and NEWS/400 magazine, which were
part of the Duke acquisition in September 2000; (2) the addition of IT
Consultant, m-CommerceWorld, ISPWorld, and Service Management magazines, which
were part of the Hillgate acquisition in February 2001; (3) the addition of
Contractor magazine, which was acquired in April 2001; (4) the addition of Group
Computing magazine, which was acquired in December 2000; (5) the launch of
Streaming Media magazine in the fourth quarter of 2000 and (6) significant
year-over-year increases in Supply Chain Technology News and Transportation &
Distribution magazines. These increases were partially offset by revenue
declines on technology magazines, especially Internet World magazine, as well as
on select magazines serving the manufacturing industry and the absence of a
major directory, which was published in the first quarter of 2000 and will be
published in the second half of 2001.
Trade show and conference revenues increased $22.6 million, or 30.2%, from
$74.8 million for the six months ended June 30, 2000 to $97.4 million for the
same period in 2001, due primarily to the following: (1) added results of
acquired properties, including Internet World Berlin, Streaming Media West and
PTS regional events; (2) the successful launches of Internet World Wireless
East, ASPCON London, Streaming Media events in Berlin, Hong Kong and Tokyo, and
m-Commerce World; and (3) strong year-on-year growth of events including
Internet World UK, Service Management Europe, ISPCON London, Natural Product
Expo West and Natural Products Expo Europe. Revenues were partially offset by a
significant decline in the high-margin Internet World Spring show.
Online media revenues increased $5.4 million from $1.1 million for the six
months ended June 30, 2000 to $6.5 million for the same period in 2001, due
primarily to the addition of Duke's online media business, which was acquired in
September 2000.
OPERATING EXPENSES
Operating expenses increased $55.0 million, or 35.1%, from $156.9 million
for the six months ended June 30, 2000 to $211.9 million for the same period in
2001. As a percentage of revenues, operating costs
24
30
increased from 84.9% in 2000 to 96.6% in 2001. The increase in operating
expenses as a percentage of revenues was due primarily to lower margins earned
from the trade shows held during the first half of 2001, higher depreciation and
amortization expense related to acquisitions and the relocation of our corporate
headquarters as, previously noted.
Editorial, Production and Circulation. Total editorial, production and
circulation expenses grew to $84.0 million for the six months ended June 30,
2001 compared with $65.2 million for the same period in 2000, representing an
increase of $18.8 million, or 28.7%. The increase was due primarily to the
acquisitions of Duke, Streaming Media and PTS in September 2000, as well as the
nine acquisitions completed in the first half of 2001.
As a percentage of revenues, editorial, production and circulation
expenses increased from 35.3% in 2000 to 38.3% in 2001. The increase was due
largely to lower margins earned from both trade shows and conferences and
magazines.
Selling, General and Administrative. Total selling, general and
administrative expenses grew $24.0 million, or 31.7%, from $75.6 million for the
six months ended June 30, 2000 to $99.6 million for the same period in 2001. The
increase was due primarily to the acquisition of Duke, Streaming Media and PTS
in September 2000, as well as the nine acquisitions completed in the first half
of 2001.
As a percentage of revenues, selling, general and administrative expenses
increased from 40.9% in 2000 to 45.4% in 2001. The increase was due largely to
an increase in health care costs and compensation expense.
Impairment of Assets. In accordance with our review of impairment of
long-lived assets in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," we recorded a $1.0 million non-cash charge in the
second quarter of 2000 to write down the carrying value of certain leasehold
improvements, furniture and fixtures, and computer equipment to fair value.
Restructuring Charge. As a result of the current economic environment, we
are adjusting our portfolio of online media products to focus on those that are
demonstrating revenue growth, customer acceptance and near-term opportunity for
profit. To that end, we announced a restructuring program in February 2001 with
the intent of discontinuing certain online media operations that have not met
these objectives. We incurred a pre-tax charge of $5.6 million for this
restructuring program in the first quarter of 2001. The charge was reported as a
component of operating expenses. The following sets forth additional detail
concerning the principal components of the charge:
- Asset impairment costs totaled $2.1 million. These costs primarily
included the write-off of capitalized software costs associated with
the discontinuance of the industry exchange component of New Hope
Natural Media's Healthwell.com.
- Personnel costs of $1.9 million primarily are associated with the
separation of 60 employees at Healthwell.com as well as a reduction of
workforce in a number of other online media initiatives at Penton.
Personnel costs included payments for severance, earned vacation,
costs of outplacement services and provision for continued benefits to
personnel.
- Exit costs of $1.6 million reflecting the costs associated with
existing office spaces under lease and other contractual obligations.
Depreciation and Amortization. Depreciation and amortization increased
$7.7 million, or 51.1%, to $22.7 million for the six months ended June 30, 2001.
The higher expense is primarily the result of the amortization of goodwill and
intangible assets from acquisitions and increased depreciation associated with
capital expenditures related to the relocation of our corporate headquarters in
November 2000.
25
31
OPERATING INCOME
Overall, our operating income decreased $20.4 million, or 73.0%, from $28.0
million for the six months ended June 30, 2000 to $7.5 million for the same
period in 2001. Operating income as a percentage of revenue decreased from 15.1%
in 2000 to 3.4% in 2001.
OTHER INCOME (EXPENSE)
Interest expense increased $7.1 million to $12.3 million for the six months
ended June 30, 2001, compared with $5.2 million in the same prior year period,
due to a higher average debt balance outstanding for the six months ending June
30, 2001 when compared with the same prior year period, as well as a significant
decrease in interest earned on our lower average cash balance compared with the
prior year.
In February 2000, we sold 2.0 million shares of INT Media Group,
Incorporated stock as part of a 3.75 million share secondary offering. We
received cash of $113.1 million and recognized a pre-tax gain of approximately
$110.2 million.
EFFECTIVE TAX RATES
The effective tax rates were (10.0%) and 43.0% for the six months ended
June 30, 2001 and 2000, respectively. During the second quarter, we changed our
method for calculating our interim tax provision from use of the annual
effective tax rate approach to the discrete period approach. The tax provision
change was made due to the limited forward visibility on results for the
remainder of 2001. The low effective tax rate for the six months ended June 30,
2000 was due to our sale of a portion of our investment in INT Media Group,
Incorporated stock, which resulted in the recognition of a pre-tax gain of
$110.2 million.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES
Total revenues increased $103.7 million, or 34.5%, from $300.8 million in
1999 to $404.6 million in 2000.
Publishing revenues increased $27.6 million, or 13.7%, from $202.5 million
in 1999 to $230.1 million in 2000, due primarily to the following: (1) the
addition of Windows 2000 Magazine and the NEWS/400 and Business Finance
magazines, which were part of the Duke acquisition in September 2000; (2) a full
year of revenues from Natural Foods Merchandiser, Delicious Living!, Nutrition
Science News and Expansion Management magazines, which were part of the New Hope
acquisition in May 1999; (3) the turnaround of Internet World magazine, whose
revenues increased almost 50% in 2000 compared with 1999; (4) increased revenues
year-over-year in our core magazines, such as Electronic Design, American
Machinist, Boardwatch, Food Management, Government Product News and EE Product
News; and (5) the Fluid Power Handbook & Directory, which was published in 2000
and is published every other year. These increases were somewhat offset by the
discontinuance of the IW Growing Companies magazine during the first quarter of
2000 and lower revenues from various other core magazines compared with the
prior year.
Trade show and conference revenues increased $71.0 million, or 72.9%, from
$97.4 million in 1999 to $168.4 million in 2000, due primarily to the following:
(1) the first-time inclusion of the Streaming Media Europe and Streaming Media
East shows, which were part of the Streaming Media acquisition in September
2000; (2) the first-time inclusion of certain PTS trade shows, which were
acquired in September 2000; (3) the first-time inclusion of the Natural Products
Expo West show, which was part of the New Hope acquisition in May 1999, and the
launch of the Natural Products Expo Amsterdam show, which was held for the first
time in 2000; (4) the first-time inclusion of Stardust conferences, which were
acquired in October 1999; (5) the first-time inclusion of the Nutracon
conference, which was acquired in December 1999; (6) the addition of the
Internet Everywhere CEO Summit, the Internet World China show, the eCRM Spring
show, the CLEC Expo Fall show and the Advanced Building Systems Technology
Conference & Expo show, which were held for the first time in 2000; and (7)
significant year-over-year revenue increases from the Internet World Spring,
Internet World UK, ISPCON Spring, Internet World Fall, Wireless/Portable
Symposium & Exhibition and ISPCON London shows. These increases were somewhat
offset by lower year-over-year revenues from the Service Management Europe
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show, the Supply Chain Expo and the Internet World Summer show, and the absence
of the CONEXPO show, which was held in 1999 and is held every three years.
Online media products revenues increased $5.1 million from $0.9 million in
1999 to $6.0 million in 2000, due primarily to the addition of Duke's Internet
sites in September 2000, a number of new Web sites introduced in 2000 and a full
year of operations from the Web sites introduced in 1999.
OPERATING EXPENSES
Operating expenses increased $88.5 million, or 33.8%, from $261.4 million
in 1999 to $349.9 million in 2000. As a percentage of revenues, operating costs
decreased from 86.9% in 1999 to 86.5% in 2000. The improvement in operating
expenses as a percentage of revenues was due primarily to higher margins earned
on acquired trade shows that were held for the first time in 2000 and the
continued change in our product mix toward higher-margin trade shows. These
improvements were offset by an increase in depreciation and amortization related
to acquisitions and the impairment of Internet and other assets.
Editorial, Production and Circulation. Total editorial, production and
circulation expenses grew to $147.0 million in 2000 compared with $116.9 million
in 1999, representing an increase of $30.1 million, or 25.7%. The increase was
due primarily to a full year of operations for the acquisitions completed during
1999, including New Hope, Stardust and Nutracon, as well as the acquisitions of
PTS, Streaming Media and Duke in September 2000. Increases were also due to
costs associated with trade shows held for the first time in 2000, such as the
Internet Everywhere CEO Summit and the CLEC Expo Fall show, as well as costs
related to the biennial Fluid Power Handbook & Directory, which was published in
2000 and not in 1999.
As a percentage of revenues, editorial, production and circulation expenses
decreased from 38.9% in 1999 to 36.3% in 2000. The decrease was due largely to
higher margins earned from trade shows.
Selling, General and Administrative. Total selling, general and
administrative expenses grew $49.7 million, or 42.6%, from $116.6 million in
1999 to $166.3 million in 2000. The increase was due primarily to the
acquisitions of New Hope in May 1999, Stardust in October 1999 and Nutracon in
December 1999, as well as the acquisitions of PTS, Duke and Streaming Media in
September 2000; costs associated with trade shows held for the first time in
2000; costs related to the biennial Fluid Power Handbook & Directory, which was
published in 2000 and not in 1999, and higher executive compensation expense.
As a percentage of revenues, selling, general and administrative expenses
increased from 38.8% in 1999 to 41.1% in 2000. The increase was due largely to
higher Web development spending, costs associated with the corporate
headquarters move and higher executive compensation expenses.
Impairment of Internet Assets. We wrote off $2.1 million of impaired assets
related to certain internally funded Internet media initiatives. We are
adjusting our portfolio of Internet media products to focus on those that are
demonstrating good revenue potential, customer acceptance and near-term
opportunity for profit. We expect to take approximately $5.0 million in
restructuring charges in the first quarter of 2001 as a result of these actions.
Impairment of Other Assets. Based upon our review of the impairment of
long-lived assets in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," we recorded a $1.0 million non-cash charge in 2000 to
write down the carrying value of certain leasehold improvements, furniture and
fixtures, and computer equipment to fair value.
Depreciation and Amortization. Depreciation and amortization increased $5.5
million, or 19.7%, from $27.9 million in 1999 to $33.4 million in 2000. The
higher expense was primarily the result of the amortization of intangible assets
from the PTS, Duke and Streaming Media acquisitions in September 2000 and a full
year of depreciation and amortization from the acquisitions completed in 1999,
including New Hope, which was acquired in May 1999.
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OPERATING INCOME
Overall, our operating income increased $15.3 million, or 38.9%, from $39.4
million in 1999 to $54.7 million in 2000. Operating income as a percentage of
revenue increased from 13.1% in 1999 to 13.5% in 2000.
OTHER INCOME (EXPENSE)
Interest expense decreased $7.0 million to $14.1 million due to a lower
average debt balance outstanding in 2000 when compared with 1999, as well as the
significant increase in interest earned in 2000 on the cash received from the
sale of INT Media Group, Incorporated stock.
In February 2000, we sold 2.0 million shares of INT Media Group,
Incorporated stock as part of a 3.75 million share secondary offering. We
received cash of $113.1 million and recognized a pre-tax gain of approximately
$110.2 million. In July 1999, we sold approximately 0.5 million shares of INT
Media Group, Incorporated stock and recognized a pre-tax gain of approximately
$5.9 million.
In 2000, we invested $6.3 million in Cayenta Inc., a total service provider
of end-to-end e-commerce systems, and $3.4 million in Leisurehub.com, an online
B2B trading community for the global leisure industry. During 2000, we
determined that our investments in these Internet-related companies had suffered
declines in value that were other than temporary. As a result, we recognized
losses totaling $9.5 million, reducing our investment in Cayenta Inc. and
Leisurehub.com to zero.
EFFECTIVE TAX RATES
The effective tax rates from continuing operations were 67.0% and 43.6% for
1999 and 2000, respectively. The decrease in the effective tax rate is due to
our sale of a portion of our investment in INT Media Group, Incorporated stock
in 2000. The sale resulted in a pre-tax gain of $110.2 million ($66.1 million
net of tax).
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Total revenues increased $93.1 million, or 44.8%, from $207.7 million in
1998 to $300.8 million in 1999.
Publishing revenues increased $22.8 million, or 13.2%, from $179.7 million
to $202.5 million in 1999, due primarily to the following: (1) the addition of
Baking Management, Modern Baking and Convenience Store Decisions magazines,
which were part of the Donohue Meehan Publishing Company acquisition in August
1998; (2) the addition of Boardwatch magazine and Internet World magazine, which
were part of the Mecklermedia acquisition in November 1998; (3) the addition of
Natural Foods Merchandiser, Delicious!, Health and Nutrition Breakthroughs,
Nutrition Science News and Expansion Management magazines, which were part of
the New Hope acquisition in May 1999; (4) the addition of Mid-Range ERP
magazine, which was part of the MFG acquisition in February 1999; (5) the
addition of IW Growing Companies, the first issue of which was not published
until the second quarter of 1998; and (6) increased revenues year-over-year in
Penton's core magazines, such as Contracting Business, Machine Design, Foundry
Management & Technology, Government Procurement and Penton's Embedded Systems
Development. These increases were offset by (1) lower revenues from Electronic
Design magazine compared to the same period in the prior year, due to a slowdown
in the electronics market; (2) the absence of the Fluid Power Handbook &
Directory, which was published in 1998, and is published every other year; and
(3) lower revenues from various other core magazines compared with the same
period in the prior year.
Trade show and conference revenues increased $69.5 million, or 248.6%, from
$28.0 million in 1998 to $97.4 million in 1999, due primarily to the following:
(1) the first-time inclusion of Mecklermedia, which was acquired in late
November 1998 and which added the Fall and Spring Internet World trade shows as
well as the ISPCON tradeshows; (2) the first-time inclusion of New Hope, which
was acquired at the end of May 1999 and includes the Natural Products Expo East
and West trade shows; (3) the addition of A/E/C Systems UK Show, A/E/C GEO Expo
and the Metalmecanica show, all of which were held for the first time in 1999;
and
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(4) significant year-over-year revenue increases for the Supply Chain Expo,
Service Management Europe and Wireless Symposium/Portable by Design Conference &
Exhibition.
OPERATING EXPENSE
Operating expenses increased $80.0 million, or 44.1%, from $181.5 million
in 1998 to $261.4 million in 1999. As a percentage of revenues, operating costs
decreased from 87.4% in 1998 to 86.9% in 1999. The improvement in operating
expenses as a percentage of revenues was due primarily to higher margins earned
on acquired trade shows that were held for the first time in 1999. These
improvements were offset by the increase in depreciation and amortization
related to the acquisitions and to the change in our goodwill amortization
policy for acquired trade shows, which reduced the write-off period from 40
years to 20 years.
Editorial, Production and Circulation. Total editorial, production and
circulation expenses grew to $116.9 million in 1999 compared to $86.1 million in
1998, representing an increase of $30.8 million, or 35.8%. Approximately $29.4
million of the increase was due to the Donohue Meehan Publishing acquisition in
August 1998, the Mecklermedia acquisition in November 1998 and the New Hope
acquisition in May 1999. These increases in costs were offset by the absence of
costs related to the biennial Fluid Power Handbook & Directory, which was
published in 1998, but not in 1999. In addition, costs related to our core
publishing operations were down due to advertising slowdowns, primarily in the
electronics and computer markets.
As a percentage of revenues, editorial, production and circulation expenses
decreased from 41.5% in 1998 to 38.9% in 1999. The decrease was due largely to
Donohue Meehan Publishing magazines, higher margins earned from the Internet
World Media and New Hope tradeshows, and production improvements.
Selling, General and Administrative. Total selling, general and
administrative expenses grew $29.0 million, or 33.1%, from $87.6 million in 1998
to $116.6 million in 1999. Approximately $27.2 million of the increase was due
to the Donohue Meehan Publishing acquisition in August 1998, the Mecklermedia
acquisition in November 1998 and the acquisition of New Hope in May 1999. Costs
related to the biennial Fluid Power Handbook & Directory, which was published in
1998, were not incurred in 1999. In addition, costs related to our core
publishing operations decreased due to advertising slowdowns, primarily in the
electronics and computer markets.
As a percentage of revenues, selling, general and administrative expenses
decreased from 42.2% in 1998 to 38.8% in 1999. The improvement was due largely
to the addition of new trade shows and conferences to our product mix.
Depreciation and Amortization. Depreciation and amortization increased
$20.1 million, or 258.3%, to $27.9 million. The higher expense was the result
primarily of the amortization of intangible assets of approximately $0.6 million
associated with the Donohue Meehan Publishing acquisition in August 1998; of
approximately $15.9 million from the Mecklermedia acquisition in November 1998;
and approximately $2.5 million from the New Hope acquisition in May 1999. In
addition, the increase was due to the change in our goodwill amortization policy
for acquired tradeshows, effective with the fourth quarter of 1998. We reduced
the write-off period from 40 years to 20 years. The acquisitions of MFG, Jon
Peddie, Multimedia Week, Stardust.com and Nutracon also contributed to the
increase.
OPERATING INCOME
Overall, our operating income increased $13.2 million, or 50.2%, to $39.4
million in 1999 from $26.2 million in the prior year. Operating income as a
percentage of revenue increased from 12.6% in 1998 to 13.1% in 1999.
OTHER INCOME (EXPENSE)
Interest expense increased $15.6 million to $21.1 million, due to
additional borrowings used to finance our acquisition strategy since our spinoff
in August 1998.
In July 1999, we sold 0.5 million shares of INT Media Group, Incorporated
stock and recognized a pre-tax gain of approximately $5.9 million ($3.5 million
net of tax).
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EFFECTIVE TAX RATES
The effective tax rates from continuing operations were 45.8% and 67.0% in
1998 and 1999, respectively. Our acquisition of Independent Exhibitions, Ltd. in
December 1997, Donohue Meehan Publishing in August 1998 and Mecklermedia in
November 1998 resulted in the recording of goodwill. The amortization of
goodwill for these transactions is recognized for financial statement purposes,
but is not deductible for tax purposes due to the structure of the purchase
transactions. Accordingly, our effective tax rate increased from 1998 due to the
full-year effect of the acquisitions.
EXTRAORDINARY ITEM
The extraordinary item in 1999, which aggregated $8.4 million, net of $5.6
million in taxes, relates to the write-off of unamortized deferred finance costs
associated with the partial paydown of senior debt with the proceeds from the
common stock offering completed in May 1999 and the refinancing of senior debt
in September 1999.
ADJUSTED EBITDA
Net income (loss) before interest, taxes, depreciation and amortization,
and non-recurring items, or Adjusted EBITDA, is a widely used and commonly
reported standard measure utilized by analysts and investors in the analysis of
the media industry. This definition of Adjusted EBITDA is not calculated in the
same way EBITDA will be calculated under the indenture governing the exchange
notes. See "Description of Notes -- Certain Definitions -- Consolidated EBITDA"
for more information on the definition of EBITDA under the indenture governing
the notes. Adjusted EBITDA is not a measure of performance under GAAP because it
excludes those items listed above that are significant components in
understanding and evaluating our financial performance. However, the following
Adjusted EBITDA information can be helpful in determining our ability to meet
our debt service requirements and in comparative analyses of operating
performance relative to other media companies. Our calculation of Adjusted
EBITDA is as follows:
<Table>
<Caption>
YEARS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 30,
-------------------- ------------------ --------------------
1999 2000 2000 2001 2000 2001
------- --------- ------- ------- --------- -------
(DOLLARS IN THOUSANDS)
Net income (loss).......... $ 8,210 $ 79,590 $ 8,695 $(5,483) $ 75,033 $(6,761)
Interest expense, net of
interest earned.......... 21,131 14,133 2,441 6,249 5,176 12,250
Gain on sale of
investments.............. (5,906) (110,210) -- -- (110,210) --
Provision (benefit) for
income taxes(1).......... 16,065 61,559 13,014 2,512 57,430 602
Impairment of Internet
assets................... -- 2,095 -- -- -- --
Restructuring charges...... -- -- -- -- -- 5,567
Depreciation and
amortization............. 27,918 33,431 7,376 11,135 15,029 22,714
Writedown of Internet
investments.............. -- 9,490 -- -- -- --
Impairment of other
assets................... -- 1,051 1,051 -- 1,051 --
Extraordinary item, net of
taxes.................... 8,413 -- -- -- -- --
Discontinued operations,
net of taxes............. (8,693) 85 -- -- 85 --
Miscellaneous, net......... 170 64 424 1,501 444 1,450
------- --------- ------- ------- --------- -------
Adjusted EBITDA.......... $67,308 $ 91,288 $33,001 $15,914 $ 44,038 $35,822
======= ========= ======= ======= ========= =======
</Table>
---------------
(1) Provision (benefit) for income taxes includes approximately $2.4 million,
$44.1 million and $44.1 million related to gain on the sale of investments
for the years ended December 31, 1999 and 2000 and the six months ended June
30, 2000, respectively.
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Our Adjusted EBITDA increased $24.0 million, or 35.6%, from $67.3 million
in 1999 to $91.3 million in 2000. Adjusted EBITDA margins increased from 22.4%
in 1999 to 22.6% in 2000. The increases were due primarily to: (1) the
acquisitions of PTS, Duke and Streaming Media in September 2000; (2) a full year
of operations from New Hope, Stardust and Nutracon, which were all acquired in
1999; (3) the turnaround in Internet World magazine; and (4) significant
year-over-year revenue increases from the Internet World Spring, Internet World
UK, ISPCON Spring, Internet World Fall and ISPCON London shows, offset in part
by higher corporate spending, higher period costs and Web site development
charges.
For the three months ended June 30, 2001, our Adjusted EBITDA decreased
$17.1 million, or 51.8%, to $15.9 million from $33.0 million for the same period
in 2000. Adjusted EBITDA margins decreased to 14.9% for the quarter compared
with 30.3% in the same period in 2000. The decease in both Adjusted EBITDA and
Adjusted EBITDA margins were primarily due to the inclusion of the Internet
World Spring trade show and the eCRM show in the second quarter of 2000 compared
with the first quarter this year.
For the six months ended June 30, 2001, our Adjusted EBITDA decreased $8.2
million, or 18.7%, to $35.8 million from $44.0 million for the same period in
2000. Adjusted EBITDA margins were 16.3% for the six months ended June 30, 2001
compared with 23.8% for the same period in 2000. The decreases reflect
significant declines on certain high-margin properties serving technology
markets, declines on select manufacturing titles, and investments in magazine
launches, partially offset by added results from acquisitions and profit
improvements on certain existing properties.
Our calculation of Adjusted EBITDA by product is as follows:
<Table>
<Caption>
YEARS ENDED THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, JUNE 30,
------------------- ------------------- --------------------
1999 2000 2000 2001 2000 2001
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Publishing and other.............. $ 46,170 $ 51,269 $14,042 $ 8,563 $ 25,086 $ 15,332
Trade shows and conferences....... 43,133 78,846 27,709 15,956 36,669 41,316
Online media products............. (510) (6,790) (1,361) (943) (2,146) (1,930)
General and administrative........ (21,485) (32,037) (7,389) (7,662) (15,571) (18,896)
-------- -------- ------- ------- -------- --------
Adjusted EBITDA.............. $ 67,308 $ 91,288 $33,001 $15,914 $ 44,038 $ 35,822
======== ======== ======= ======= ======== ========
</Table>
Adjusted EBITDA for our publishing operations increased $5.1 million, or
11.0%, from $46.2 million in 1999 to $51.3 million in 2000. Adjusted EBITDA
increases for publishing operations were due primarily to: (1) the addition of
Natural Foods Merchandiser, Delicious Living!, Nutrition Science News and
Expansion Management magazines, which were part of the New Hope acquisition in
May 1999; (2) the addition of the Windows 2000 Magazine and NEWS/400 and
Business Finance magazines, which were part of the Duke acquisition in September
2000; (3) the turnaround of Internet World magazine in 2000 when compared with
the same prior-year period; and (4) the Fluid Power Handbook & Directory, which
was not published in 1999.
Adjusted EBITDA for our trade show and conference operations increased
$35.7 million, or 82.8%, from $43.1 million in 1999 to $78.8 million in 2000.
These increases were due primarily to: (1) the first-time inclusion of the PTS
and Streaming Media trade shows held in the fourth quarter of 2000, which were
acquired in September 2000; (2) the first-time inclusion of the Natural Products
Expo West trade show, which was part of the New Hope acquisition in May 1999;
(3) the first-time inclusion of Stardust conferences, which were acquired in
October 1999; (4) the addition of the Nutracon conference, which was acquired in
December 1999; (5) the addition of the Internet Everywhere CEO Summit, eCRM Expo
Spring, Internet World China and Advanced Building Systems Technology Conference
& Expo shows, which were held for the first time in 2000; and (6) significant
year-over-year revenue increases from the Internet World Spring, Internet World
UK, ISPCON Spring and ISPCON London shows.
Adjusted EBITDA for our online media operations decreased $6.3 million from
a loss of $0.5 million in 1999 to a loss of $6.8 million in 2000. These
decreases were due primarily to the increase in various costs associated with
the development of market-focused Web sites.
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General and administrative costs increased $10.6 million from $21.5 million
in 1999 to $32.0 million in 2000. The increases were due primarily to costs
associated with acquisitions and to higher executive compensation expense.
For the three months ended June 30, 2001, Adjusted EBITDA for our
publishing operations decreased $5.5 million, or 39.0%, when compared with the
same prior year period. Adjusted EBITDA was heavily impacted by (1) declines on
our technology magazines, most significantly Internet World; (2) declines on
select manufacturing titles; and (3) investments in magazine launches, partially
offset by results of acquisitions.
For the three months ended June 30, 2001, Adjusted EBITDA for our trade
show and conference operations decreased $11.8 million, or 42.4%, when compared
with the same prior year period. Adjusting for the change in the timing of the
Internet World Spring and eCRM trade shows, Adjusted EBITDA increased 91.9% for
the quarter ended June 30, 2001 when compared with the same period in 2000. The
increase was due to (1) substantial year-on-year gains posted by key trade shows
held in the quarter, including Internet World UK and Natural Products Expo
Europe; (2) added results from acquired properties, including Internet World
Berlin, Streaming Media West, and PTS regional events; and (3) trade show
launches including Streaming Media events in Berlin, Hong Kong and Tokyo.
For the three months ended June 30, 2001, Adjusted EBITDA for our online
media operations decreased from a loss of $1.4 million to a loss of $0.9
million.
For the three months ended June 30, 2001, general and administrative costs
increased $0.3 million when compared with the same prior year period.
For the six months ended June 30, 2001 Adjusted EBITDA for our publishing
operations decreased $9.8 million, or 38.9%, when compared with the prior year
period, as a result of declines on high-margin magazines serving technology
markets and select manufacturing magazines, investments in magazine launches and
the absence of a major directory, which was published in the first quarter of
2000 but will be published in the second half of 2001.
For the six months ended June 30, 2001 Adjusted EBITDA for our trade show
and conference operations increased $4.6 million, or 12.7%. This increase was
due to (1) added results of acquired properties, including Internet World
Berlin, Streaming Media West and PTS regional events; (2) successful launches,
including Internet World Wireless East, ASPCON London, Streaming Media events in
Berlin, Hong Kong and Tokyo, and m-Commerce World; and (3) strong year-on-year
growth of events, including Internet World UK, Service Management Europe, ISPCON
London, Natural Products Expo West and Natural Products Expo Europe. Adjusted
EBITDA for events were partially offset by the decline of the Internet World
Spring show.
For the six months ended June 30, 2001, Adjusted EBITDA for our online
media operations decreased from a loss of $2.1 million to a loss of $1.9
million.
For the six months ended June 30, 2001, general and administrative costs
increased $3.3 million when compared with the same prior-year period. The
increase was primarily due to higher compensation expense, a significant
year-over-year increase in healthcare costs and acquisitions.
FOREIGN CURRENCY
The functional currency of our foreign operations is their local currency.
Accordingly, assets and liabilities of foreign operations are translated to U.S.
Dollars at the rates of exchange on the balance sheet date; income and expenses
are translated at the average rates of exchange prevailing during the year.
There were no significant foreign currency transaction gains or losses for the
periods presented.
LIQUIDITY AND CAPITAL RESOURCES
During the periods presented, we financed our operations primarily through
cash generated from operating activities, borrowings under our credit
facilities, the issuance of senior subordinated notes and the sale of
investments, equity securities and assets.
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Cash provided by operating activities was $25.7 million, $34.4 million and
$9.2 million for the years ended December 31, 1998, 1999 and 2000, respectively.
Operating cash flows for 2000 reflect our net income of $79.6 million offset by
a net working capital decrease of approximately $2.8 million and non-cash
charges (depreciation and amortization, gain on sale of investments, writedowns
and impairments, and other) of approximately $67.6 million.
The decrease in operating cash flows in 2000 compared to 1999 was due
primarily to an increase in operating income of $15.3 million offset by changes
in working capital items and to increases in income tax payments required in
2000. These payments were largely attributable to the increase in operating
income and the $110.2 million gain realized in 2000 from the sale of INT Media
Group, Incorporated stock. The most significant working capital changes in 2000
were attributable to accounts receivable, and accounts payable and accrued
expenses. The accounts receivable increase reflects higher fourth quarter sales
in 2000 compared with 1999 and the timing of payments received. The increase in
accounts payable and accrued expenses is due primarily to timing of vendor and
other payments. The increase in 1999 compared to 1998 was due primarily to an
increase in operating income of $13.2 million offset somewhat by a net decrease
in working capital items, the most significant of which were accounts payable
and accrued expenses, and unearned income.
Cash used by operating activities was $15.0 million and $10.5 million for
the six months ended June 30, 2001 and 2000, respectively. Operating cash flows
for the six months ended June 30, 2001 reflect our net loss of $6.8 million in
addition to a net working capital decrease of approximately $35.5 million and
non-cash charges of approximately $27.2 million. Operating cash flows for the
six months ended June 30, 2000 reflect our net income of $75.0 million in
addition to a net working capital increase of approximately $7.6 million and
non-cash charges of approximately $93.1 million.
Investing activities used $111.2 million in 2000, primarily for
acquisitions and investments (including Streaming Media, PTS, Duke, Cayenta and
Leisurehub.com) and earnouts paid during the year, as well as capital
expenditures. The increase in capital expenditures was due primarily to the move
of our corporate headquarters and our continued investment in Internet related
technologies. These uses were partially offset by proceeds from the sale of 2.0
million shares of INT Media Group, Incorporated stock and proceeds from the sale
of the Direct Mail segment. Investing activities used $27.8 million in 1999,
primarily for acquisitions (including New Hope) and capital expenditures,
partially offset by proceeds from the sale of the Printing segment and the sale
of approximately 0.5 million shares of INT Media Group, Incorporated stock.
Investing activities used $271.2 million in 1998, primarily for acquisitions
(including Mecklermedia and DM Publishing) and capital expenditures, offset
partially by the sale of an 80.1% interest in internet.com LLC.
Investing activities used $25.7 million for the six months ended June 30,
2001, primarily due to the nine acquisitions completed in 2001, earnouts and
capital expenditures. For the six months ended June 30, 2000, investing
activities provided $93.9 million, primarily from proceeds from the sale of 2.0
million shares of INT Media Group, Incorporated stock and proceeds from the sale
of the Direct Mail segment. These proceeds were partially offset by the use of
cash for acquisitions, investments, earnouts and capital expenditures.
Financing activities provided $83.3 million in 2000, primarily from
borrowings under our revolving credit facility offset partially by debt
repayments and dividends paid to stockholders. Financing activities provided
$19.9 million in 1999, primarily from net proceeds from an equity offering and
proceeds from a new $340.0 million credit facility, offset partially by the
repayment of the $325.0 million credit facility, financing fees associated with
the new debt facility and dividends paid to stockholders. Financing activities
provided $247.0 million in 1998, primarily from proceeds from the $325.0 million
credit facility offset partially by the repayment of notes payable, financing
fees, payments to our former parent and dividends paid to stockholders.
Financing activities provided $84.9 million for the six months ended June
30, 2001, primarily from borrowings under our revolving credit facility and
proceeds from the senior subordinated notes, offset partially by repayments
under the credit facility and dividends paid to stockholders. Financing
activities used $1.2 million in 2000, primarily for the payment of dividends to
stockholders.
In May 1999, we completed the sale of 6.5 million shares of common stock
and received net proceeds of approximately $118.4 million, which were used to
repay senior debt and for general corporate purposes, including the acquisition
of New Hope.
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On September 1, 1999, we entered into a credit agreement with several banks
under which we can borrow up to $340.0 million. The agreement provided for a
revolving credit facility of up to $125.0 million, a long-term term loan A of
$140.0 million and a long-term term loan B of $75.0 million. The proceeds of
this credit agreement were used to repay our debt outstanding under the $325.0
million credit facility obtained when we purchased Mecklermedia. At December 31,
2000, we had $211.1 million outstanding under our term loans and $34.0 million
available under our revolving credit facility. At June 30, 2001, we had $207.3
million outstanding under our term loans and $185.0 million available under our
revolving credit facility.
On April 3, 2000, we amended our credit facility to give us the flexibility
to sell assets of up to $30.0 million and the ability to monetize our joint
venture investments.
In October 2000, we amended our credit facility to give us the ability to
increase our term loan A facility, term loan B facility and/or revolver up to an
aggregate of $100.0 million prior to September 30, 2001. At that time, we
increased the commitment under the revolver by $60.0 million to $185.0 million.
Accordingly, we may further increase our credit facility by $40.0 million prior
to September 30, 2001.
Because of recent economic conditions, we expect that we will be in
violation of some of the financial ratios and other financial condition tests
and financial covenants that we are required to maintain and satisfy pursuant to
the terms of our credit facility in the near future. We have informed the
administrative agent of our credit facility of these matters and are in
negotiations to amend the credit facility or obtain a waiver so that we will not
be in violation of any financial ratios and tests and financial covenants.
However, we cannot assure you that we will be able to obtain an amendment to or
waiver under our credit facility, which could impact our ability to borrow
further under the credit facility and fund our operations or result in a default
under the credit facility.
In June 2001, we issued $185.0 million of 10 3/8% senior subordinated notes
due June 15, 2011 to qualified institutional buyers pursuant to Rule 144A of the
Securities Act. Interest is payable on the notes semiannually on June 15 and
December 15 of each year. The notes are guaranteed, on a senior subordinated
basis, by our domestic subsidiaries and may be redeemed on or after June 15,
2006. In addition, we may redeem up to 35% of the aggregate principal amount of
the notes before June 15, 2004 with the proceeds of certain equity offerings.
The notes were offered at a discount of $4.2 million to be amortized over the
term of the notes. Amortization of the discount was not material for the six
month period ended June 30, 2001. Costs representing underwriting fees and other
expenses of $0.6 million will be amortized over the term of the notes. Net
proceeds of $180.2 million were used to pay down the $136.0 million outstanding
balance of the revolving credit facility. In addition, portions of our term loan
A and B were paid down on a pro rata basis. The notes are unsecured senior
subordinated obligations of ours, subordinated in right of payment to all
existing and future senior indebtedness, including the credit facility. The
notes contain covenants that will, among other things, restrict our ability to
borrow money, pay dividends on or repurchase capital stock, make investments,
sell assets or enter into mergers or consolidations.
Based upon current and anticipated levels of operations, our management
believes that cash on hand and cash flow from operations, combined with
borrowings available under our credit facilities and remaining proceeds from the
issuance of senior subordinated notes, will be sufficient to enable us to meet
current and anticipated cash operating requirements, including scheduled
interest and principal payments, capital expenditures and working capital needs.
However, actual capital requirements may change, particularly as a result of any
acquisitions that we may make. Our ability to meet current and anticipated
operating requirements will depend upon our future performance, which, in turn,
will be subject to general economic conditions and to financial, business and
other factors, including factors beyond our control. Depending on the nature,
size and timing of future acquisitions, we may be required to raise additional
capital through additional financing arrangements or the issuance of private or
public debt or equity securities. Our management cannot assure that such
additional financing will be available at acceptable terms. Although a portion
of our floating rate debt is hedged for fluctuations in interest rates, a
substantial part of our debt bears interest at floating rates. Therefore, our
liquidity and financial condition are, and will continue to be, affected by
changes in prevailing interest rates.
SEASONALITY
The introduction of trade shows and conferences into our product mix
through the acquisition of INDEX and ISOA in late 1997, the acquisition of
Mecklermedia in November 1998, the acquisition of New Hope in May 1999 and the
acquisition of Streaming Media in September 2000 has changed our seasonal
pattern of revenue
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and profit because all five companies have pronounced seasonal patterns in their
businesses. The majority of the trade shows of ISOA, Streaming Media and
Mecklermedia are held in the second and fourth quarters and, accordingly, the
majority of their revenues are recognized in these quarters. Furthermore, the
majority of the INDEX shows historically have been held in the fourth quarter,
and the New Hope shows have been held in the first and third or fourth quarters.
Accordingly, these acquisitions have had and will have a positive impact on
revenue and earnings for these quarters.
We also may experience seasonal fluctuations as trade shows and conferences
held in one period in the current year may be held in a different period in
future years.
INFLATION
The impact of inflation on our results of operations has not been
significant in recent years.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). Penton was required
to adopt this statement in the first quarter of 2000. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the
effective date of adoption of SFAS 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 was subsequently amended by SFAS
138 "Accounting for Certain Derivative and Certain Hedging Activities--an
Amendment of FASB Statement No. 133" ("SFAS 138"). We adopted this statement
effective January 1, 2001. See Note 10 in the Notes to Consolidated Financial
Statements for the quarter ended June 30, 2001, appearing elsewhere in this
prospectus for additional information.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provided guidance on applying existing generally accepted
accounting principles to revenue recognition issues in financial statements. We
adopted SAB 101 during the fourth quarter of 2000. The adoption of SAB 101 did
not have a material effect on us.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS
141"). SFAS 141 requires that all business combinations be accounted for under
the purchase method of accounting. In addition, SFAS 141 addresses financial
accounting and reporting for goodwill and other intangible assets acquired in a
business combination at acquisition. SFAS 141 also provides criteria for the
separate recognition of intangible assets acquired in a business combination.
SFAS 141 is effective for all business combinations initiated or consummated
after June 30, 2001.
In July 2001, the FASB also issued SFAS 142, "Goodwill and Other Intangible
Assets" ("SFAS 142"). SFAS 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition. SFAS 142 presumes that goodwill and certain intangible assets have
indefinite useful lives. Accordingly, goodwill and certain intangibles will not
be amortized but rather will be tested at least annually for impairment. SFAS
142 also addresses accounting and reporting for goodwill and other intangible
assets subsequent to their acquisition. SFAS 142 is effective for fiscal years
beginning after December 15, 2001. As of the date of this filing we have not yet
completed our assessment of the impact of SFAS 142 on our financial statements.
EURO CONVERSION
On January 1, 1999, 11 of the 15 participating countries that are members
of the European Union established a new uniform currency know as the Euro. The
currency existing prior to such date in the participating countries will be
phased out during the transition period ending January 2002. During this
transition period, both the Euro and the existing currency will be available in
the participating countries. Although we generate revenues in some of the
participating countries, our management does not anticipate that the use of the
Euro will materially affect our business, results of operations or financial
condition.
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BUSINESS
OVERVIEW
We are a leading business-to-business media company. We provide media
products that deliver proprietary business information to owners, operators,
managers and professionals in the industries we serve. Through these products,
we offer industry suppliers multiple ways to reach their customers and
prospects. We publish 73 trade magazines, produce 167 trade shows and
conferences and maintain 128 Web sites, in addition to other online media
products, serving the following 12 industries:
<Table>
- Internet/Broadband - Information Technology
- Manufacturing - Supply Chain
- Electronics - Mechanical Systems/Construction
- Design/Engineering - Government/Compliance
- Natural Products - Leisure/Hospitality
- Food/Retail - Aviation
</Table>
We believe we have leading media products in each of the industry sectors
we serve. We are structured along industry rather than product lines. This
enables us to promote our related group of products, including publications,
trade shows and conferences and online media products, to our more than 20,000
customers.
Since our founding in 1892, we have grown from an industrial trade magazine
publishing company into a leading, integrated business-to-business media company
serving a range of industrial, service and technology markets. We became an
independent company, incorporated in the State of Delaware, as a result of our
spinoff from Pittway Corporation in August 1998. Our independence has enabled us
to focus on building our business through acquisitions and internal growth. We
have acquired numerous companies since the spinoff. We also have launched
several new media properties. These initiatives have helped:
- strengthen our presence in our existing markets;
- provide us with strong market positions in new, growing markets;
- expand our presence in higher-margin trade shows and conferences; and
- increase our international product offerings.
OUR COMPETITIVE STRENGTHS
Market Leadership in Industries Served. Our media products provide
proprietary information to business users who need to stay informed about their
industries. They provide marketers with cost-efficient, highly effective access
to business professionals with purchasing authority. Advertising in 36 of our
magazines is measured by audit services; of these measured titles, 29, or about
81%, are ranked either #1 or #2 in their industry segment. We believe our market
leadership creates customer loyalty and makes us less vulnerable to revenue
losses during economic downturns, primarily because marketers tend to
concentrate their spending on top-tier publications and trade shows.
Ability to Capitalize on Our Established Industry Positions. We believe we
are able to effectively launch new media products by:
- using the industry knowledge and editorial expertise of our staff;
- capitalizing on the brand recognition and reputation of our existing
publications;
- building on our strong relationships with advertisers and readers; and
- cross-promoting new products with our existing trade magazines, trade
shows and conferences, and online media products that serve the same
industry.
For example, during 2001, we have launched Medical Design News and
Netronics magazines; two domestic Internet World Wireless shows, Streaming Media
events in Berlin, Hong Kong and Tokyo, and the m-Commerce World Show; and online
media products that include the m-CommerceWorld.com Web site, and the Connected
Home EXPRESS, The Tech Insider, and Technology News Flashes electronic
newsletters.
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Ability to Successfully Identify and Integrate Acquisitions. We have
acquired 25 companies since our spinoff in August 1998. For each acquisition we
consider, we carefully analyze the growth potential of the company and its
impact on our cash flow and profitability as part of our extensive evaluation
process. We consider ourselves uniquely positioned to make strategic
acquisitions due to our size and expertise in managing trade publications, trade
shows and conferences, and online media products. In addition, we believe that
our size enables us to efficiently integrate our acquisitions and eliminate
redundant marketing, administrative and corporate expenses and that our
experience in cross promoting our products enables us to identify opportunities
to expand the media products of the companies we acquire. For example, as part
of our acquisition of Duke, we acquired the Windows 2000 Magazine and NEWS/400
and Business Finance magazines and the related IT professional databases, which
provide a built-in target market for our Internet World publications and trade
shows and conferences.
Diversity of Products, Target Industries and Customers. We are diverse in
terms of the products we offer and the industries and customers we serve. None
of our publications, trade shows and conferences or online media products
accounted for more than 7.0% of our total revenues in 2000. We provide our
products in 12 diverse industries. Our top ten customers accounted for only 3.4%
of our total revenues in 2000. Our diversity should provide opportunities for
growth and mitigate our exposure to downturns in any one industry we serve.
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 modest 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 and conferences.
Experienced Management Team. Our senior management team has an average of
23 years of experience in the media industry and with increasing revenues and
Adjusted EBITDA, developing new products, penetrating new markets and
identifying, negotiating, completing and integrating acquisitions.
OUR GROWTH STRATEGY
We believe we have significant growth potential. We intend to increase our
revenues, cash flows and market share by continuing to:
Strengthen Our Market Positions. We believe we can strengthen our market
positions by:
- capitalizing on our industry expertise to create new products to serve
the needs of our customers;
- completing strategic acquisitions of complementary business media
products and services;
- adding online media products and services to meet the expanding
information and marketing needs of our customers;
- repositioning or eliminating publications and trade shows and conferences
that are not market leaders;
- cross-promoting media products within similar markets; and
- improving the operating efficiency of existing publications and trade
shows and conferences.
Expand Our Trade Shows and Conferences Business. We believe that
significant opportunities exist to capitalize on the editorial content and the
nationally recognized brand names of our existing publications to produce new
and expand existing trade shows and conferences. We intend to continue to
acquire trade shows and conferences in the industries we currently serve, such
as our 2000 acquisition of the Streaming Media trade shows. We believe that
increasing the percentage of revenues generated by trade shows and conferences
improves margins and profitability and mitigates the cyclicality of advertising
in slower economic times.
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Acquire Leading Positions in New, Growing Markets. We continuously
evaluate trends in new markets to identify acquisition opportunities in
attractive markets. For example, the acquisition of Duke Communications has
provided us with a leadership position in the Windows 2000 and AS/400 operating
systems markets.
Expand Our Market Positions Globally. We intend to extend our established
brands into key international markets. In doing so, we hope to broaden our
customer base by capitalizing on our strong brand names. For example, we added
additional Internet World and ISPCON trade shows in Europe, Asia and the Middle
East in 2000, and expect to continue that trend in 2001.
Develop Online Media Products That Capture Growing Internet Spending by
Businesses. We intend to further develop our online media portfolio to better
complement our publications and trade shows and conferences. We believe that
customized information delivery capabilities, real-time access to customers,
commerce opportunities, audience targeting and global reach benefits, and, the
cost efficiency of Internet-based media will be increasingly attractive to our
customers.
OUR INDUSTRY
The business-to-business communications industry is an important segment of
the media industry. Veronis Suhler Media Merchant Bank reports that the
business-to-business communications industry will experience a 5.5% compound
annual growth rate between 2001 and 2005 and will surpass $22.1 billion in
spending in 2005. Over the same period, Veronis Suhler forecasts that business
magazine revenues will grow annually at a rate of 4.3% and trade show revenues
at a rate of 6.8%.
The business-to-business communications industry is highly fragmented.
There were about:
- 1,500 publishing companies, according to American Business Media in 1999;
- 5,200 trade magazine titles, according to Standard Rate & Date Service
(SRDS) in June 2001; and
- 3,000 trade shows in the United States and Canada produced by about 1,500
independent companies and industry associations, according to Tradeshow
Week Research Services in June 2001.
OUR PRODUCTS AND SERVICES
We serve 12 specific industry sectors with our business publications, our
trade shows and conferences, and our online media products.
IN PRINT: PUBLICATIONS
Trade Magazines. We publish specialized trade magazines in the United
States. According to Advertising Age's annual ranking of magazines in the United
States, we publish two of the 15 largest business-to-business magazines, based
on advertising revenues. About 81% of our 36 audited magazines hold the #1 or #2
market share positions in their industry segments. Our publications are
recognized for the quality of their editorial content. Since 1990, our magazines
have won over 700 editorial awards.
We publish 73 trade magazines with a combined circulation of over four
million subscribers worldwide. Our magazines generate revenues primarily from
the sale of advertising space. Our magazines are primarily
controlled-circulation. They are distributed free-of-charge to qualified
subscribers in our targeted industries. Subscribers to our
controlled-circulation publications qualify to receive our trade magazines by
verifying their responsibility for specific job functions, including purchasing
authority. We survey our magazine subscribers annually to verify their continued
qualification.
Circulation information for the majority of our publications is audited
each year by BPA International, an independent auditor of magazine circulation.
These audits verify that we have accurately identified the number and job
responsibilities of qualified subscribers and that those subscribers are
eligible to receive the relevant publication according to our established
criteria.
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Each of our publications has its own advertising sales team and rate
structure. Some advertisers may qualify for discounts based on advertising in
multiple publications. We enable marketers to be more cost efficient in their
advertising purchases by providing a single source for integrated products.
In addition, each of our publications has its own editorial staff,
including writers, designers and production personnel. To preserve the editorial
integrity of each publication's news reporting and analysis, we seek to maintain
separation between the editorial and sales staffs of each publication. We
believe that our reputation for objective, fair and credible editorial content
contributes significantly to our success. Fifteen of our publications have
served their industries for over 50 years.
Our editorial staffs meet frequently with readers of their publications to
maintain a current understanding of the information needs and interests of those
readers in an effort to serve them more effectively. We devote considerable
resources to the study of trends in our industries and strive to make our
publications the most widely used among our targeted audiences. Many of our
editors and contributors are recognized as experts in their fields and are
regularly contacted by the general press to comment on developments and trends
in their respective markets.
Directories and Buyer's Guides. We also publish 22 industry directories and
buyer's guides, which are respected sources of buying information for industry
decision makers. Most of the business directories we publish have limited
competition.
IN PERSON: TRADE SHOWS AND CONFERENCES
We produce 167 trade shows and conferences, which annually attract more
than one million attendees with significant buying and specifying
responsibility. In addition to these events, we maintain licensing agreements
for seven trade shows and we produce one trade show under a management contract.
In the early 1990s, we entered the trade shows and conferences business and
have more recently expanded our presence through acquisitions. For example, the
acquisition of Streaming Media in September 2000 added the Streaming Media East,
West and Europe trade shows to our portfolio, while the acquisition of New Hope
in 1999 added the Natural Products Expo East and West trade shows. In addition,
we have expanded our global presence. In 2000, we acquired ComMunic, which
produces trade shows, conferences and business publications in Germany and its
German speaking neighboring countries, serving the Internet, telecommunications
and other growing technology markets.
Attendees at our trade shows and conferences are professionals and managers
in the industries we serve. Most trade shows include an extensive conference
program, which provides a forum for the exchange and dissemination of
information relevant to the particular event's focus. In addition, most trade
shows have one or more "keynote" sessions with speakers who are known for their
industry knowledge and expertise.
Trade show exhibitors pay a fixed price per square foot of booth space.
Typically, a majority of each trade show's exhibitors commit to booth space for
the following year during that year's show. In addition, we receive revenues
from attendee fees at trade shows and conferences.
ONLINE: WEB SITES AND ELECTRONIC MEDIA
We currently maintain 128 Web sites serving numerous market segments. We
believe that the Internet presents us with significant growth potential. We have
been developing a broad range of market-focused Web sites that include features
for valued information exchange within targeted business communities. These
sites incorporate state-of-the-art Web technologies and leverage the inherent
assets of our existing media products, the brand recognition of our magazines
and trade shows, our editorial content, and our customer and product databases.
We believe we have a competitive advantage in the online business because of our
established customer relationships in the markets we serve, the industry
expertise of our staff, and the opportunities we have to promote our Web sites
to targeted audiences through our magazines and trade shows. Our sites include
major industry-focused portals as well as a unique set of online trade shows.
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Our online portfolio also includes more than 60 electronic newsletters.
These products provide timely and focused information to highly targeted
professionals and typically are sponsored by advertisers interested in
delivering marketing information to our targeted subscribers.
OTHER
We also provide ancillary information services that complement our
principal business media platforms. These services include:
- Market Access & Business Development. We provide a variety of marketing
services, including database rentals. We use information from our
subscription lists and other available databases to compile detailed
mailing lists for rental by marketers who want to promote their products
and services through direct mail programs. We offer these services to our
customers to help them reach their targeted audience.
- Specialized Advertising. We collect and forward reader inquiries to our
advertisers. In addition, classified advertising sections in our
publications and on our Web sites provide a cost-efficient medium for
reaching prospects who are ready to buy specialized products and
services. Also, recruitment advertising provides an effective way to
reach qualified professionals seeking career opportunities.
- Custom Communications/Promotion. We produce a range of client-specific
communications services, including newsletters, magazines, catalogs,
directories, education and training materials and other support
materials.
OUR TWELVE INDUSTRY SECTORS
1. INTERNET/BROADBAND
The Internet/Broadband industry sector contributed about 36% of our
revenues in 2000. This industry sector primarily targets service providers and
other professionals in the worldwide Internet business. Some of our leading
brands in this industry sector are Internet World, Boardwatch and ISPCON. The
Internet World trade shows are among the leading events serving the Internet
industry. Boardwatch and ISPCON are among the leading magazines and events in
the Internet service provider market. In addition, Internet World magazine is
published in North America and has three international editions that are
published under license. In the Internet/Broadband industry sector, we produce
nine trade magazines, 67 trade shows and conferences and 29 Web sites.
2. MANUFACTURING
The manufacturing industry sector contributed about 15% of our revenues in
2000. This industry sector targets users at every level, from the plant floor to
the executive offices, in industrial markets, including general manufacturing
and metals. Some of our leading brands in this market are IndustryWeek, American
Machinist and New Equipment Digest. In the manufacturing industry sector, we
produce 13 trade magazines, 58 trade shows and conferences and 18 Web sites.
3. ELECTRONICS
The electronics industry sector contributed about 11% of our revenues in
2000. This industry sector targets engineers who design electronics used in
applications, including small appliances, medical equipment, sophisticated
microwave-RF and wireless communications systems, and Internet-enabled devices.
Some of our leading brands in this industry sector are EE Product News and
Electronic Design. According to Advertising Age, Electronic Design is the
thirteenth largest trade magazine in the United States, based on advertising
revenues in 1999. In the electronics industry sector, we produce five trade
magazines, six trade shows and conferences and 11 Web sites.
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4. DESIGN/ENGINEERING
The design/engineering industry sector contributed about 9% of our revenues
in 2000. This industry sector targets designers and engineers of machinery,
consumer products, buildings and systems. Some of our leading brands in this
industry sector are A/E/C SYSTEMS and Machine Design. Machine Design is the
ninth largest trade magazine in the United States, based on advertising revenue
in 1999, according to Advertising Age magazine. In the design/engineering
industry sector, we produce seven trade magazines, five trade shows and
conferences and 16 Web sites.
5. NATURAL PRODUCTS
The natural products industry sector contributed about 7% of our revenues
in 2000. This industry sector targets decision makers in the natural products
supply chain. Some of our leading brands in this sector are Natural Foods
Merchandiser and Natural Products Expo. In the natural products industry sector,
we produce five trade magazines, four trade shows and conferences and eight Web
sites.
6. FOOD/RETAIL
The food/retail industry sector contributed about 5% of our revenues in
2000. This industry sector targets decision makers in the commercial and
institutional foodservice, convenience store headquarters and retail, and
large-volume baking operations. Some of our leading brands in this sector are
Modern Baking and Restaurant Hospitality. In the food/retail industry sector, we
produce five trade magazines, four trade shows and conferences and three Web
sites.
7. INFORMATION TECHNOLOGY
The information technology industry sector contributed about 4% of our
revenues in 2000. This industry sector targets information technology
professionals and provides information to assist them in making strategic
business decisions, solving programming problems and helping them assess
hardware and software products. Some of our leading IT brands include the
Windows 2000 Magazine network and NEWS/400 magazine. In the information
technology sector we produce 14 trade magazines, 11 trade shows and conferences
and 24 Web sites.
8. SUPPLY CHAIN
The supply chain industry sector contributed about 4% of our revenues in
2000. This industry sector targets decision makers along the entire supply
chain, including material handling engineers, third-party logistics providers,
and those responsible for carrying, delivering and warehousing goods. Some of
our leading brands in this industry sector are Material Handling Management,
Transportation & Distribution and Supply Chain Technology News. In the supply
chain industry sector, we produce four trade magazines, four trade shows and
conferences and eight Web sites.
9. MECHANICAL SYSTEMS/CONSTRUCTION
The mechanical systems/construction industry sector contributed about 3% of
our revenues in 2000. This industry sector targets professionals who design,
build and install mechanical systems focusing on heating, ventilating and air
conditioning. Some of our leading brands in this industry sector are Contracting
Business and the HVAC Comfortech Show. In the mechanical systems/construction
industry sector, we produce four trade magazines, four trade shows and
conferences and five Web sites.
10. GOVERNMENT/COMPLIANCE
The government/compliance industry sector contributed about 3% of our
revenues in 2000. This industry sector targets government buyers and
professionals who manage industrial safety, occupational health and
environmental compliance. Some of our leading brands in this industry sector are
Government Product News and
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Occupational Hazards. We produce Web sites that provide best practices and the
latest news related to these areas. In the government/compliance industry
sector, we produce three trade magazines and two Web sites.
11. LEISURE/HOSPITALITY
The leisure/hospitality industry sector contributed about 2% of our
revenues in 2000. This industry sector targets professionals who manage parks,
golf courses, sports grounds, leisure attractions, and fitness, health and
hospitality facilities in Europe. It also targets management in the United
States lodging industry. Our leading brands in this industry sector are the
International Leisure Industry Week exposition and Lodging Hospitality magazine.
In the leisure/hospitality industry sector, we produce two trade magazines,
three trade shows and conferences and three Web sites.
12. AVIATION
The aviation industry sector contributed about 1% of our revenues in 2000.
This industry sector targets commercial airline executives worldwide. Our
leading brands in this market include Air Transport World magazine and
atwonline.com. In the aviation sector, we produce two trade magazines, one
conference and one Web site.
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MANAGEMENT
The directors, executive officers and other key employees of Penton, and
their ages and positions are as follows:
<Table>
<Caption>
NAME AGE POSITION
---- --- --------
Thomas L. Kemp............................ 50 Chairman of the Board, Chief Executive
Officer and Director
King W. Harris............................ 58 Vice Chairman of the Board and Director
Daniel J. Ramella......................... 49 President, Chief Operating Officer and
Director
Joseph G. NeCastro........................ 44 Chief Financial Officer and Treasurer
David B. Nussbaum......................... 43 Executive Vice President, Division
President and Director
Darrell C. Denny.......................... 43 Executive Vice President and Division
President
William C. Donohue........................ 57 Executive Vice President and Division
President
James W. Zaremba.......................... 61 Executive Vice President and Division
President
Preston L. Vice........................... 53 Senior Vice President and Secretary
Jocelyn A. Bradford....................... 43 Vice President and Controller
Paul W. Brown............................. 48 Director
William J. Friend......................... 37 Director
R. Douglas Greene......................... 52 Director
John J. Meehan............................ 53 Director
Don E. Schultz............................ 67 Director
Edward J. Schwartz........................ 60 Director
William B. Summers........................ 51 Director
Richard B. Swank.......................... 70 Director
</Table>
Thomas L. Kemp has served as a Director and as Chief Executive Officer of
Penton since September 1996, and as Chairman of the Board of Penton since March
2001. Mr. Kemp also served as Chairman of the Board of Penton from September
1996 to May 1998. Mr. Kemp's publishing career spans more than 26 years. He
spent 22 years with San Francisco based Miller Freeman, Inc., a business trade
show producer and magazine publisher, and was Miller Freeman's President and
Chief Operating Officer in 1996 when he left that company to join Penton. From
1994 to 1996 Mr. Kemp was Miller Freeman's Executive Vice President and Chief
Operating Officer. He also held a series of executive, publishing management and
sales positions with Miller Freeman subsequent to joining that company in 1974.
Mr. Kemp is a Director and Treasurer of Business Publications Audit
International. He is a Director of the Business Press Educational Foundation and
a former Director of American Business Media and the Association of Medical
Publishers. Mr. Kemp is a frequent speaker at media industry conferences and
events. In 1998, Mr. Kemp was named Business Publishing's "Person of the Year"
by min magazine.
King W. Harris has served as a Director of Penton since May 1987 and as
Vice Chairman of the Board of Penton since March 2001. Mr. Harris served as
Non-executive Chairman of the Board of Penton from May 1998 to March 2001. Mr.
Harris has served as the Chairman of Harris Holdings, Inc., an investment
management firm, since November 2000. From May 1987 to February 2000, Mr. Harris
served as President, Chief Executive Officer and Director of Pittway
Corporation, a manufacturer and distributor of alarm and other security
products. Pittway was acquired by Honeywell International, Inc. in February 2000
at which time Mr. Harris became President and Chief Executive Officer of the
Security and Fire Solutions Business of Honeywell's Home and Building Control
Group. On May 1, 2000, he relinquished the title of President but remained Chief
Executive Officer. Mr. Harris currently serves as Non-executive Chairman of the
Board and Director of Aptar Group, Inc., a specialty packaging components
manufacturer.
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Daniel J. Ramella has served as a Director of Penton since July 1990. He
has served as President and Chief Operating Officer since 1990 and has worked
for Penton for more than 24 years. Mr. Ramella was Senior Vice President,
Publishing, from 1989 to 1990, and Vice President, Foodservice Group, from 1987
to 1989. He was publisher of Restaurant Hospitality magazine from 1985 to 1987.
Mr. Ramella held management positions with Production Engineering magazine
between 1977 and 1985. Before joining Penton in 1977, he was an Audit Senior for
Arthur Andersen & Co. He is Chairman of American Business Media and has served
as a Director of the Business Press Educational Foundation. He is a former
Director, Treasurer and Executive Committee member of Business Publications
Audit International. Mr. Ramella was awarded American Business Media's
McAllister Top Management Fellowship Award for 2000.
Joseph G. NeCastro has served as Chief Financial Officer and Treasurer of
Penton since June 1998. Before joining Penton, Mr. NeCastro spent five years
with Reader's Digest Association, Inc. He was Vice President, Finance, for
Reader's Digest USA from 1995 until 1998, Corporate Controller in 1994 and 1995,
and held other corporate financial management positions with that company in
1993 and 1994. Mr. NeCastro was Vice President and Treasurer of U.S. News &
World Report between 1990 and 1993, and Director of Finance from 1987 to 1990.
He held senior business development and finance positions with MCI
Communications Corporation between 1983 and 1987 before moving into the
publishing industry.
David B. Nussbaum has served as a Director of Penton since May 2000 and as
Executive Vice President and President of the Technology Media division of
Penton since September 1998. Since December 1998, he has served as President of
Internet World Media, Inc., a subsidiary of Penton. Before joining Penton, Mr.
Nussbaum served as Senior Vice President of the New York Division of Miller
Freeman, Inc. from 1995 to August 1998 and as Vice President from 1994 to 1995.
He has worked in the business media industry for 21 years.
Darrell C. Denny has served as Executive Vice President of Penton and
President of the Lifestyle Media division of Penton since October 2000. Mr.
Denny served as Executive Vice President/Group President and Operating Chair
from August 1998 to September 2000, as Senior Vice President from 1995 to August
1998 and as Vice President from 1994 to 1995 of Miller Freeman, Inc.
William C. Donohue has served as Executive Vice President of Penton and
President of the Retail Media division of Penton since February 2001. Mr.
Donohue served as President of Donohue Meehan Publishing, a business publishing
company and subsidiary of Penton, since January 1987.
James W. Zaremba has served as Executive Vice President and President of
the Industry Media division of Penton since 1999 and Division President of
Penton since 1991. He has spent most of his 34-year business-to-business
publishing career with Penton. From 1988 to 1989, he was Publisher of Machine
Design magazine, and from 1983 to 1988, he was Publisher of PT Design magazine.
Preston L. Vice has served as Secretary of Penton since July 1998 and as
Senior Vice President of Publishing Services since 1989. Mr. Vice has 22 years
of business-to-business publishing experience and 30 years of accounting and
finance experience. He was Penton's Vice President of Finance from 1982 to 1989,
and Director of Finance from 1979 to 1982. Mr. Vice transferred to Penton from
Pittway Corporation in 1979. Prior to his tenure at Pittway, he was with Coopers
& Lybrand.
Jocelyn A. Bradford has served as Vice President and Controller of Penton
since January 2000. Before joining Penton, Ms. Bradford spent three years at
Century Business Services, Inc., a provider of professional outsourced business
services, as Controller from December 1996 through April 1998 and as Treasurer
from April 1998 through January 2000. Ms. Bradford was Manager--Financial
Reporting at Allen Telecom, Inc. from August 1992 until December 1996.
Paul W. Brown has served as a Director of Penton since May 2000. He has
served as General Partner, Bedrock Capital Partners, a venture capital firm,
since January 1998. He served as a General Partner of Volpe Brown Whelan & Co.,
an investment banking company, from May 1989 to December 1999, and as Managing
Director, Prudential Volpe Technology Group, investment banking, from December
1999 to November 2000. Mr. Brown has served as Chairman of Artemis Medical
Technologies, Inc., a surgical products manufacturer, since July 1999.
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William J. Friend has served as a Director of Penton since June 1998. Mr.
Friend has served as Vice President of Harris Holdings, Inc. since November
2000. Mr. Friend served as Vice President Corporate Development of Pittway
Corporation from August 1999 to February 2000, at which time Pittway was
acquired by Honeywell International, Inc. Mr. Friend served as Vice President
Corporate Development with the Security and Fire Solutions Business of
Honeywell's Home and Building Control Group from February to August 2000. From
August 1996 to July 1999, Mr. Friend served as Assistant to the
President/Strategic Planning Manager of Pittway Corporation. From April 1994 to
July 1996, he served as National Sales Manager of Xetron, a division of Pittway
Corporation. From August 1992 to March 1994, he served as an Engineering Product
Manager of System Sensor, a division of Pittway Corporation.
R. Douglas Greene has served as a Director of Penton since June 1999. Since
May 1999, he has served as a Director and Chief Executive Officer of New Hope
Group, Inc., an investment holding company, and as Non-executive Chairman of New
Hope Communications, a division of Penton. From February 1981 to May 1999, Mr.
Greene served as Chairman and Chief Executive Officer of New Hope
Communications, Inc., a business media company. He is also an investor in joint
venture business interests in media and entertainment companies and
international businesses in the publishing and forest product industries.
John J. Meehan has served as a Director of Penton since August 1998. Since
January 1987 Mr. Meehan has served as Executive Vice President of Donohue Meehan
Publishing Company, a subsidiary of Penton. Mr. Meehan started his 28-year
career in business-to-business publishing at the former Chilton Publishing,
where he held marketing and sales management positions with the company's
electronics publications from 1972 to 1977. From 1977 to 1986, he was Publisher
of Gorman Publishing's Bakery Production & Marketing and Prepared Foods
magazines. He was Group Publishing Director for Thomson Publishing in New York
from 1986 to 1987 before forming Donohue Meehan Publishing Company in 1987.
Don E. Schultz has served as a Director of Penton since June 1998. Mr.
Schultz currently serves as President of Agora, Inc., an integrated marketing
and branding consulting firm. He is a professor of Integrated Marketing
Communications at the Medill School of Journalism at Northwestern University.
Mr. Schultz serves as a Director of dunnhumby, a database consulting firm. Mr.
Schultz also serves as a Director of Brand Finance, a branding and communication
consulting firm. Mr. Schultz also serves as Director of Insignia Systems, Inc.,
an in-store, supermarket signage systems company and as a partner of the Simon
Richards Group, a direct marketing agency serving Australia and Malaysia.
Edward J. Schwartz has served as a Director of Penton since June 1998. Mr.
Schwartz has served as President of Harris Holdings, Inc. since November 2000.
Mr. Schwartz served as Vice President of Pittway Corporation from 1989 to
February 2000, at which time Pittway was acquired by Honeywell International,
Inc. Mr. Schwartz served as Vice President of the Security and Fire Solutions
Business of Honeywell's Home and Building Control Group from February 2000 to
January 2001.
William B. Summers has served as a Director of Penton since May 2000. Mr.
Summers has served as the Non-executive Chairman since October 2000, and served
as the Chairman and Chief Executive Officer from January 1994 to October 2000,
of McDonald Investments Inc., an investment banking and securities firm and a
subsidiary of Key Corp. Mr. Summers has also served as Chairman and Chief
Executive Officer of Key Capital Partners, a provider of brokerage and
investment banking services, and as Executive Vice President and a member of the
Management Committee of Key Corp. from October 1998 to December 2000. Mr.
Summers is a Director of the New York Stock Exchange, Chairman of the Board of
Trustees of Baldwin Wallace College and Chairman of the Board for the Law
Enforcement Foundation for the state of Ohio.
Richard B. Swank has served as a Director of Penton since June 1998. Mr.
Swank is currently retired. Prior to his retirement, Mr. Swank served as
Chairman and Chief Executive Officer from April 1990 to December 1994, and as a
Director from April 1990 to May 1996, of Advanstar Communications, Inc., a
magazine publishing, exhibition and marketing services enterprise. Mr. Swank
also served as a Director of The Dialog Corporation plc, an online information
and data provider, from November 1997 to November 2000.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to Penton with respect to
the beneficial ownership of its common stock as of July 31, 2001:
- the persons known by Penton to be the beneficial owners of more than 5%
of the outstanding shares of common stock;
- our Chief Executive Officer and four other most highly compensated
executive officers;
- each director of Penton; and
- all directors and executive officers of Penton as a group.
Except where otherwise indicated, the mailing address of each of the
stockholders named in the table is: c/o Penton Media, Inc., 1300 East Ninth
Street, Cleveland, Ohio 44114.
<Table>
<Caption>
SHARES BENEFICIALLY
OWNED(1)
-------------------
NAME NUMBER PERCENT
---- --------- -------
Mario J. Gabelli, et al.(2)................................. 4,792,498 15.01%
One Corporate Center
Rye, New York 10580
R. Douglas Greene(3)........................................ 2,069,584 6.48%
c/o New Hope Group, Inc.
600 Linden Ave.
Boulder, Colorado 80304
Paul W. Brown............................................... 2,666 *
William C. Donohue.......................................... 503,919 1.58%
William J. Friend(4)........................................ 32,595 *
King W. Harris(5)........................................... 150,974 *
Thomas L. Kemp(6)........................................... 269,785 *
John J. Meehan.............................................. 461,819 1.45%
Joseph G. NeCastro.......................................... 68,194 *
David B. Nussbaum........................................... 79,619 *
Daniel J. Ramella(7)........................................ 205,557 *
Don E. Schultz.............................................. 8,066 *
Edward J. Schwartz(8)....................................... 27,146 *
William B. Summers.......................................... 6,566 *
Richard B. Swank............................................ 9,166 *
James W. Zaremba............................................ 93,947 *
All Directors and Executive Officers as a Group (18
persons).................................................. 4,108,137 12.74%
</Table>
---------------
* Less than one percent
(1) Except as otherwise indicated below, beneficial ownership means the sole
power to vote and dispose of shares.
(2) The information as to Mario J. Gabelli and entities controlled directly or
indirectly by Mr. Gabelli is derived from Schedule 13D/A as filed with the
SEC on December 13, 2000 and statements required to be filed by Mr. Gabelli
and entities controlled directly or indirectly by Mr. Gabelli pursuant to
Section 16(a) of the Exchange Act. Such statement discloses that
- Mr. Gabelli is the chief investment officer for most of the entities
signing such statements and is deemed to have beneficial ownership of the
shares beneficially owned by all such entities,
- Mr. Gabelli and such entities do not admit that they constitute a group
within the meaning of Section 13(d) of the Exchange Act and the rules and
regulations thereunder, and
- with respect to Penton common stock, Mr. Gabelli and such entities have
the sole power to vote and dispose of all the shares of which they are
beneficial owners unless the aggregate voting interest of all such
entities exceeds 25% of Penton's total voting interest or other special
circumstances exist, in which case the proxy voting committees of certain
of such entities would have the sole power to vote certain shares
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of Penton common stock except 70,683 shares of Penton's common stock as to
which they have no voting power.
(3) The information as to Mr. Greene is derived in part from Schedule 13D, as
filed with the SEC on June 21, 1999, statements required to be filed by Mr.
Greene pursuant to Section 16(a) of the Exchange Act, and information
furnished to Penton separately by Mr. Greene.
- Mr. Greene has indirect beneficial ownership of the common stock under
Rule 13d-3 of the Securities Exchange Act of 1934 through New Hope Group,
Inc., a Colorado corporation.
- Mr. Greene is the chief executive officer, sole director and majority
shareholder of New Hope Group.
- The minority shareholder of New Hope Group is New Hope Alliance, LLC, a
Delaware limited liability company, of which Mr. Greene is the managing
member.
- Mr. Greene is a director of Penton.
(4) Mr. Friend shares the power to vote and dispose of 25,000 such shares.
(5) Mr. Harris shares the power to vote and dispose of 25,000 such shares.
(6) Includes 1,125 shares held in trust for the benefit of Mr. Kemp's children.
Mr. Kemp disclaims beneficial ownership of all such shares.
(7) Mr. Ramella shares the power to vote and dispose of 58,886 such shares.
(8) Includes 2,336 shares owned by Mr. Schwartz's spouse. Mr. Schwartz disclaims
beneficial ownership of all such shares.
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DESCRIPTION OF SENIOR SECURED CREDIT FACILITY
Our credit facility is with The Bank of New York, as administrative agent,
and various financial institutions, as lenders. The following is a summary
description of the principal terms of our credit facility.
Structure. Our credit facility includes (a) a $185.0 million maximum
availability revolving credit facility, of which up to $5.0 million may be used
for letters of credit and $5.0 million for short-term swing line loans made the
same day on which we request them from The Bank of New York, (b) a term loan A
facility, which had an outstanding principal balance of $133.0 million as of
June 30, 2001, and (c) a term loan B facility, which had an outstanding
principal balance of $74.3 million as of June 30, 2001. Our credit facility
allows us to increase the availability under our revolving credit facility,
and/or borrow additional funds under our term loan facilities, in an aggregate
amount not to exceed $40.0 million prior to September 30, 2001.
Security; Guarantees. Each of our existing direct and indirect domestic
subsidiaries and future direct and indirect domestic subsidiaries guarantee the
obligations under our credit facility. Our credit facility is, and the
guarantees are, secured by substantially all of our personal property assets and
those of the guarantor subsidiaries. In addition, our credit facility is secured
by a pledge of all of the capital stock, or similar equity interests, of our
wholly owned domestic subsidiaries, a majority of the capital stock, or similar
equity interests, of our direct wholly owned foreign subsidiaries and, subject
to a few exceptions, the capital stock, or similar equity interests, we, or our
wholly owned subsidiaries, own in our existing direct and indirect non-wholly
owned subsidiaries and future direct and indirect non-wholly owned subsidiaries.
Interest Rates. In general, borrowings under our credit facility bear
interest at one of two rates selected by us:
- the alternate base rate, defined as the higher of The Bank of New York's
prime rate or the federal funds rate plus 0.5%, plus a margin ranging
from 0.000% to 0.875% for borrowings under the revolving credit facility
and term loan A facility and a margin ranging from 0.500% to 1.250% for
borrowings under the term loan B facility; or
- the eurodollar rate, defined as the rate at which The Bank of New York is
offering dollar deposits in similar amounts over equivalent periods to
leading banks in the interbank eurodollar market, adjusted for statutory
reserves, plus a margin ranging from 1.250% to 2.125% for borrowings
under the revolving credit facility and term loan A facility and a margin
ranging from 1.750% to 2.500% for borrowings under the term loan B
facility.
The applicable margins used in determining the interest rates for
borrowings under our credit facility are based on our leverage ratio. As of
August 1, 2001, the applicable margin was 1.625% for the revolving credit
facility and term loan A facility and 2.125% for the term loan B facility. Swing
line borrowings bear interest at the alternate base rate plus the margin noted
above for revolving borrowings.
Maturity and Amortization. The maximum availability under our revolving
credit facility will automatically reduce by 7.5% on the last day of each
calendar quarter beginning September 2003 through June 2005, and by 10% on the
last day of each calendar quarter beginning September 2005 through June 2006.
All outstanding amounts borrowed under the revolving credit facility are due
when the facility matures on June 30, 2006.
We are required to repay the term loan A facility in quarterly installments
of amounts equal to gradually increasing percentages of the amounts borrowed
thereunder, with all remaining amounts due when the term loan A facility matures
on June 30, 2006.
We are required to repay the term loan B facility in quarterly installments
of amounts equal to, from June 2001 through June 2006, 0.25%, and from September
2006 through June 2007, 23.5%, of the amounts borrowed thereunder, with all
remaining amounts due when the term loan B facility matures on June 30, 2007.
Optional and Mandatory Prepayments. Our credit facility permits us to
voluntarily prepay our term loans and/or permanently reduce the revolving
facility in whole or in part, at our option, subject to minimum repayment or
reduction amounts and, in the case of prepayments of loans bearing interest at a
eurodollar rate other than at the end of the applicable interest period,
reimbursement of the lenders' redeployment costs.
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Voluntary prepayments of term loans will be allocated to the term loan A and
term loan B pro rata, based on the aggregate outstanding principal balance of
the term loans.
Our credit facility requires us to prepay borrowings with the net cash
proceeds of (a) certain asset dispositions by us and our subsidiaries in excess
of $5.0 million in any fiscal year, (b) condemnation, taking or insurance
payments in excess of $1.0 million in any fiscal year, and (c) our or our
subsidiaries' incurrence of indebtedness authorized under the credit facility.
Mandatory prepayments will be applied (1) pro rata to the term loans, with all
of the term loan B lenders collectively provided an opportunity to reject
prepayment in favor of the term loan A lenders, and (2) following repayment in
full of the term loans, to permanently reduce the revolving facility.
Amounts paid or prepaid under our term loan facilities may not be
reborrowed.
Fees. Our revolving credit facility requires us to pay our revolving
lenders a commitment fee based on the daily average unused portion of that
facility. This fee ranges from 0.375% to 0.500% based on our leverage ratio. Our
credit facility also requires us to pay letter of credit fees on the aggregate
stated amount of outstanding letters of credit.
Covenants. Our credit facility contains affirmative and negative covenants
customary for such financings, including financial covenants regarding our
interest coverage ratio, fixed charge coverage ratio, leverage ratio and senior
leverage ratio.
Events of Default. Our credit facility contains customary events of
default, including but not limited to:
- nonpayment of principal, interest or fees;
- violation of covenants;
- inaccuracy of representations and warranties;
- cross defaults to other debt;
- events of bankruptcy and insolvency;
- material judgments;
- Employee Retirement Income Security Act of 1974 matters;
- invalidity of any guaranty or security interest; and
- the occurrence of a change of control.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On June 28, 2001, we sold $185.0 million in principal amount at maturity of
the outstanding notes in a private placement through initial purchasers to a
limited number of "qualified institutional buyers," as defined in the Securities
Act. In connection with the sale of the outstanding notes, we and the initial
purchasers entered into a registration rights agreement, dated as of June 28,
2001. Under that agreement, we must, among other things, file with the
Commission a registration statement under the Securities Act covering the
exchange offer and use our best efforts to cause that registration statement to
become effective under the Securities Act. Upon effectiveness of that
registration statement, we must also offer each holder of the outstanding notes
the opportunity to exchange its securities for an equal principal amount at
maturity of exchange notes. You are a holder with respect to the exchange offer
if you are a person in whose name any outstanding notes are registered on our
books or any other person who has obtained a properly completed assignment of
outstanding notes from the registered holder.
We are making the exchange offer to comply with our obligation under the
registration rights agreement. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
In order to participate in the exchange offer, you must represent to us,
among other things, that:
- the exchange notes being acquired pursuant to the exchange offer are
being obtained in the ordinary course of business of the person receiving
the exchange notes;
- you do not have any arrangement or understanding with any person to
participate in the distribution of the outstanding notes or the exchange
notes;
- you are not engaged in, and do not intend to engage in, a distribution of
the exchange notes; and
- you are not one of our "affiliates," as defined in Rule 405 of the
Securities Act;
- if you are one of our affiliates, you will comply with the registration
and prospectus delivery requirements of the Securities Act to the extent
applicable.
The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of the particular jurisdiction.
RESALE OF THE EXCHANGE NOTES
Based on a previous interpretation by the staff of the Commission set forth
in no-action letters issued to third parties, including Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), Mary Kay Cosmetics, Inc. (available June 5, 1991),
Warnaco, Inc. (available October 11, 1991), and K-III Communications Corp.
(available May 14, 1993), we believe that the exchange notes issued in the
exchange offer may be offered for resale, resold, and otherwise transferred by
you, except if you are an affiliate of ours, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the representations set forth in "--Purpose and Effect of the Exchange
Offer" apply to you.
If you tender in the exchange offer with the intention of participating in
a distribution of the exchange notes, you cannot rely on the interpretation by
the staff of the Commission as set forth in the Morgan Stanley & Co.
Incorporated no-action letter and other similar letters and you must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. In the event that our belief
regarding resale is inaccurate, those who transfer exchange notes in violation
of the prospectus delivery provisions of the Securities Act and without an
exemption from registration under the federal securities laws may incur
liability under these laws. We do not assume or indemnify you against this
liability.
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Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of exchange notes. See "Plan of Distribution." In order to
facilitate the disposition of exchange notes by broker-dealers participating in
the exchange offer, we have agreed, subject to specific conditions, to make this
prospectus, as it may be amended or supplemented from time to time, available
for delivery by those broker-dealers to satisfy their prospectus delivery
obligations under the Securities Act.
Any holder that is a broker-dealer participating in the exchange offer must
notify the exchange agent at the telephone number set forth in the enclosed
letter of transmittal and must comply with the procedures for brokers-dealers
participating in the exchange offer. Under the registration rights agreement, we
are not required to amend or supplement the prospectus for a period exceeding
180 days after the expiration date of the exchange offer, except in limited
circumstances where we suspend use of the registration statement. We may suspend
use of the registration statement if:
- the Commission requests amendments or supplements to the registration
statement or the prospectus forming a part thereof or for additional
information;
- the Commission issues a stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for that
purpose;
- we receive notice of the suspension of the qualification of the exchange
notes for sale in any jurisdiction or the initiation of any proceedings
for that purpose;
- any event occurs that requires us to make changes in the registration
statement or the prospectus forming a part thereof in order that the
registration statement or prospectus does not contain an untrue statement
of a material fact nor omit to state a material fact required to be
stated therein or necessary to make the statements therein (in case of
the prospectus, in light of the circumstances under which they were made)
not misleading; or
- we determine, in good faith, that it is advisable to suspend use of the
registration statement or the prospectus forming a part thereof for a
discrete period of time due to pending material corporate developments or
similar material events that have not yet been publicly disclosed and as
to which we reasonably believe public disclosure would be prejudicial to
us.
We have not entered into any arrangement or understanding with any person
to distribute the exchange notes to be received in the exchange offer. See "Plan
of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the day the exchange offer expires.
As of the date of this prospectus, $185.0 million in principal amount at
maturity of the notes are outstanding. This prospectus, together with the letter
of transmittal, is being sent to all registered holders of the outstanding notes
on this date. There will be no fixed record date for determining registered
holders of the outstanding notes entitled to participate in the exchange offer;
however, holders of the outstanding notes must tender their certificates
therefor or cause their outstanding notes to be tendered by book-entry transfer
prior to the expiration date of the exchange offer to participate.
The form and terms of the exchange notes will be the same as the form and
terms of the outstanding notes, except that the exchange notes will be
registered under the Securities Act and therefore will not bear legends
restricting their transfer. Following consummation of the exchange offer, all
rights under the registration rights agreement accorded to holders of
outstanding notes, including the right to receive additional incremental
interest on the outstanding notes, to the extent and in the circumstances
specified in the registration rights agreement, will terminate.
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We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement and applicable federal securities laws.
Outstanding notes that are not tendered for exchange under the exchange offer
will remain outstanding and will be entitled to the rights under the related
indenture. Any outstanding notes not tendered for exchange will not retain any
rights under the registration rights agreement and will remain subject to
transfer restrictions. See "--Consequences of Failure to Exchange."
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we will have given oral or written notice of its acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purposes of receiving the exchange notes from us. If any tendered
outstanding notes are not accepted for exchange because of an invalid tender,
the occurrence of other events set forth in this prospectus, or otherwise,
certificates for any unaccepted outstanding notes will be returned, or, in the
case of outstanding notes tendered by book-entry transfer, those unaccepted
outstanding notes will be credited to an account maintained with The Depository
Trust Company, or DTC, without expense to the tendering holder of those
outstanding notes as promptly as practicable after the expiration date of the
exchange offer. See "--Procedures for Tendering."
Those who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange pursuant
to the exchange offer. We will pay all charges and expenses, other than
applicable taxes described below, in connection with the exchange offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date is 5:00 p.m., New York City time on November 15, 2001,
unless we, in our sole discretion, extend the exchange offer, in which case, the
expiration date will be the latest date and time to which the exchange offer is
extended. We may, in our sole discretion, extend the expiration date of, or
terminate, the exchange offer.
To extend the exchange offer, we must notify the exchange agent by oral or
written notice prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date and make a public announcement of
the extension.
We reserve the right:
- to delay accepting any outstanding notes, to extend the exchange offer or
to terminate the exchange offer if any of the conditions set forth below
under "--Conditions" are not satisfied by giving oral or written notice
of the delay, extension, or termination to the exchange agent; or
- to amend the terms of the exchange offer in any manner consistent with
the registration rights agreement.
Any delay in acceptances, extension, termination, or amendment will be
followed as promptly as practicable by oral or written notice of the delay to
the registered holders of the outstanding notes. If we amend the exchange offer
in a manner that constitutes a material change, we will promptly disclose the
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the outstanding notes, and we will extend the exchange
offer for a period of five to ten business days, depending upon the significance
of the amendment and the manner of disclosure to the registered holders of the
outstanding notes, if the exchange offer would otherwise expire during the five
to ten business day period.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment, or termination of the exchange
offer, we will have no obligation to publish, advertise, or otherwise
communicate that public announcement, other than by making a timely release to
an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept, promptly after the expiration date of the exchange offer, all
outstanding notes properly tendered and will issue the exchange notes promptly
after acceptance of the outstanding notes. See "--Conditions" below. For
purposes of the exchange offer, we will be deemed to have accepted properly
tendered outstanding notes for exchange when, as and if we will have given oral
or written notice of its acceptance to the exchange agent.
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In all cases, issuance of the exchange notes for outstanding notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of certificates for those outstanding notes
or a timely confirmation of book-entry transfer of the outstanding notes into
the exchange agent's account at DTC, a properly completed and duly executed
letter of transmittal, and all other required documents; provided, however, that
we reserve the absolute right to waive any defects or irregularities in the
tender of outstanding notes or in the satisfaction of conditions of the exchange
offer by holders of the outstanding notes. If any tendered outstanding notes are
not accepted for any reason set forth in the terms and conditions of the
exchange offer, if the holder withdraws such previously tendered outstanding
notes, or if outstanding notes are submitted for a greater principal amount of
outstanding notes than the holder desires to exchange, then the unaccepted,
withdrawn or portion of non-exchanged outstanding notes, as appropriate, will be
returned as promptly as practicable after the expiration or termination of the
exchange offer, or, in the case of outstanding notes tendered by book-entry
transfer, those unaccepted, withdrawn or portion of non-exchanged outstanding
notes, as appropriate, will be credited to an account maintained with DTC,
without expense to the tendering holder thereof.
CONDITIONS
Without regard to other terms of the exchange offer, we will not be
required to exchange any exchange notes for any outstanding notes and may
terminate the exchange offer before the acceptance of any outstanding notes for
exchange, if:
- any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
that, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer;
- the staff of the Commission proposes, adopts or enacts any law, statute,
rule or regulation or issues any interpretation of any existing law,
statute, rule or regulation, which, in our reasonable judgment, might
materially impair our ability to proceed with the exchange offer; or
- any governmental approval or approval by holders of the outstanding notes
has not been obtained, which approval we will, in our reasonable
judgment, deem necessary for the consummation of the exchange offer.
If we determine that any of these conditions are not satisfied, we may:
- refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders, or, in the case of
outstanding notes tendered by book-entry transfer, credit those
outstanding notes to an account maintained with DTC;
- extend the exchange offer and retain all outstanding notes tendered prior
to the expiration of the exchange offer, subject, however, to the rights
of holders who tendered the outstanding notes to withdraw their tendered
outstanding notes; or
- waive unsatisfied conditions with respect to the exchange offer and
accept all properly tendered outstanding notes that have not been
withdrawn. If the waiver constitutes a material change to the exchange
offer, we will promptly disclose the waiver by means of a prospectus
supplement that will be distributed to the registered holders of the
outstanding notes, and we will extend the exchange offer for a period of
five to ten business days, depending upon the significance of the waiver
and the manner of disclosure to the registered holders of the outstanding
notes, if the exchange offer would otherwise expire during this period.
PROCEDURES FOR TENDERING
To tender in the exchange offer, you must complete, sign and date an
original or facsimile letter of transmittal, have the signatures thereon
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver the letter of transmittal to the exchange agent prior to the expiration
date of the exchange offer. You may also tender your outstanding notes by means
of DTC's Automated Tenders Over the Participant Terminal
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System, or ATOP, subject to the terms and procedures of that system. If delivery
is made through ATOP, you must transmit an agent's message to the exchange agent
account at DTC. The term "agent's message" means a message, transmitted to DTC
and received by the exchange agent and forming a part of a book-entry transfer,
that states that DTC has received an express acknowledgement that you agree to
be bound by the letter of transmittal and that we may enforce the letter of
transmittal against you. In addition, either:
- certificates for the outstanding notes must be received by the exchange
agent, along with the letter of transmittal; or
- a timely confirmation of transfer by book-entry of those outstanding
notes, if the book-entry procedure is available, into the exchange
agent's account at DTC, as set forth in the procedure for book-entry
transfer described below, which the exchange agent must receive prior to
the expiration date of the exchange offer; or
- you must comply with the guaranteed delivery procedures described below.
To be tendered effectively, the exchange agent must receive the letter of
transmittal and other required documents at the address set forth below under
"--Exchange Agent" prior to the expiration of the exchange offer.
If you tender your outstanding notes and do not withdraw them prior to the
expiration date of the exchange offer, you will be deemed to have an agreement
with us in accordance with the terms and subject to the conditions set forth in
this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR RISK. INSTEAD
OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE OF
THE EXCHANGE OFFER. NO LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT
TO PENTON. YOU MAY REQUEST YOUR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR YOU.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company, or other nominee and who
wishes to tender its outstanding notes should contact the registered holder
promptly and instruct that registered holder to tender the outstanding notes on
the beneficial owner's behalf. If the beneficial owner wishes to tender its
outstanding notes on the owner's own behalf, that owner must, prior to
completing and executing the letter of transmittal and delivering its
outstanding notes, either make appropriate arrangements to register ownership of
the outstanding notes in that owner's name or obtain a properly completed
assignment from the registered holder. The transfer of registered ownership of
outstanding notes may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an eligible institution unless the
outstanding notes tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Payment Instructions" or "Special Delivery Instructions" on the letter of
transmittal; or
- for the account of an eligible institution.
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, each of the
following is deemed an eligible institution:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank;
- a trust company having an office or correspondent in the United States;
or
- eligible guarantor institution as provided by Rule 17Ad-15 of the
Exchange Act.
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If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes, the outstanding notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as his, her or its name appears on the outstanding notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any outstanding notes or bond power,
those persons should so indicate when signing, and unless we waive evidence
satisfactory to us of their authority to so act must be submitted with the
Letter of Transmittal.
We will determine all questions as to the validity, form, eligibility,
including time of receipt, acceptance of tendered outstanding notes, and
withdrawal of tendered outstanding notes, in its sole discretion. All of these
determinations by us will be final and binding. We reserve the absolute right to
reject any and all outstanding notes not properly tendered or any outstanding
notes our acceptance of which would, in the opinion of our counsel, be unlawful.
We also reserve the right to waive any defects, irregularities or conditions of
tender as to particular outstanding notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the letter of
transmittal will be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of outstanding notes must be cured
within the time we determine. Although we intend to notify holders of
outstanding notes of defects or irregularities with respect to tenders of
outstanding notes, neither we, nor the exchange agent, or any other person will
incur any liability for failure to give this notification. Tenders of
outstanding notes will not be deemed to have been made until defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders of outstanding notes, unless otherwise provided
in the letter of transmittal, as soon as practicable following the expiration
date of the exchange offer.
In addition, we reserve the right, in our sole discretion, to purchase or
make offers for any outstanding notes that remain outstanding subsequent to the
expiration date of the exchange offer or, as set forth above under
"--Conditions," to terminate the exchange offer and, to the extent permitted by
applicable law and the terms of its agreements relating to its outstanding
indebtedness, purchase outstanding notes in the open market, in privately
negotiated transactions or otherwise. The terms of any purchases or offers could
differ from the terms of the exchange offer.
If the holder of outstanding notes is a broker-dealer participating in the
exchange offer that will receive exchange notes for its own account in exchange
for outstanding notes that were acquired as a result of market-making activities
or other trading activities, that broker-dealer will be required to acknowledge
in the letter of transmittal that it will deliver a prospectus in connection
with any resale of the exchange notes and otherwise agree to comply with the
procedures described above under "--Resale of the Exchange Notes." That broker-
dealer, however, by so acknowledging and delivering a prospectus, that
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
In all cases, issuance of exchange notes pursuant to the exchange offer
will be made only after timely receipt by the exchange agent of certificates for
the outstanding notes or a timely confirmation of book-entry transfer of
outstanding notes into the exchange agent's account at DTC, a properly completed
and duly executed letter of transmittal, and all other required documents. If
any tendered outstanding notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if outstanding notes are submitted
for a greater principal amount of outstanding notes than the holder of
outstanding notes desires to exchange, the unaccepted or portion of
non-exchanged outstanding notes will be returned as promptly as practicable
after the expiration or termination of the exchange offer, or, in the case of
outstanding notes tendered by book-entry transfer into the exchange agent's
account at DTC pursuant to the book-entry transfer procedures described below,
the unaccepted or portion of non-exchanged outstanding notes will be credited to
an account maintained with DTC, without expense to the tendering holder of
outstanding notes.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for the purposes of the exchange offer within
two business days after the date of this prospectus, and any
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financial institution that is a participant in DTC's systems may make book-entry
delivery of outstanding notes by causing DTC to transfer the outstanding notes
into the exchange agent's account at DTC in accordance with DTC's procedures for
transfer. However, although delivery of outstanding notes may be effected
through book-entry transfer at DTC, the letter of transmittal or facsimile
thereof, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the exchange
agent at the address set forth below under "--Exchange Agent" on or prior to the
expiration date of the exchange offer, unless the holder either (1) complies
with the guaranteed delivery procedures described below or (2) sends an agent's
message through ATOP.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and (1) whose
outstanding notes are not immediately available or (2) who cannot deliver their
outstanding notes, the letter of transmittal, or any other required documents to
the exchange agent prior to the expiration date, may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date of the exchange offer, the exchange agent
receives from such eligible institution a properly completed and duly
executed notice of guaranteed delivery, by facsimile transmission, mail
or hand delivery, setting forth the name and address of the holder, the
certificate number(s) of the outstanding notes and the principal amount
of outstanding notes tendered and stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date of the exchange offer, the letter
of transmittal, together with the certificate(s) representing the
outstanding notes in proper form for transfer or a confirmation of
book-entry transfer, as the case may be, and any other documents required
by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
- the exchange agent receives the properly completed and executed letter of
transmittal, as well as the certificate(s) representing all tendered
outstanding notes in proper form for transfer and other documents
required by the Letter of Transmittal within three New York Stock
Exchange trading days after the expiration date of the exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided, tenders of outstanding notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date of
the exchange offer.
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. Any such notice of withdrawal must
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered or
be accompanied by documents of transfer sufficient to have the exchange
agent register the transfer of the outstanding notes in the name of the
person withdrawing the tender; and
- specify the name in which any outstanding notes are to be registered, if
different from that of the person who deposited the outstanding notes to
be withdrawn.
We will determine all questions as to the validity, form, and eligibility
of the notices, whose determination will be final and binding on all parties.
Any outstanding notes so withdrawn will be deemed not to have been
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validly tendered for purposes of the exchange offer, and no exchange notes will
be issued with respect to those outstanding notes unless the outstanding notes
so withdrawn are validly retendered.
Any outstanding notes that have been tendered but that are not accepted for
payment will be returned to the holder of those outstanding notes, or in the
case of outstanding notes tendered by book-entry transfer, will be credited to
an account maintained with DTC, without cost to the holder as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn outstanding notes may be retendered by following one
of the procedures described above under "--Procedures for Tendering" at any time
prior to the expiration date of the exchange offer.
TERMINATION OF CERTAIN RIGHTS
All rights given to holders of outstanding notes under the registration
rights agreement will terminate upon the consummation of the exchange offer
except with respect to our duty:
- to keep the registration statement effective until the closing of the
exchange offer; and
- to provide copies of the latest version of this prospectus to any
broker-dealer that requests copies of this prospectus for use in
connection with any resale by that broker-dealer of exchange notes
received for its own account pursuant to the exchange offer in exchange
for outstanding notes acquired for its own account as a result of
market-making or other trading activities, subject to the conditions
described above under "--Resale of the Exchange Notes."
EXCHANGE AGENT
The Bank of New York has been appointed exchange agent for the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or the letter of transmittal, and requests for copies of the
notice of guaranteed delivery with respect to the outstanding notes should be
addressed to the exchange agent as follows:
By Hand or Overnight Courier:
The Bank of New York
20 Broad Street
New York, New York 10286
Reorganization Department
Attention: Carolle Montreuil
By Registered or Certified Mail:
The Bank of New York
20 Broad Street
New York, New York 10286
Reorganization Department
Attention: Carolle Montreuil
By Telephone (to confirm receipt of facsimile): (914) 773-5735
By Facsimile (for Eligible Institutions only): (914) 773-5015
FEES AND EXPENSES
We will pay the expenses of soliciting tenders in connection with the
exchange offer. The principal solicitation is being made by mail; however,
additional solicitation may be made by telecopier, telephone, or in person by
officers and regular employees of ours and our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection with the exchange
offer.
We estimate that our cash expenses in connection with the exchange offer
will be approximately $0.3 million. These expenses include registration fees,
fees and expenses of the exchange agent, accounting and legal fees, and printing
costs, among others.
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We will pay all transfer taxes, if any, applicable to the exchange of the
outstanding notes for exchange notes. The tendering holder of outstanding notes,
however, will pay applicable taxes if certificates representing outstanding
notes not tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of
outstanding notes tendered, or:
- if tendered, the certificates representing outstanding notes are
registered in the name of any person other than the person signing the
letter of transmittal; or
- if a transfer tax is imposed for any reason other than the exchange of
the outstanding notes in the exchange offer.
If satisfactory evidence of payment of the transfer taxes or exemption from
payment of transfer taxes is not submitted with the letter of transmittal, the
amount of the transfer taxes will be billed directly to the tendering holder and
the exchange notes need not be delivered until the transfer taxes are paid.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. Holders of the
outstanding notes are urged to consult their financial and tax advisors in
making their own decisions on what action to take.
Outstanding notes that are not exchanged for the exchange notes in the
exchange offer will not retain any rights under the registration rights
agreement and will remain restricted securities for purposes of the federal
securities laws. Accordingly, the outstanding notes may not be offered, sold,
pledged, or otherwise transferred except:
- to us or any of our subsidiaries;
- to a "qualified institutional buyer" within the meaning of Rule 144A
under the Securities Act purchasing for its own account or for the
account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A;
- pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder, if available;
- pursuant to an exemption from registration under the Securities Act
provided by Rule 904 thereunder, if available; or
- pursuant to an effective registration statement under the Securities Act,
and, in each case, in accordance with all other applicable securities
laws.
ACCOUNTING TREATMENT
For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer. The exchange notes will be recorded at the same carrying
value as the outstanding notes, as reflected in our accounting records on the
date of the exchange. The expenses of the exchange offer will be amortized over
the remaining term of the exchange notes.
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DESCRIPTION OF NOTES
The outstanding notes were, and the exchange notes will be, issued pursuant
to an indenture (the "Indenture") dated as of June 28, 2001, by and among the
Company, the Guarantors and The Bank of New York, as trustee (the "Trustee").
The following summaries of certain provisions of the Indenture are
summaries only, do not purport to be complete and are qualified in their
entirety by reference to all of the provisions of the Indenture.
You can find the definitions of certain capitalized terms in this section
under the subheading "--Certain Definitions." For purposes of this section,
references to "Company" or "we," "our," or "us" include only Penton Media, Inc.
and its successors in accordance with the terms of the Indenture and, except
pursuant to the terms of the guarantees, not its Subsidiaries, and all
references to "the notes" include the outstanding notes and the exchange notes.
The terms of the notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended. The notes are subject to all such terms, and holders of notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following description is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
a holder of the notes.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes will be:
- our unsecured general obligations;
- ranked junior in right of payment with all of our existing and future
Senior Debt;
- ranked senior in right of payment to all of our existing and future
Subordinated Indebtedness; and
- unconditionally guaranteed by the Guarantors.
The notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof.
The term "Subsidiaries" as used in this "Description of Notes" does not
include Unrestricted Subsidiaries. As of the date of the Indenture, none of our
Subsidiaries will be Unrestricted Subsidiaries. However, under certain
circumstances, we will be able to designate current or future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to the
restrictive covenants set forth in the Indenture.
THE GUARANTEES
The notes will be jointly and severally irrevocably and unconditionally
guaranteed (the "guarantees") on a senior subordinated basis by each of our
present and future Subsidiaries, other than our Foreign Subsidiaries (the
"Guarantors"). The obligations of each Guarantor under its guarantee, however,
will be limited in a manner intended to avoid it being deemed a fraudulent
conveyance under applicable law. See "--Certain Bankruptcy Limitations" below.
PRINCIPAL MATURITY AND INTEREST
We will issue notes with a maximum aggregate principal amount of $185.0
million. The Indenture provides, in addition to the $185.0 million aggregate
principal amount of notes being issued in the exchange offer, for the issuance
of additional notes having identical terms and conditions to the notes offered
hereby (the "Additional Notes"), subject to compliance with the terms of the
Indenture, including the covenant "--Limitation on Incurrence of Additional
Indebtedness." Interest will accrue on the Additional Notes issued pursuant to
the
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Indenture from and including the date of issuance of such Additional Notes. Any
such Additional Notes will be issued on the same terms as the notes and will
constitute part of the same series of securities as the notes and will vote
together as one series on all matters with respect to the notes. All references
to the notes herein includes the Additional Notes.
The notes will mature on June 15, 2011. The notes will bear interest at the
rate per annum stated on the cover page hereof from the date of issuance or from
the most recent date to which interest has been paid or provided for (the
"Interest Payment Date"), payable semi-annually in arrears on June 15 and
December 15 of each year, commencing December 15, 2001 to the Persons in whose
names such notes are registered at the close of business on the June 1 or
December 1 immediately preceding such Interest Payment Date. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
Principal of, premium, if any, and interest (and Liquidated Damages, if
any) on the notes will be payable, and the notes may be presented for
registration of transfer or exchange, at our office or agency maintained for
such purpose, which office or agency shall be maintained in the Borough of
Manhattan, The City of New York. Except as set forth below, at our option,
payment of interest may be made by check mailed to the holders of the notes (the
"Holders") at the addresses set forth upon our registry books. No service charge
will be made for any registration of transfer or exchange of notes, but we may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Until otherwise designated by us, our
office or agency will be the corporate trust office of the Trustee presently
located at the office of the Trustee in the Borough of Manhattan, The City of
New York.
SUBORDINATION
The notes and the guarantees will be our and the Guarantors' general,
unsecured obligations, respectively, contractually subordinated in right of
payment to all of our Senior Debt and the Senior Debt of the Guarantors, as
applicable. This effectively means that holders of Senior Debt must be paid in
full before any amounts are paid to the Holders of the notes in the event we
become bankrupt or are liquidated and that holders of Senior Debt can block
payments to the Holders of the notes in the event of a default by us on such
Senior Debt, all as more fully described below.
As of June 30, 2001, we had outstanding an aggregate of approximately
$207.3 million of Senior Debt, all of which Indebtedness is secured, and no
Indebtedness that ranks equal or junior to the notes in right of payment.
The rights of Holders will be subordinated by operation of law to all
existing and future indebtedness and preferred stock of our subsidiaries that
are not Guarantors which as of June 30, 2001 would have been $3.5 million.
We may not and the Guarantors may not, make payment (by set-off or
otherwise), as applicable, on account of the principal of, premium, if any, or
interest (or Liquidated Damages, if any) on, the notes, or on account of the
redemption provisions of the notes (including any repurchases of notes), for
cash or property (other than Junior Securities):
(1) upon the maturity of any of our Senior Debt or any Senior Debt of such
Guarantor, as applicable, by lapse of time, acceleration (unless waived) or
otherwise, unless and until all Obligations on such Senior Debt are first paid
in full in cash or Cash Equivalents or otherwise to the extent holders accept
satisfaction of amounts due by settlement in other than cash or Cash
Equivalents; or
(2) in the event of default in the payment of any Obligations on our Senior
Debt or Senior Debt of such Guarantor, as applicable, when it becomes due and
payable, whether at maturity or at a date fixed for prepayment or by declaration
or otherwise (a "Payment Default"), unless and until such Payment Default has
been cured or waived or otherwise has ceased to exist.
Upon (1) the happening of an event of default other than a Payment Default
that permits the holders of Senior Debt to declare such Senior Debt to be due
and payable and (2) written notice of such event of default
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given to us and the Trustee by (a) the representative under the Credit
Agreement, so long as the Credit Agreement is in full force and effect, and (b)
at any time after the Credit Agreement is no longer in full force and effect,
the holders of an aggregate of at least $25.0 million principal amount
outstanding of any other Senior Debt or their representative (a "Payment
Notice"), then, unless and until such event of default has been cured or waived
or otherwise has ceased to exist, no payment (by set-off or otherwise) may be
made by us or on our behalf or by or on behalf of any Guarantor which is an
obligor under such Senior Debt on account of the principal of, premium, if any,
or interest (or Liquidated Damages, if any) on, the notes (including any
repurchases of any of the notes), or on account of the redemption provisions of
the notes, in any such case, other than payments made with Junior Securities.
Notwithstanding the foregoing, unless the Senior Debt in respect of which such
event of default exists has been declared due and payable in its entirety within
179 days after the Payment Notice is delivered as set forth above (the "Payment
Blockage Period") (and such declaration has not been rescinded or waived), at
the end of the Payment Blockage Period, we shall and the Guarantors shall be
required to pay all sums not previously paid to the Holders of the notes during
the Payment Blockage Period due to the foregoing prohibitions and to resume all
other payments as and when due on the notes.
Any number of Payment Notices may be given; provided, however, that:
(1) not more than one Payment Notice shall be given within a period of any
360 consecutive days; and
(2) no non-payment default that existed upon the date of such Payment
Notice or the commencement of such Payment Blockage Period (whether or not such
event of default is on the same issue of Senior Debt) shall be made the basis
for the commencement of any other Payment Blockage Period (it being acknowledged
that any subsequent action, or any subsequent breach of any financial covenant
for a period commencing after the expiration of such Payment Blockage Period
that, in either case, would give rise to a new event of default, even though it
is an event that would also have been a separate breach pursuant to any
provision under which a prior event of default previously existed, shall
constitute a new event of default for this purpose).
Upon any distribution of our assets or any Guarantor's assets upon any
dissolution, winding up, total or partial liquidation or reorganization of us or
a Guarantor, whether voluntary or involuntary, in bankruptcy, insolvency,
receivership or a similar proceeding or upon assignment for the benefit of
creditors or any marshalling of assets or liabilities:
(1) the holders of all of our or such Guarantor's Senior Debt, as
applicable, will first be entitled to receive payment in full in cash or Cash
Equivalents or otherwise to the extent holders accept satisfaction of amounts
due by settlement in other than cash or Cash Equivalents before the Holders are
entitled to receive any payment on account of the principal of, premium, if any,
and interest (or Liquidated Damages, if any) on, the notes (other than Junior
Securities); and
(2) any payment or distribution of our or such Guarantor's assets of any
kind or character from any source, whether in cash, property or securities
(other than Junior Securities) to which the Holders or the Trustee on behalf of
the Holders would be entitled (by set-off or otherwise), except for the
subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other Person making such a payment or
distribution directly to the holders of such Senior Debt or their representative
to the extent necessary to make payment in full on all such Senior Debt
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or
distribution of our or any Guarantor's assets (other than Junior Securities)
shall be received by the Trustee or the Holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the Trustee or such Holders, as
the case may be, to the holders of such Senior Debt remaining unpaid or
unprovided for or to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Debt may have been issued, ratably according to the aggregate
principal amounts remaining unpaid on account of such Senior Debt held or
represented by each, for application to the payment of all such Senior Debt
remaining unpaid, to the extent necessary to pay or to provide for the payment
of all such Senior Debt in full in cash or Cash Equivalents or otherwise to the
extent holders accept satisfaction of amounts due by
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settlement in other than cash or Cash Equivalents after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt.
No provision contained in the Indenture or the notes will affect our
obligation or the obligation of the Guarantors, which is absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest
(and Liquidated Damages, if any) on, the notes. The subordination provisions of
the Indenture and the notes will not prevent the occurrence of any Default or
Event of Default under the Indenture or limit the rights of the Trustee or any
Holder to pursue any other rights or remedies with respect to the notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of our creditors or a marshalling of
our assets and liabilities, Holders of the notes may receive ratably less than
other creditors.
CERTAIN BANKRUPTCY LIMITATIONS
We conduct a significant portion of our operations through our
subsidiaries. Accordingly, our ability to meet our cash obligations is partially
dependent upon the ability of our subsidiaries to make cash distributions to us.
Furthermore, any right we have to receive the assets of any such subsidiary upon
such subsidiary's liquidation or reorganization (and the consequent right of the
Holders of the notes to participate in the distribution of the proceeds of those
assets) effectively will be subordinated by operation of law to the claims of
such subsidiary's creditors (including trade creditors) and holders of its
preferred stock, except to the extent that we are recognized as a creditor or
preferred stockholder of such subsidiary, in which case our claims would still
be subordinate to any indebtedness or preferred stock of such subsidiary senior
in right of payment to that held by us.
Holders of the notes will be direct creditors of each Guarantor by virtue
of its guarantee. Our Foreign Subsidiaries will not guarantee the notes.
Nonetheless, in the event of the bankruptcy or financial difficulty of a
Guarantor, such Guarantor's obligations under its guarantee may be subject to
review and avoidance under state and federal fraudulent transfer laws. Among
other things, such obligations may be avoided if a court concludes that such
obligations were incurred for less than reasonably equivalent value or fair
consideration at a time when the Guarantor was insolvent, was rendered
insolvent, or was left with inadequate capital to conduct its business. A court
would likely conclude that a Guarantor did not receive reasonably equivalent
value or fair consideration to the extent that the aggregate amount of its
liability on its guarantee exceeds the economic benefits it receives in the
Offering. The obligations of each Guarantor under its guarantee will be limited
in a manner intended to cause it not to be a fraudulent conveyance under
applicable law, although no assurance can be given that a court would give the
Holder the benefit of such provision. See "Risk Factors--Under some
circumstances, a court could cancel the subsidiary guarantees."
If the obligations of a Guarantor under its guarantee were avoided, Holders
of notes would have to look to the assets of any remaining Guarantors for
payment. There can be no assurance in that event that such assets would suffice
to pay the outstanding principal and interest on the notes.
OPTIONAL REDEMPTION
We will not have the right to redeem any notes prior to June 15, 2006
(other than out of the Net Cash Proceeds of any Public Equity Offering of our
common stock, as described below).
At any time on or after June 15, 2006, we may redeem the notes for cash at
our option, in whole or in part, upon not less than 30 days nor more than 60
days notice to each Holder of notes, at the following redemption prices
(expressed as percentages of the principal amount) if redeemed during the
twelve-month period
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commencing June 15 of the years indicated below, in each case together with
accrued and unpaid interest and Liquidated Damages, if any, thereon to the date
of redemption of the notes ("Redemption Date"):
<Table>
<Caption>
YEAR PERCENTAGE
---- ----------
2006............................................ 105.188%
2007............................................ 103.458%
2008............................................ 101.729%
2009 and thereafter............................. 100.000%
</Table>
At any time prior to June 15, 2004, upon any Public Equity Offering, up to
35% of the aggregate principal amount of the notes issued pursuant to the
Indenture may be redeemed at our option within 90 days of such Public Equity
Offering, on not less than 30 days, but not more than 60 days, notice to each
Holder of the notes to be redeemed, with cash received by us from the Net Cash
Proceeds of such Public Equity Offering, at a redemption price equal to 110.375%
of the principal amount thereof, together with accrued and unpaid interest and
Liquidated Damages, if any, thereon to the Redemption Date; provided, however,
that immediately following such redemption not less than 65% of the aggregate
principal amount of the notes originally issued pursuant to the Indenture on the
Issue Date remain outstanding.
If the Redemption Date hereunder is on or after an interest record date
("Record Date") on which the Holders of record have a right to receive the
corresponding Interest due and Liquidated Damages, if any, and is on or before
the associated Interest Payment Date, any accrued and unpaid interest and
Liquidated Damages, if any, due on such Interest Payment Date will be paid to
the Person in whose name a note is registered at the close of business on such
Record Date on the corresponding Interest Payment Date.
MANDATORY REDEMPTION
The notes will not have the benefit of any sinking fund and we will not be
required to make any mandatory redemption payments with respect to the notes.
SELECTION AND NOTICE
In the case of a partial redemption, the Trustee shall select the notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The notes may be redeemed in part in
multiples of $1,000 only.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each note to be redeemed to such Holder's last address as then shown
upon the registry books of our registrar. Any notice which relates to a note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such note, a new note or notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the notes or portions
thereof called for redemption, unless we default in the payment thereof.
CERTAIN COVENANTS
The Indenture contains certain covenants that will, among other things,
restrict our ability to borrow money, pay dividends on or repurchase capital
stock, make investments and sell assets or enter into mergers or consolidations.
The following summary of certain covenants of the Indenture are summaries only,
do not purport to be complete and are qualified in their entirety by reference
to all of the provisions of the Indenture. We urge you to read the Indenture
because it, and not this description, details your rights as a holder of the
notes.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of notes will have the right, at such Holder's option,
pursuant to an offer (subject only to conditions required by applicable law, if
any) by us (the "Change of Control Offer"), to require us to repurchase all or
any part of such Holder's
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notes (provided, that the principal amount of such notes must be $1,000 or an
integral multiple thereof) on a date (the "Change of Control Purchase Date")
that is no later than 35 Business Days after the occurrence of such Change of
Control, at a cash price equal to 101% of the principal amount thereof (the
"Change of Control Purchase Price"), together with accrued and unpaid interest
and Liquidated Damages, if any, to the Change of Control Purchase Date.
The Change of Control Offer shall be made within 10 Business Days following
a Change of Control and shall remain open for 20 Business Days following its
commencement (the "Change of Control Offer Period"). Upon expiration of the
Change of Control Offer Period, we shall promptly purchase all notes properly
tendered in response to the Change of Control Offer.
As used herein, a "Change of Control" means:
(1) any sale, transfer, conveyance or other disposition (other than by way
of merger or consolidation) of all or substantially all of our assets, on a
consolidated basis, in one transaction or a series of related transactions, to
any "person" (including any group that is deemed to be a "person");
(2) the consummation of any transaction, including, without limitation, any
merger or consolidation, whereby any "person" (including any group that is
deemed to be a "person") is or becomes the "beneficial owner," directly or
indirectly, of more than 35% of the aggregate Voting Equity Interests of the
surviving entity or entities;
(3) the Continuing Directors cease for any reason to constitute a majority
of our Board of Directors then in office; or
(4) we adopt a plan of liquidation.
As used in this covenant, "person" (including any group that is deemed to
be a "person" has the meaning given by Section 13(d) of the Exchange Act,
whether or not applicable.
Notwithstanding the foregoing, we will not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by us, including any requirements to repay in full all Indebtedness under
the Credit Agreement, any such Senior Debt or Senior Debt of any Guarantor or
obtains the consents of such lenders to such Change of Control Offer as set
forth in the following paragraph of this section, and purchases all notes
validly tendered and not withdrawn under such Change of Control Offer.
The Indenture provides that, prior to the commencement of a Change of
Control Offer, but in any event within 30 days following any Change of Control,
we will:
(1)(a) repay in full, and terminate all commitments under, all Indebtedness
under the Credit Agreement and all other Senior Debt the terms of which require
repayment upon a Change of Control or (b) offer to repay in full, and terminate
all commitments under, all Indebtedness under the Credit Agreement and all such
other Senior Debt and repay the Indebtedness owed to each lender that has
accepted such offer in full; or
(2) obtain the requisite consents under the Credit Agreement and all such
other Senior Debt to permit the repurchase of the notes as provided herein.
Our failure to comply with the preceding sentence shall constitute an Event
of Default described in clause (3) under "--Events of Default and Remedies"
below, but without giving effect to the stated exceptions in such clause.
The occurrence of certain events that would constitute a Change of Control
would also constitute a default under the Credit Agreement. Future Senior Debt
of the Company or any of its Subsidiaries may also contain prohibitions of, or
defaults by virtue of, certain events that would constitute a Change of Control
or require such Senior Debt to be repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the notes could cause a default under such Senior Debt, even if the
Change of Control itself did not, due to the financial effect of such repurchase
on the Company, which could cause an
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acceleration of such Senior Debt and a foreclosure with respect to any
collateral securing it in the event such Senior Debt was not paid. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited by
the Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
purchases. Even if sufficient funds were otherwise available, the terms of the
Credit Agreement will (and other Senior Debt may) prohibit the Company's
repurchase of the notes prior to their scheduled maturity. Consequently, if the
Company is not able to prepay Indebtedness under the Credit Agreement and any
other Senior Debt containing similar restrictions or obtain requisite consents,
as described above, the Company will be unable to fulfill its repurchase
obligations if Holders of the notes exercise their repurchase rights following a
Change of Control, thereby resulting in a default under the Indenture.
On or before the Change of Control Purchase Date, we will:
(1) accept for payment notes or portions thereof properly tendered pursuant
to the Change of Control Offer;
(2) deposit with the paying agent for us (the "Paying Agent") cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any) of all notes so tendered;
and
(3) deliver to the Trustee the notes so accepted together with an Officers'
Certificate listing the notes or portions thereof being purchased by us.
The Paying Agent promptly will pay the Holders of notes so accepted an
amount equal to the Change of Control Purchase Price (together with accrued and
unpaid interest and Liquidated Damages, if any) and the Trustee promptly will
authenticate and deliver to such Holders a new note equal in principal amount to
any unpurchased portion of the note surrendered. Any notes not so accepted will
be delivered promptly by us to the Holder thereof. We publicly will announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date.
The Change of Control purchase feature of the notes may make more difficult
or discourage a takeover of us, and, thus, the removal of incumbent management.
The phrase "all or substantially all" of our assets will likely be
interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of our
assets has occurred. In addition, no assurances can be given that we will be
able to acquire notes tendered upon the occurrence of a Change of Control.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and all other applicable Federal and state securities laws. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions of this covenant, our compliance or compliance by any of the
Guarantors with such laws and regulations shall not in and of itself cause a
breach of their obligations under such covenant.
If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and is on or before the associated Interest Payment Date,
any accrued and unpaid interest (and Liquidated Damages, if any) due on such
Interest Payment Date will be paid to the Person in whose name a note is
registered at the close of business on such Record Date on the corresponding
Interest Payment Date.
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS
The Indenture provides that, except as set forth in this covenant, we will
not and the Guarantors will not, and neither we nor the Guarantors will permit
any of our Subsidiaries to, directly or indirectly, issue, assume, guaranty,
incur, become directly or indirectly liable with respect to (including as a
result of an Acquisition), or otherwise become responsible for, contingently or
otherwise (individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Indebtedness (including Disqualified Capital Stock and
Acquired Indebtedness), other than Permitted Indebtedness.
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Notwithstanding the foregoing if:
(1) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
incurrence of Indebtedness; and
(2) on the date of such incurrence (the "Incurrence Date"), our Leverage
Ratio for the Reference Period immediately preceding the Incurrence Date, after
giving effect on a pro forma basis to such incurrence of such Indebtedness and,
to the extent set forth in the definition of Leverage Ratio, the use of proceeds
thereof, would be less than 5.0 to 1.0 (the "Debt Incurrence Ratio"),
then we and our Subsidiaries may incur such Indebtedness (including Disqualified
Capital Stock).
In addition, the foregoing limitations of the first paragraph of this
covenant will not prohibit:
(a) if no Event of Default shall have occurred and be continuing, our
incurrence or the incurrence by any Guarantor of Indebtedness in an aggregate
amount incurred and outstanding at any time pursuant to this paragraph (a) (plus
any Refinancing Indebtedness incurred to retire, defease, refinance, replace or
refund such Indebtedness) of up to $20.0 million; and
(b) our incurrence or the incurrence by any Guarantor of Indebtedness
pursuant to the Credit Agreement in an aggregate amount incurred and outstanding
at any time pursuant to this paragraph (b) (plus any Refinancing Indebtedness
incurred to retire, defease, refinance, replace or refund such Indebtedness) of
up to $330.0 million, minus the amount of any such Indebtedness (1) retired with
the Net Cash Proceeds from any Asset Sale applied to permanently reduce the
outstanding amounts or the commitments with respect to such Indebtedness
pursuant to clause (1)(b)(ii) of the first paragraph of the covenant
"--Limitation on Sale of Assets and Subsidiary Stock" or (2) assumed by a
transferee in an Asset Sale so long as neither the Company nor such Guarantor
continues to be an obligor under such Indebtedness.
Indebtedness (including Disqualified Capital Stock) of any Person which is
outstanding at the time such Person becomes one of our Subsidiaries (including
upon designation of any subsidiary or other Person as a Subsidiary) or is merged
with or into or consolidated with us or one of our Subsidiaries shall be deemed
to have been incurred at the time such Person becomes or is designated one of
our Subsidiaries or is merged with or into or consolidated with us or one of our
Subsidiaries as applicable.
Notwithstanding any other provision of this covenant, but only to avoid
duplication, a guarantee of our Indebtedness or of the Indebtedness of another
Guarantor incurred in accordance with the terms of the Indenture issued at the
time such Indebtedness was incurred or if later at the time the guarantor
thereof became one of our Subsidiaries will not constitute a separate
incurrence, or amount outstanding, of Indebtedness. Upon each incurrence we may
designate pursuant to which provision of this covenant such Indebtedness is
being incurred and we may subdivide an amount of Indebtedness and designate more
than one provision pursuant to which such amount of Indebtedness is being
incurred and such Indebtedness shall not be deemed to have been incurred or
outstanding under any other provision of this covenant, except as stated
otherwise in the foregoing provisions.
LIMITATION ON RESTRICTED PAYMENTS
The Indenture provides that we will not and the Guarantors will not, and
neither we nor the Guarantors will permit any of our Subsidiaries to, directly
or indirectly, make any Restricted Payment if, after giving effect to such
Restricted Payment on a pro forma basis:
(1) a Default or an Event of Default shall have occurred and be continuing;
(2) we are not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in the covenant "--Limitation on
Incurrence of Additional Indebtedness;" or
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(3) the aggregate amount of all Restricted Payments made by us and our
Subsidiaries, including after giving effect to such proposed Restricted Payment,
on and after the Issue Date, would exceed, without duplication, the sum of:
(a) $15.0 million; plus
(b) 50% of our aggregate Consolidated Net Income for the period (taken as
one accounting period), commencing on the first day of the first full fiscal
quarter commencing after the Issue Date, to and including the last day of the
fiscal quarter ended immediately prior to the date of each such calculation for
which our consolidated financial statements are required to be delivered to the
Trustee or, if sooner, filed with the Securities and Exchange Commission (the
"SEC") (or, in the event Consolidated Net Income for such period is a deficit,
then minus 100% of such deficit); plus
(c) the aggregate amount of Net Cash Proceeds received by us (1) from the
issuance and sale of (A) our Qualified Capital Stock, (B) other Indebtedness of
ours convertible into or exchangeable for our Qualified Capital Stock upon the
conversion or exchange of such Indebtedness into our Qualified Capital Stock, or
(C) options, warrants or other rights to acquire our Qualified Capital Stock
(exclusive of any options, warrants or other rights that are redeemable at the
option of the holder, or are required to be redeemed, prior to the Stated
Maturity of the notes), or (2) upon the exercise of options, warrants or other
rights to acquire our Qualified Capital Stock, and, in each case, other than (i)
to one of our Subsidiaries and (ii) to the extent applied in connection with a
Qualified Exchange or, to avoid duplication, otherwise given credit for in any
provision of paragraph (d) below), after the Issue Date; plus
(d) except in each case, in order to avoid duplication, to the extent any
such payment or proceeds have been included in the calculation of Consolidated
Net Income, an amount equal to the net reduction in Investments (other than
returns of or from Permitted Investments) in any Person resulting from
distributions on or repayments of any Investments, including payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
distributions or other transfers of assets, in each case to the Company or any
Subsidiary, or from the Net Cash Proceeds from the sale of any such Investment
or from redesignations of Unrestricted Subsidiaries as Subsidiaries (valued in
each case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by the Company or any
Subsidiary in such Person, including, if applicable, such Unrestricted
Subsidiary, less the cost of disposition.
The foregoing clauses (2) and (3) of the immediately preceding paragraph,
however, will not prohibit:
(u) the declaration and payment of cash dividends by us on our common stock
and repurchases by us of shares of our issued and outstanding common stock;
provided, that, in each such case under this clause (u), the aggregate sum paid
in any fiscal year pursuant hereto shall not exceed $5.0 million;
and the provisions of the immediately preceding paragraph will not prohibit:
(v) the payment of any dividend or distribution on any Disqualified Capital
Stock that the Company or any Guarantor is permitted to issue pursuant to the
terms of the covenant "--Limitation on Incurrence of Additional Indebtedness;"
(w) any dividend, distribution or other payments by any of our Subsidiaries
on its Equity Interests that is paid pro rata to all holders of such Equity
Interests;
(x) a Qualified Exchange;
(y) the payment of any dividend on Qualified Capital Stock within 60 days
after the date of its declaration if such dividend could have been made on the
date of such declaration in compliance with the foregoing provisions; or
(z) any payment in respect of Permitted Earn-Out Obligations.
The full amount of any Restricted Payment made pursuant to the foregoing
clauses (u), (v), (w) and (y) (but not pursuant to clause (x) or (z)) of the
immediately preceding sentence, however, will be counted as Restricted
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Payments made for purposes of the calculation of the aggregate amount of
Restricted Payments available to be made referred to in clause (3) of the first
paragraph under the heading "--Limitation on Restricted Payments."
For purposes of this covenant, the amount of any Restricted Payment made or
returned, if other than in cash, shall be the fair market value thereof, as
determined in the good faith reasonable judgment of our Board of Directors,
unless stated otherwise, at the time made or returned, as applicable.
Additionally, (a) concurrently with each Restricted Payment in excess of $15.0
million and (b) on February 15 of each year (or if such day is not a Business
Day, the next succeeding Business Day) with respect to all Restricted Payments
made during the preceding 12-month period and not previously reported pursuant
to clause (a) of this paragraph, we shall deliver an Officers' Certificate to
the Trustee describing in reasonable detail the nature of such Restricted
Payment, stating that the Restricted Payment is permitted and setting forth the
basis upon which the calculations required by this covenant were computed.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that we will not and the Guarantors will not, and
neither we nor the Guarantors will permit any of our Subsidiaries to, directly
or indirectly, create, assume or suffer to exist any consensual restriction on
the ability of any of our Subsidiaries to pay dividends or make other
distributions to or on behalf of, or to pay any obligation to or on behalf of,
or otherwise to transfer assets or property to or on behalf of, or to make or
pay loans or advances to or on behalf of, us or any of our Subsidiaries, except:
(1) restrictions imposed by the notes or the Indenture or by our other
Indebtedness (which may also be guaranteed by the Guarantors) ranking senior to
the notes or the guarantees, as applicable; provided, that such restrictions are
no more restrictive than those imposed by the Indenture and the notes;
(2) restrictions imposed by applicable law;
(3) existing restrictions under Existing Indebtedness;
(4) restrictions under any Acquired Indebtedness not incurred in violation
of the Indenture or any agreement (including any Equity Interest) relating to
any property, asset, or business acquired by us or any of our Subsidiaries,
which restrictions in each case existed at the time of acquisition, were not put
in place in connection with or in anticipation of such acquisition and are not
applicable to any Person, other than the Person acquired, or to any property,
asset or business, other than the property, assets and business so acquired;
(5) any restriction imposed by Indebtedness incurred under the Credit
Agreement pursuant to clause (b) of the covenant "--Limitation on Incurrence of
Additional Indebtedness;" provided, that such restriction or requirement is no
more restrictive than that imposed by the Credit Agreement as of the Issue Date;
(6) restrictions with respect solely to any of our Subsidiaries imposed
pursuant to a binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of
such Subsidiary; provided, that such restrictions apply solely to the Equity
Interests or assets of such Subsidiary which are being sold; and
(7) in connection with and pursuant to permitted Refinancings, replacements
of restrictions imposed pursuant to clauses (1), (3) or (4) or this clause (7)
of this paragraph that are not more restrictive than those being replaced and do
not apply to any other Person or assets than those that would have been covered
by the restrictions in the Indebtedness so refinanced.
Notwithstanding the foregoing, encumbrances or restrictions (a) that
restrict in a customary manner the subletting, assignment or transfer of any
property or asset that is the subject of any lease, license or similar contract
entered into in the ordinary course of business, or the assignment or transfer
of any lease, license or contract entered into in the ordinary course of
business, (b) by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Subsidiary not otherwise prohibited by the Indenture in respect of the assets
subject thereto, or (c) contained in security agreements or mortgages securing
Indebtedness to the extent such encumbrances or restrictions restrict the
transfer of the property subject to such security agreements or mortgages, may
be subject to customary restrictions on the transfer or disposition thereof
pursuant to such Lien.
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LIMITATIONS ON LAYERING INDEBTEDNESS
The Indenture provides that we will not and the Guarantors will not, and
neither we nor the Guarantors will permit any of our Subsidiaries to, directly
or indirectly, incur, or suffer to exist any Indebtedness that is contractually
subordinate in right of payment to any of our other Indebtedness or any other
Indebtedness of a Guarantor unless, by its terms, such Indebtedness is
contractually subordinate in right of payment to, or ranks pari passu with, the
notes or the guarantees, as applicable.
LIMITATION ON LIENS SECURING INDEBTEDNESS
We will not and the Guarantors will not, and neither we nor the Guarantors
will permit any of our Subsidiaries to, create, incur, assume or suffer to exist
any Lien of any kind, other than Permitted Liens, upon any of their respective
assets now owned or acquired on or after the date of the Indenture or upon any
income or profits therefrom securing any of our Indebtedness or any Indebtedness
of any Guarantor, unless we provide, and cause our Subsidiaries to provide,
concurrently therewith, that the notes and the applicable guarantees are equally
and ratably so secured; provided, that if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
contractually subordinate and junior to the Lien securing the notes (and any
related applicable guarantees) with the same relative priority as such
Subordinated Indebtedness shall have with respect to the notes (and any related
applicable guarantees).
LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Indenture provides that we will not and the Guarantors will not, and
neither we nor the Guarantors will permit any of our Subsidiaries to, in one or
a series of related transactions, convey, sell, lease, transfer, assign or
otherwise dispose of, directly or indirectly, any of their property, business or
assets, including by merger or consolidation (in the case of a Guarantor or one
of our Subsidiaries), and including any sale or other transfer or issuance of
any Equity Interests of any of our Subsidiaries, whether by us or one of our
Subsidiaries or through the issuance, sale or transfer of Equity Interests by
one of our Subsidiaries and including any sale and leaseback transaction (any of
the foregoing, an "Asset Sale"), unless:
(1) (a) the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are
applied within 365 days after the date of such Asset Sale to the extent not
applied in accordance with paragraph (b) below, to the:
(i) optional redemption of the notes in accordance with the terms of
the Indenture and our other Indebtedness ranking on a parity with the
notes and with similar provisions requiring us to redeem such
Indebtedness with the proceeds from such Asset Sale, pro rata in
proportion to the respective principal amounts (or accreted values in
the case of Indebtedness issued with an original issue discount) of the
notes and such other Indebtedness then outstanding; or
(ii) repurchase of the notes and such other Indebtedness ranking on a
parity with the notes and with similar provisions requiring us to make
an offer to purchase such Indebtedness with the proceeds from such Asset
Sale pursuant to a cash offer (subject only to conditions required by
applicable law, if any) (pro rata in proportion to the respective
principal amounts (or accreted values in the case of Indebtedness issued
with an original issue discount) of the notes and such other
Indebtedness then outstanding) (the "Asset Sale Offer") at a purchase
price of 100% of the principal amount (or accreted value in the case of
Indebtedness issued with an original issue discount) (the "Asset Sale
Offer Price") together with accrued and unpaid interest and Liquidated
Damages, if any, to the date of payment, made within 335 days of such
Asset Sale; or
(b) within 365 days following such Asset Sale, the Asset Sale Offer
Amount is:
(i) invested in fixed assets and property (other than notes, bonds,
obligations and securities, except in connection with the acquisition of
a Guarantor in a Related Business) which in the good faith reasonable
judgment of our Board of Directors will immediately constitute or be a
part of a Related Business of the Company or such Subsidiary (if it
continues to be a Subsidiary) immediately following such transaction; or
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(ii) used to retire Purchase Money Indebtedness secured by the asset
that was the subject of the Asset Sale or Senior Debt, the terms of
which require retirement upon such Asset Sale, on a pro rata basis, and
to permanently reduce (in the case of Senior Debt that is not such
Purchase Money Indebtedness) the amount of such Senior Debt outstanding
on the Issue Date or permitted pursuant to paragraphs (a) and (b) of the
covenant "--Limitation on Incurrence of Additional Indebtedness"
(including that in the case of a revolver or similar arrangement that
makes credit available, such commitment is so permanently reduced by
such amount),
except that, in the case of each of the provisions of clauses (a) and (b), only
proceeds from an Asset Sale of assets or capital stock of a Foreign Subsidiary
may be invested in or used to retire Indebtedness of a Foreign Subsidiary;
(2) at least 85% of the total consideration for such Asset Sale or series
of related Asset Sales consists of cash or Cash Equivalents;
(3) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect, on a pro forma basis, to, such
Asset Sale; and
(4) our Board of Directors determines in good faith that we receive or such
Subsidiary receives, as applicable, fair market value for such Asset Sale.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the Indenture.
The Indenture provides that an acquisition of notes pursuant to an Asset
Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset
Sales not applied as set forth in 1(a)(i) or 1(b) above (the "Excess Proceeds")
exceed $10.0 million and that each Asset Sale Offer shall remain open for 20
Business Days or such longer period as may be required by law following its
commencement (the "Asset Sale Offer Period").
Upon expiration of the Asset Sale Offer Period, we shall apply the Asset
Sale Offer Amount plus an amount equal to accrued and unpaid interest and
Liquidated Damages, if any, to the purchase of all Indebtedness properly
tendered in accordance with the provisions hereof (on a pro rata basis if the
Asset Sale Offer Amount is insufficient to purchase all Indebtedness so
tendered) at the Asset Sale Offer Price (together with accrued interest and
Liquidated Damages, if any). To the extent that the aggregate amount of notes
and such other pari passu Indebtedness tendered pursuant to an Asset Sale Offer
is less than the Asset Sale Offer Amount, we may use any remaining Net Cash
Proceeds for general corporate purposes as otherwise permitted by the Indenture
and following the consummation of each Asset Sale Offer the Excess Proceeds
amount shall be reset to zero. For purposes of (2) above, total consideration
received means the total consideration received for such Asset Sales minus the
amount of any (a) Indebtedness of the Company or any Subsidiary, other than
Subordinated Indebtedness, that is actually assumed by the transferee of assets
in such Asset Sale and from which the Company and the Subsidiaries are fully and
unconditionally released from any obligations in connection therewith and (b)
property that within 30 days of such Asset Sale is converted into cash or Cash
Equivalents; provided, that such cash and Cash Equivalents shall be treated as
Net Cash Proceeds attributable to the original Asset Sale for which such
property was received).
Notwithstanding, and without complying with, the provisions of this
covenant:
(1) we may and our Subsidiaries may, in the ordinary course of business,
(a) convey, sell, transfer, assign or otherwise dispose of inventory and other
assets acquired and held for resale in the ordinary course of business and (b)
liquidate Cash Equivalents;
(2) we may and our Subsidiaries may convey, sell, transfer, assign or
otherwise dispose of assets pursuant to and in accordance with the covenant
"--Limitation on Merger, Sale or Consolidation;"
(3) we may and our Subsidiaries may sell or dispose of damaged, worn out or
other obsolete personal property in the ordinary course of business so long as
such property is no longer necessary for the proper conduct of our business or
the business of such Subsidiary, as applicable;
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(4) we may and the Guarantors may convey, sell, lease, transfer, assign or
otherwise dispose of assets to us or any Guarantor;
(5) we may and our Subsidiaries may, in the ordinary course of business,
convey, sell, lease, transfer, assign, or otherwise dispose of assets (or
related assets in related transactions) with a fair market value of less than
$1.0 million;
(6) we may and each of our Subsidiaries may settle or release litigation
claims in the ordinary course of business or grant Liens thereon not prohibited
by the Indenture; and
(7) we may and our Guarantors may exchange assets held by us or such
Guarantors for assets held by any Person or entity; provided, that (a) at the
time of or when entering into any such exchange of assets and immediately after
giving effect thereto, no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, (b) the assets received by
us or such Guarantors in any such exchange in the good faith reasonable judgment
of our Board of Directors will immediately constitute, be a part of, or be used
in, a Related Business of the Company or such Guarantors, (c) our Board of
Directors has determined that the terms of any exchange are fair and reasonable,
(d) any such exchange shall be deemed to be an Asset Sale to the extent that we
or any of our Guarantors receives cash or Cash Equivalents in such exchange, and
(e) that, in the case of a transaction exceeding $10.0 million of consideration
to any party thereto, we shall have obtained a favorable written opinion by an
independent financial advisor of national reputation in the United States as to
the fairness from a financial point of view to us or such Guarantor of the
proposed transaction.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and all other applicable Federal and state securities laws. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this paragraph, our compliance or the compliance of any of our
Subsidiaries with such laws and regulations shall not in and of itself cause a
breach of our obligations under such covenant.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages,
if any) due on such Interest Payment Date will be paid to the Person in whose
name a note is registered at the close of business on such Record Date on the
corresponding Interest Payment Date.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that neither we nor any of our Subsidiaries will be
permitted on or after the Issue Date to enter into or suffer to exist any
contract, agreement, arrangement or transaction with any Affiliate (an
"Affiliate Transaction"), or any series of related Affiliate Transactions (other
than Exempted Affiliate Transactions), (1) unless it is determined that the
terms of such Affiliate Transaction are fair and reasonable to us, and no less
favorable to us than could have been obtained in an arm's length transaction
with a non-Affiliate, and (2) if involving consideration to either party in
excess of $1.0 million, unless such Affiliate Transaction(s) is evidenced by an
Officers' Certificate addressed and delivered to the Trustee certifying that
such Affiliate Transaction(s) has been approved by a majority of the members of
our Board of Directors that are disinterested in such transaction, if there are
any directors who are so disinterested, and (3) if involving consideration to
either party in excess of $10.0 million, unless in addition we, prior to the
consummation thereof, obtain a written favorable opinion as to the fairness of
such transaction to us from a financial point of view from an independent
investment banking firm of national reputation in the United States or, if
pertaining to a matter for which such investment banking firms do not
customarily render such opinions, an accounting, appraisal or valuation firm of
national reputation in the United States.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that we will not consolidate with or merge with or
into another Person or, directly or indirectly, sell, lease, convey or transfer
all or substantially all of our assets (such amounts to be computed on a
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consolidated basis), whether in a single transaction or a series of related
transactions, to another Person or group of affiliated Persons, unless:
(1) either (a) we are the continuing entity or (b) the resulting, surviving
or transferee entity is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes by
supplemental indenture (in form and substance reasonably satisfactory to the
Trustee) all of our obligations in connection with the notes, the Indenture and
the Registration Rights Agreement;
(2) no Default or Event of Default shall exist or shall occur immediately
after giving effect on a pro forma basis to such transaction;
(3) immediately after giving effect to such transaction on a pro forma
basis, the consolidated resulting, surviving or transferee entity would (a) have
a Leverage Ratio no more than our Leverage Ratio immediately prior to such
transaction or (b) immediately thereafter be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Debt Incurrence Ratio set forth in
the covenant "--Limitation on Incurrence of Additional Indebtedness;" and
(4) each Guarantor shall have by amendment to the Indenture confirmed that
its guarantee shall apply to the obligations of the Company or the surviving
entity in accordance with the notes and the Indenture.
Upon any consolidation or merger or any transfer of all or substantially
all of our assets in accordance with the foregoing, the surviving entity formed
by such consolidation or into which we are merged or to which such transfer is
made shall succeed to and (except in the case of a lease) be substituted for,
and may exercise every right and power of, the Company under the Indenture with
the same effect as if such surviving entity had been named therein as the
Company, and (except in the case of a lease) we shall be released from the
obligations under the notes and the Indenture except with respect to any
obligations that arise from, or are related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, our interest in which constitutes all or substantially all of
our properties and assets, shall be deemed to be the transfer of all or
substantially all of our properties and assets.
LIMITATION ON LINES OF BUSINESS
The Indenture provides that neither we nor any of our Subsidiaries will
directly or indirectly engage to any substantial extent in any line or lines of
business activity other than that which, in the reasonable good faith judgment
of our Board of Directors, is a Related Business.
SUBSIDIARY GUARANTORS
The Indenture provides that all of our present and future Subsidiaries
(other than Foreign Subsidiaries) jointly and severally will guarantee all
principal of, premium, if any, and interest (and Liquidated Damages, if any) on
the notes on a senior subordinated basis.
Notwithstanding anything herein or in the Indenture to the contrary, if any
of our Subsidiaries (including Foreign Subsidiaries) that is not a Guarantor
guarantees any of our other Indebtedness or any other Indebtedness of any of our
Subsidiaries, or we or any of our Subsidiaries, individually or collectively,
pledges more than 65% of the Voting Equity Interests of such Subsidiary to a
United States lender to secure our Indebtedness or Indebtedness of any
Guarantor, then such Subsidiary must become a Guarantor.
RELEASE OF GUARANTORS
The Indenture provides that no Guarantor will consolidate or merge with or
into (whether or not such Guarantor is the surviving Person) another Person
unless, subject to the provisions of the following paragraph and the other
provisions of the Indenture, (1) the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee, pursuant to which such Person shall
unconditionally
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guarantee, on a senior subordinated basis, all of such Guarantor's obligations
under such Guarantor's guarantee on the terms set forth in the Indenture; and
(2) immediately before and immediately after giving effect to such transaction
on a pro forma basis, no Default or Event of Default shall have occurred or be
continuing. The provisions of the covenant shall not apply to the merger of any
Guarantors with and into each other or with or into us.
Upon the sale or disposition (whether by merger, stock purchase, Asset Sale
or otherwise) of a Guarantor (as an entirety) to an entity which is not, and is
not required to become, a Guarantor, or the designation of a Subsidiary to
become an Unrestricted Subsidiary, which transaction is otherwise in compliance
with the Indenture (including, without limitation, the provisions of the
covenant Limitations on Sale of Assets, and Subsidiary Stock), such Guarantor
will be deemed released from its obligations under its guarantee of the notes;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Guarantor under all of its guarantees of, and under all
of its pledges of assets or other security interests that secure, any of our
Indebtedness or any Indebtedness of any other of our Subsidiaries shall also
terminate upon such release, sale or transfer and none of its Equity Interests
are pledged for the benefit of any holder of any of our Indebtedness or any
Indebtedness of any of our Subsidiaries.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits us and our Subsidiaries from being required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or from otherwise becoming subject to
regulation under the Investment Company Act.
REPORTS
The Indenture provides that whether or not we are subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, we will deliver to the
Trustee and, to each Holder and to prospective purchasers of notes identified to
us by an Initial Purchaser, within 5 days after we are or would have been (if we
were subject to such reporting obligations) required to file such with the SEC,
annual and quarterly financial statements substantially equivalent to financial
statements that would have been included in reports filed with the SEC, if we
were subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by our
certified independent public accountants as such would be required in such
reports to the SEC, and, in each case, together with a management's discussion
and analysis of financial condition and results of operations which would be so
required and, unless the SEC will not accept such reports, file with the SEC the
annual, quarterly and other reports which it is or would have been required to
file with the SEC.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an "Event of Default" as:
(1) our failure to pay any installment of interest (or Liquidated Damages,
if any) on the notes as and when the same becomes due and payable and the
continuance of any such failure for 30 days;
(2) our failure to pay all or any part of the principal of, or premium, if
any, on the notes when and as the same becomes due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation, payment
of the Change of Control Purchase Price or the Asset Sale Offer Price on notes
validly tendered and not properly withdrawn pursuant to a Change of Control
Offer or Asset Sale Offer, as applicable;
(3) our failure or the failure by any of our Subsidiaries to observe or
perform any other covenant or agreement contained in the notes or the Indenture
and, except for the provisions under "--Repurchase of notes at the Option of the
Holder Upon a Change of Control," "--Limitations on Sale of Assets and
Subsidiary Stock," "--Limitation on Merger, Sale or Consolidation" and
"--Limitation on Restricted Payments," the continuance of such failure for a
period of 60 days after written notice is given to us by the Trustee or to us
and the Trustee by the Holders of at least 25% in aggregate principal amount of
the notes outstanding;
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(4) certain events of bankruptcy, insolvency or reorganization in respect
of us or any of our Significant Subsidiaries;
(5) a default in our Indebtedness or the Indebtedness of any of our
Subsidiaries with an aggregate amount outstanding in excess of $10.0 million (a)
resulting from the failure to pay principal of such Indebtedness at maturity
(after notice and the lapse of any applicable grace period provided in such
Indebtedness) or (b) as a result of which the maturity of such Indebtedness has
been accelerated prior to its stated maturity;
(6) unsatisfied judgments not covered by insurance aggregating in excess of
$5.0 million at any one time rendered against us or any of our Subsidiaries and
not stayed, bonded or discharged within 60 days after such judgment became final
and nonappealable; and
(7) any guarantee of a Guarantor ceases to be in full force and effect or
becomes unenforceable or invalid or is declared null and void or any Guarantor
denies or disaffirms its obligations under its guarantee (other than in
accordance with the terms of the guarantee).
The Indenture provides that if a Default occurs and is continuing, the
Trustee must, within 90 days after the occurrence of such Default, give to the
Holders notice of such Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (4) above relating to us or any of our Significant
Subsidiaries), then in every such case, unless the principal of all of the notes
shall have already become due and payable, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the notes then outstanding, by
notice in writing to us specifying the respective Event of Default (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal, determined as set forth below, and accrued interest (and Liquidated
Damages, if any) thereon to be due and payable immediately. In the event a
declaration of acceleration resulting from an Event of Default described in
clause (5) above with respect to any Senior Debt outstanding pursuant to the
Credit Agreement has occurred and is continuing, such declaration of
acceleration shall be automatically annulled if such default is cured or waived
or the holders of such Senior Debt which is the subject of such default have
rescinded their declaration of acceleration in respect of such Senior Debt
within 10 days thereof and the Trustee has received written notice of such cure,
waiver or rescission and no other Event of Default described in clause (5) above
has occurred that has not been cured or waived within 10 days of the declaration
of such acceleration in respect of such Indebtedness. If an Event of Default
specified in clause (4) above relating to us or any of our Significant
Subsidiaries occurs, all principal and accrued interest (and Liquidated Damages,
if any) thereon will be immediately due and payable on all outstanding notes
without any declaration or other act on the part of the Trustee or the Holders.
The Holders of a majority in aggregate principal amount of notes generally are
authorized to rescind such acceleration if all existing Events of Default, other
than the non-payment of the principal of, premium, if any, and interest on the
notes which have become due solely by such acceleration, have been cured or
waived.
The Holders of not less than a majority in aggregate principal amount of
the notes at the time outstanding may waive on behalf of all the Holders any
existing or past Default and its consequences under the Indenture, except a
Default with respect to any provision requiring a supermajority approval to
amend, which Default may only be waived by such a supermajority, a Default in
the payment of principal of, premium, if any, or interest (or Liquidated
Damages, if any) on, any note not yet cured or a Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding note affected. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable security or indemnity.
Subject to all provisions of the Indenture and applicable law, the Holders
of a majority in aggregate principal amount of the notes at the time outstanding
will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that we may, at our option and at any time, elect to
have our obligations and the obligations of the Guarantors discharged with
respect to the outstanding notes ("Legal Defeasance"). Such Legal Defeasance
means that we shall be deemed to have paid and discharged the entire
Indebtedness represented by the notes, and the Indenture shall cease to be of
further effect as to all outstanding notes and guarantees, except as to:
(1) rights of Holders to receive payments in respect of the principal of,
premium, if any, and interest (and Liquidated Damages, if any) on such notes
when such payments are due from the defeasance trust funds;
(2) our obligations with respect to such notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen notes, and
the maintenance of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trust, duties, and immunities of the Trustee, and
our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and the obligations of the Guarantors released with respect to most
of the covenants under the Indenture, except as described otherwise in the
Indenture ("Covenant Defeasance"), and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, non-payment of guarantees, and bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the notes. We may
exercise our Legal Defeasance option regardless of whether we previously
exercised Covenant Defeasance.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the notes, U.S. legal tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest (and Liquidated Damages, if any) on,
such notes on the stated date for payment thereof or on the redemption date of
such principal or installment of principal of, premium, if any, or interest (and
Liquidated Damages, if any) on such notes, and the Holders of notes must have a
valid, perfected, exclusive security interest in such trust;
(2) in the case of Legal Defeasance, we shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that:
(A) we have received from, or there has been published by the Internal
Revenue Service, a ruling or
(B) since the date of the Indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of such notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to such
Trustee confirming that the Holders of such notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit;
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(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any other
material agreement or instrument to which we or any of our Subsidiaries are a
party or by which we or any of our Subsidiaries are bound;
(6) we shall have delivered to the Trustee an Officers' Certificate stating
that the deposit was not made by us with the intent of preferring the Holders of
such notes over any other of our creditors or with the intent of defeating,
hindering, delaying or defrauding any other of our creditors or others; and
(7) we shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that the conditions precedent provided for in,
in the case of the Officers' Certificate, (1) through (6) and, in the case of
the opinion of counsel, clauses (1) (with respect to the validity and perfection
of the security interest), (2), (3) and (5) of this paragraph have been complied
with and we shall have delivered to the Trustee an Officers' Certificate,
subject to such qualifications and exceptions as the Trustee deems appropriate,
to the effect that, assuming no Holder of the notes is an insider of the
Company, the trust funds will not be subject to the effect of any applicable
Federal bankruptcy, insolvency, reorganization or similar laws affecting
creditors' right generally.
If the funds deposited with the Trustee to effect Covenant Defeasance are
insufficient to pay the principal of, premium, if any, and interest (and
Liquidated Damages, if any) on the notes when due, then our obligations and the
obligations of Guarantors under the Indenture will be revived and no such
defeasance will be deemed to have occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting us, the Guarantors and the
Trustee to enter into a supplemental indenture for certain limited purposes
without the consent of the Holders. With the consent of the Holders of not less
than a majority in aggregate principal amount of the notes at the time
outstanding, we, the Guarantors and the Trustee are permitted to amend or
supplement the Indenture or any supplemental indenture or modify the rights of
the Holders; provided, that no such modification may, without the consent of
each Holder affected thereby:
(1) change the Stated Maturity on any note, or reduce the principal amount
thereof or the rate (or extend the time for payment) of interest thereon or any
premium payable upon the redemption thereof at our option, or change the city of
payment where, or the coin or currency in which, any note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption at our option, on or after the Redemption Date), or
reduce the Change of Control Purchase Price or the Asset Sale Offer Price after
the corresponding Asset Sale or Change of Control has occurred or alter the
provisions (including the defined terms used therein) regarding our right to
redeem the notes as a right, or at our option or the provisions (including the
defined terms used therein) of the "Repurchase of Notes at the Option of the
Holder Upon a Change of Control" covenant in a manner adverse to the Holders; or
(2) reduce the percentage in principal amount of the outstanding notes, the
consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Indenture; or
(3) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the Holder of each outstanding note
affected thereby.
GOVERNING LAW
The Indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the State of New York including,
without limitation, Sections 5-1401 and 5-1402 of the New York General
Obligations Law and New York Civil Practice Laws and Rules 327(b).
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NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Guarantors or any successor entity shall have any personal liability in respect
of our obligations or the obligations of the Guarantors under the Indenture or
the notes solely by reason of his or its status as such stockholder, employee,
officer or director, except that this provision shall in no way limit the
obligation of any Guarantor pursuant to any guarantee of the notes.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness (including Disqualified Capital
Stock) of any Person existing at the time such Person becomes a Subsidiary of
the Company, including by designation, or is merged or consolidated into or with
the Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any Person or all
or substantially all the assets of any Person by any other Person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise; provided, that with respect to ownership interest in the Company
and its Subsidiaries, a Beneficial Owner of 10% or more of the total voting
power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control. Notwithstanding the foregoing, Affiliate shall not include Wholly Owned
Subsidiaries.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (1) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (2) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" or "beneficial owner" for purposes of the definition of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalent" means:
(1) securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided,
that the full faith and credit of the United States of America is pledged in
support thereof); or
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(2) time deposits and certificates of deposit and commercial paper issued
by the parent corporation of any domestic commercial bank of recognized standing
having capital and surplus in excess of $500.0 million; or
(3) commercial paper issued by others rated at least A-2 or the equivalent
thereof by S&P or at least P-2 or the equivalent thereof by Moody's; or
(4) readily marketable direct obligations issued by any state of the United
States of America or any political subdivision thereof having one of the two
highest rating categories obtainable from either Moody's or S&P; or
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (1) and (2) above
entered into with any financial institution meeting the qualifications specified
in clause (2) above,
and in the case of each of (1), (2), (3) and (4), maturing within one year after
the date of acquisition.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the Consolidated Net Income of such Person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of:
(1) Consolidated income tax expense;
(2) Consolidated depreciation and amortization expense;
(3) Consolidated Fixed Charges; and
(4) all other non-cash items reducing Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing
Consolidated Net Income, all as determined on a consolidated basis in accordance
with GAAP,
less the amount of all cash payments made by such Person or any of its
Subsidiaries during such period to the extent such payments relate to non-cash
charges that were added back in determining Consolidated EBITDA for such period
or any prior period; provided, that consolidated income tax expense and
depreciation and amortization and other non-cash charges of a Subsidiary that is
a less than Wholly Owned Subsidiary shall only be added to the extent of the
equity interest of such Person in such Subsidiary.
"Consolidated Fixed Charges" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of:
(a) interest expensed or capitalized, paid, accrued, or scheduled to be
paid or accrued (including, in accordance with the following sentence, interest
attributable to Capitalized Lease Obligations) of such Person and its
Consolidated Subsidiaries during such period, including (1) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (2) the
interest portion of all deferred payment obligations, and (3) all commissions,
discounts and other fees and charges owed with respect to bankers' acceptances
and letters of credit financings and currency and Interest Swap and Hedging
Obligations, in each case to the extent attributable to such period; and
(b) the amount of dividends accrued or payable (or guaranteed) by such
Person or any of its Consolidated Subsidiaries in respect of Preferred Stock
(other than by Subsidiaries of such Person to such Person or such Person's
Consolidated Subsidiaries).
For purposes of this definition, (x) interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined in good
faith by the Company to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP and (y) interest expense attributable
to any Indebtedness represented by the guarantee by such Person or a Subsidiary
of such Person of an obligation of another Person shall be deemed to be the
interest expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any Person for any period,
the net income (or loss) of such Person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP)
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for such period, adjusted to exclude (only to the extent included in computing
such net income (or loss) and without duplication):
(a) all gains (but not losses) that are either extraordinary (as determined
in accordance with GAAP) or are either unusual or non-recurring (including any
gain from the sale or other disposition of assets outside the ordinary course of
business or from the issuance or sale of any capital stock);
(b) the net income, if positive, of any Person, other than a Consolidated
Subsidiary, in which such Person or any of its Consolidated Subsidiaries has an
interest, except that such Person's or such Consolidated Subsidiary's interest
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 any dividends or
distributions actually paid in cash to such Person or a Consolidated Subsidiary
of such Person during such period;
(c) the net income or loss of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition;
(d) the net income, if positive, of any of such Person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms of
its charter or bylaws or any other agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Consolidated
Subsidiary, except that such Person's interest in the net income of any such
Consolidated 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 Consolidated Subsidiary during such period to such Person as a dividend;
and
(e) the cumulative effect of a change in accounting principles.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of such
Person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such Person in accordance with GAAP.
"Consolidation" means, with respect to the Company, the consolidation of
the accounts of the Subsidiaries with those of the Company, all in accordance
with GAAP; provided, that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company. The
term "consolidated" has a correlative meaning to the foregoing.
"Continuing Director" means during any period of 12 consecutive months
after the Issue Date, individuals who at the beginning of any such 12-month
period constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of a majority
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved, including new directors designated in or provided for in an agreement
regarding the merger, consolidation or sale, transfer or other conveyance, of
all or substantially all of the assets of the Company, if such agreement was
approved by a vote of such majority of directors).
"Credit Agreement" means the credit agreement, dated September 1, 1999, by
and among the Company, certain of its Subsidiaries, certain financial
institutions and Banc of America Securities, LLC, as syndication agent, Bank
One, NA, as documentation agent and The Bank of New York, as administrative
agent, as amended by Amendment No. 1 thereto, dated April 3, 2000, and Amendment
No. 2 thereto, dated October 22, 2000, providing for a revolving credit facility
and long-term loans, in an aggregate amount of up to $330.0 million, and any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, as such credit agreement and/or related
documents may be amended, restated, supplemented, renewed, replaced or otherwise
modified from time to time whether or not with the same agent, trustee,
representative lenders or holders, and, subject to the proviso to the next
succeeding sentence, irrespective of any changes in the terms and conditions
thereof. Without limiting the generality of the foregoing, the term "Credit
Agreement" shall include agreements in respect of Interest Swap and Hedging
Obligations with lenders (or Affiliates thereof) party to the Credit Agreement
and shall also include any amendment, amendment and restatement, renewal,
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extension, restructuring, supplement or modification to any Credit Agreement and
all refundings, refinancings and replacements of any Credit Agreement, including
any agreement:
(1) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby;
(2) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of the Company and its Subsidiaries
and their respective successors and assigns;
(3) increasing the amount of Indebtedness incurred thereunder or available
to be borrowed thereunder; provided, that on the date such Indebtedness is
incurred it would not be prohibited by paragraph (b) of the covenant
"--Limitation on Incurrence of Additional Indebtedness;" or
(4) otherwise altering the terms and conditions thereof in a manner not
prohibited by the terms of the Indenture.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Capital Stock" means with respect to any Person, (a) Equity
Interests of such Person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of an event or the passage of time or both would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such Person or
any of its Subsidiaries, in whole or in part, on or prior to 91 days following
the Stated Maturity of the notes and (b) any Equity Interests of any Subsidiary
of such Person other than any common equity with no preferences, privileges, and
no redemption or repayment provisions; provided, however, that any Equity
Interest that would constitute Disqualified Capital Stock solely because the
holders thereof have the right to require the issuer to repurchase such
Disqualified Capital Stock upon the occurrence of a change of control shall not
constitute Disqualified Capital Stock if the terms of such Equity Interest
provide that (i) any such repurchases may not be made sooner than 10 days after
the Change of Control Purchase Date for the notes and (ii) such Equity Interests
so repurchased are fully and absolutely subordinated to the indefeasible payment
in full of all principal, interest and other amounts due under the notes
repurchased on such Change of Control Purchase Date, and any Equity Interest not
so repurchased shall remain so fully and absolutely subordinated to the notes
not so repurchased.
"Equity Interests" means Capital Stock or partnership, participation or
membership interests and all warrants, options or other rights to acquire
Capital Stock or partnership, participation or membership interests (but
excluding any debt security that is convertible into, or exchangeable for,
Capital Stock or partnership, participation or membership interests).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Exempted Affiliate Transaction" means (a) the payment of reasonable fees
and compensation to and indemnity provided for the benefit of directors,
officers, employees or consultants of the Company or any Guarantor in the
ordinary course of business and consistent with past practices or approved by a
majority of the independent members of the Board of Directors of the Company (or
a committee comprised solely of independent directors), (b) a transaction solely
between the Company and any of its Consolidated Subsidiaries or solely among
Consolidated Subsidiaries of the Company, (c) any issuance of securities
pursuant to, or other payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, bonus plans,
stock option and stock ownership plans approved by the Board of Directors of the
Company, (d) loans or advances to employees existing on the Issue Date and,
thereafter, in the ordinary course of business in accordance with past practices
of the Company or any Guarantor, but in any event not to exceed $5.0 million in
the aggregate outstanding at any one time (excluding amounts loaned or advanced
in accordance with clause (e) of the definition of "Permitted Investment"); (e)
the issuance or sale of any Qualified Capital Stock of the Company approved by a
majority of the members of the Board of Directors and, if any, a majority of the
independent members of such Board of Directors, and (f) any Restricted Payments
and Investments permitted by the provisions of the Indenture described above
under the caption "--Limitation on Restricted Payments."
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"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the Issue Date, reduced to the extent such amounts are repaid, refinanced or
retired.
"Foreign Subsidiary" means any Subsidiary of the Company which (i) is not
organized under the laws of the United States, any state thereof or the District
of Columbia and (ii) conducts substantially all of its business operations
outside the United States of America.
"GAAP" means United States generally accepted accounting principles as in
effect on the Issue Date as set forth in (1) the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants, (2) statements and pronouncements of the Financial Accounting
Standards Board, (3) such other statements by such other entity as approved by a
significant segment of the accounting profession in the United States and (4)
the rules and regulations of the SEC governing the inclusion of financial
statements (including pro forma financial statements) in periodic reports
required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC. All ratios and computations
based on GAAP contained in the Indenture shall be computed in conformity with
GAAP.
"Guarantor" means each of the Company's present and future Subsidiaries
that at the time are guarantors of the notes in accordance with the Indenture.
"Indebtedness" of any Person means, without duplication,
(a) all liabilities and obligations, contingent or otherwise, of such
Person, to the extent such liabilities and obligations would appear as a
liability upon the consolidated balance sheet of such Person in accordance with
GAAP, (1) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), (2) evidenced by bonds, notes, debentures or similar instruments, (3)
representing the balance deferred and unpaid of the purchase price of any
property or services, except those incurred in the ordinary course of its
business that would constitute ordinarily a trade payable to trade creditors;
(b) all liabilities and obligations, contingent or otherwise, of such
Person (1) evidenced by bankers' acceptances or similar instruments issued or
accepted by banks, (2) relating to any Capitalized Lease Obligation, or (3)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit;
(c) all net obligations of such Person under Interest Swap and Hedging
Obligations;
(d) all liabilities and obligations of others of the kind described in the
preceding clause (a), (b) or (c) that such Person has guaranteed or provided
credit support or that is otherwise its legal liability or which are secured by
any assets or property of such Person;
(e) any and all deferrals, renewals, extensions, refinancing and refundings
(whether direct or indirect) of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a), (b),
(c) or (d), or this clause (e), whether or not between or among the same
parties; and
(f) all Disqualified Capital Stock of such Person (measured at the greater
of its voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends);
provided, that (i) any indebtedness which has been defeased in accordance with
GAAP or defeased pursuant to the deposit of cash or Government Securities (in an
amount sufficient to satisfy all such indebtedness obligations at maturity or
redemption, as applicable, and all payments of interest and premium, if any) in
a trust or account created or pledged for the sole benefit of the holders of
such indebtedness, and subject to no other Liens, and the other applicable terms
of the instrument governing such indebtedness, and (ii) obligations created,
issued or incurred by any Person with respect to customer subscription payments
or customer deposits for trade shows and exhibitions shall not constitute
"Indebtedness."
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required
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to be determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value to be determined in good faith by the Board of Directors of the
issuer (or managing general partner of the issuer) of such Disqualified Capital
Stock.
The amount of any Indebtedness outstanding as of any date shall be (1) the
accreted value thereof, in the case of any Indebtedness issued with original
issue discount, but the accretion of original issue discount in accordance with
the original terms of Indebtedness issued with an original issue discount will
not be deemed to be an incurrence and (2) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Interest Swap and Hedging Obligation" means any obligation of any Person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such Person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any Person in any other Person means (without duplication):
(a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for cash, property, services, securities or
otherwise) of Equity Interests, capital stock, bonds, notes, debentures,
partnership or other ownership interests or other securities, including any
options or warrants, of such other Person or any agreement to make any such
acquisition;
(b) the making by such Person of any deposit with, or advance, loan or
other extension of credit to, such other Person (including the purchase of
property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other Person) or any
commitment to make any such advance, loan or extension (but excluding accounts
receivable, endorsements for collection or deposits arising in the ordinary
course of business);
(c) other than guarantees of Indebtedness of the Company or any Guarantor
to the extent permitted by the covenant "--Limitation on Incurrence of
Additional Indebtedness," the entering into by such Person of any guarantee of,
or other credit support or contingent obligation with respect to, Indebtedness
or other liability of such other Person;
(d) the making of any capital contribution by such Person to such other
Person; and
(e) the designation by the Board of Directors of the Company of any Person
to be an Unrestricted Subsidiary.
The Company shall be deemed to make an Investment in an amount equal to the fair
market value of the net assets of any subsidiary (or, if neither the Company nor
any of its Subsidiaries has theretofore made an Investment in such subsidiary,
in an amount equal to the Investments being made), at the time that such
subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Company or a Subsidiary of
the Company shall be deemed an Investment valued at its fair market value at the
time of such transfer. The Company or any of its Subsidiaries shall be deemed to
have made an Investment in a Person that is or was required to be a Guarantor
if, upon the issuance, sale or other disposition of any portion of the Company's
or the Subsidiary's ownership in the Capital Stock of such Person, such Person
ceases to be a Guarantor. The fair market value of each Investment shall be
measured at the time made or returned, as applicable.
"Issue Date" means the date of first issuance of the outstanding notes
under the Indenture.
"Junior Security" means any Qualified Capital Stock and any Indebtedness of
the Company or a Guarantor, as applicable, that is contractually subordinated in
right of payment to Senior Debt at least to the same extent as the notes or the
guarantee, as applicable, and has no scheduled installment of principal due, by
redemption, sinking fund payment or otherwise, on or prior to the Stated
Maturity of the notes; provided, that in the case of
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subordination in respect of Senior Debt under the Credit Agreement, "Junior
Security" shall mean any Qualified Capital Stock and any Indebtedness of the
Company or a Guarantor, as applicable, that:
(1) has a final maturity date occurring after the final maturity date of,
all Senior Debt outstanding under the Credit Agreement on the date of issuance
of such Qualified Capital Stock or Indebtedness;
(2) is unsecured;
(3) has an Average Life longer than the security for which such Qualified
Capital Stock or Indebtedness is being exchanged; and
(4) by their terms or by law are subordinated to Senior Debt outstanding
under the Credit Agreement on the date of issuance of such Qualified Capital
Stock or Indebtedness at least to the same extent as the notes.
"Leverage Ratio" on any date of determination (the "Transaction Date")
means the ratio, on a pro forma basis, of (a) the aggregate amount of
Indebtedness of the Company and its Subsidiaries on a consolidated basis to (b)
the aggregate amount of Consolidated EBITDA of the Company attributable to
continuing operations and business (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period; provided, that for purposes of calculating Consolidated EBITDA
for this definition:
(1) Acquisitions that were made by the Company or any of its Subsidiaries
(including any Person who subsequently became a Subsidiary or that was merged
with or into the Company or another Subsidiary) during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period without
regard to the effect of clause (c) of the definition of "Consolidated Net
Income," and any pro forma adjustments shall be made in accordance with
Regulation S-X promulgated by the SEC;
(2) transactions giving rise to the need to calculate the Leverage Ratio
shall be assumed to have occurred on the first day of the Reference Period
without regard to the effect of clause (c) of the definition of "Consolidated
Net Income;"
(3) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall be
assumed to have occurred on the first day of the Reference Period; and
(4) the Consolidated Fixed Charges of such Person attributable to interest
on any Indebtedness or dividends on any Disqualified Capital Stock bearing a
floating interest (or dividend) rate shall be computed on a pro forma basis as
if the average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
Person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the twelve-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale plus, in the case
of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible or
exchangeable debt) of the Company that were issued for cash on or after the
Issue Date, the amount of cash originally received by the Company upon the
issuance of such securities (including options, warrants, rights and convertible
or exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and (in the case of Asset Sales, reasonable and customary), expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and
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expenses) incurred in connection with such Asset Sale or sale of Qualified
Capital Stock, and, in the case of an Asset Sale only, less the amount
(estimated reasonably and in good faith by the Company) of income, franchise,
sales and other applicable taxes required to be paid by the Company or any of
its respective Subsidiaries in connection with such Asset Sale in the taxable
year that such sale is consummated or in the immediately succeeding taxable
year, the computation of which shall take into account the reduction in tax
liability resulting from any available operating losses and net operating loss
carryovers, tax credits and tax credit carryforwards, and similar tax
attributes.
"Non-Recourse Indebtedness" means Indebtedness (a) as to which neither the
Company nor any of its Subsidiaries (1) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (2) is directly or indirectly liable (as a guarantor or
otherwise), or (3) constitutes the lender, and (b) 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 the
Company or any of its Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable in
respect of Senior Debt.
"Offering" means the offering of the notes by the Company.
"Officers' Certificate" means the officers' certificate to be delivered
upon the occurrence of certain events as set forth in the Indenture.
"Permitted Earn-Out Obligations" means any obligation of the Company or any
Guarantor requiring the Company or such Guarantor to make a payment in respect
of an adjustment to the purchase price, or any similar obligation, in either
case, incurred or assumed in connection with an Acquisition by the Company or
such Guarantor.
"Permitted Indebtedness" means that:
(a) the Company and the Guarantors may incur Indebtedness evidenced by the
notes and the guarantees issued pursuant to the Indenture up to the amounts
being issued on the original Issue Date less any amounts repaid or retired;
(b) the Company and the Guarantors, as applicable, may incur Refinancing
Indebtedness with respect to any Existing Indebtedness or any Indebtedness
(including Disqualified Capital Stock) described in clause (a) of this
definition or incurred pursuant to the Debt Incurrence Ratio test of the
covenant "--Limitation on Incurrence of Additional Indebtedness," or which was
refinanced pursuant to this clause (b);
(c) the Company and its Subsidiaries may incur Indebtedness solely in
respect of bankers acceptances, performance bonds and letters of credit to the
extent not drawn upon (to the extent that such incurrence does not result in the
incurrence of any obligation to repay any obligation relating to borrowed money
or other Indebtedness), all in the ordinary course of business in accordance
with customary industry practices, in amounts and for the purposes customary in
the Company's industry; provided, that the aggregate principal amount
outstanding of such Indebtedness (including any Refinancing Indebtedness and any
other Indebtedness issued to retire, refinance, refund, defease or replace such
Indebtedness) shall at no time exceed $10.0 million;
(d) the Company may incur Indebtedness owed to (borrowed from) any
Guarantor, and any Guarantor may incur Indebtedness owed to (borrowed from) any
other Guarantor or the Company; provided, that in the case of Indebtedness of
the Company, such obligations shall be unsecured and contractually subordinated
in all respects to the Company's obligations pursuant to the notes and any event
that causes such Guarantor no longer to be a Guarantor (including by designation
to be an Unrestricted Subsidiary) shall be deemed to be a new incurrence by such
issuer of such Indebtedness and any guarantor thereof subject to the covenant
"--Limitation on Incurrence of Additional Indebtedness;"
(e) the Company and the Guarantors may incur Interest Swap and Hedging
Obligations that are incurred for the purpose of fixing or hedging interest rate
or currency risk with respect to any fixed or floating rate
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Indebtedness that is permitted by the Indenture to be outstanding or any
receivable or liability the payment of which is determined by reference to a
foreign currency (and not for the purpose of speculation); provided, that the
notional amount of any such Interest Swap and Hedging Obligation does not exceed
the principal amount of Indebtedness to which such Interest Swap and Hedging
Obligation relates; and
(f) the Company and the Guarantors may incur Indebtedness arising from
Permitted Earn-Out Obligations; provided, that either (1) immediately after
giving effect thereto, on a pro forma basis, the Company would be permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence
Ratio set forth in the covenant "--Limitation on Incurrence of Additional
Indebtedness" or (2) the Company could incur the amount of such Indebtedness
under any of clauses (a) or (b) set forth in the covenant "--Limitation on
Incurrence of Additional Indebtedness" (or a combination thereof), and, in such
event, such incurrence shall, until such time as the aggregate amount incurred
is paid, reduce the amount available under any of such clauses (or a combination
thereof), as determined by the Company, in an aggregate amount equal to the
Permitted Earn-Out Obligation.
"Permitted Investment" means:
(a) any Investment in any of the notes;
(b) any Investment in Cash Equivalents;
(c) intercompany notes to the extent permitted under clause (d) of the
definition of "Permitted Indebtedness;"
(d) any Investment by the Company or any Guarantor in the Company or any
Guarantor, or in a Person in a Related Business if as a result of such
Investment such Person immediately becomes a Subsidiary or such Person is
immediately merged with or into the Company or a Guarantor;
(e) loans or advances to executives of the Company pursuant to the
Company's Executive Loan Program, established in January 2000, in accordance
with past practices of the Company, but in any event not to exceed $2.0 million
in the aggregate per year;
(f) other Investments in any Person or Persons, provided, that after giving
pro forma effect to each such Investment, the aggregate amount of all such
Investments made on and after the Issue Date pursuant to this clause (f) that
are outstanding (after giving effect to any such Investments that are returned
to the Company or the Guarantor that made such prior Investment, without
restriction, in cash on or prior to the date of any such calculation, but only
up to the amount of the Investment made under this clause (f) in such Person) at
any time does not in the aggregate exceed $15.0 million (measured by the value
attributed to the Investment at the time made or returned, as applicable);
(g) any asset exchange permitted under clause (7) of the covenant
"--Limitation on Sale of Assets and Subsidiary Stock;"
(h) Investments made by the Issuer or its Subsidiaries as a result of
non-cash consideration received in connection with an Asset Sale made in
compliance with the covenant "--Limitation on Sale of Assets and Subsidiary
Stock;" and
(i) any Investment by the Company in a Person as a result of which the
Company or any Guarantor holds a minority interest in such Person; provided,
that any such Investment may only be made with the aggregate Asset Sale Offer
Amount, if any, remaining after payment of all amounts payable in connection
with any Asset Sale Offer.
"Permitted Lien" means:
(a) Liens existing on the Issue Date;
(b) Liens imposed by governmental authorities for taxes, assessments or
other charges not yet subject to penalty or which are being contested in good
faith and by appropriate proceedings, if adequate reserves with respect thereto
are maintained on the books of the Company in accordance with GAAP;
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(c) statutory liens of carriers, warehousemen, mechanics, material men,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business provided that (1) the underlying obligations are not
overdue for a period of more than 60 days, or (2) such Liens are being contested
in good faith and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Company in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or minor imperfections of title which, in the aggregate, do
not in any case materially detract from the value of the property subject
thereto (as such property is used by the Company or any of its Subsidiaries) or
interfere with the ordinary conduct of the business of the Company and any of
its Subsidiaries taken as a whole;
(f) Liens arising by operation of law in connection with judgments, only to
the extent, for an amount and for a period not resulting in an Event of Default
with respect thereto;
(g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security legislation;
(h) Liens securing the notes;
(i) Liens securing Indebtedness of a Person existing at the time such
Person becomes a Subsidiary or is merged with or into the Company or a
Subsidiary or Liens securing Indebtedness incurred in connection with an
Acquisition, provided, that such Liens were in existence prior to the date of
such acquisition, merger or consolidation, were not incurred in anticipation
thereof, and do not extend to any other assets;
(j) leases or subleases granted to other Persons in the ordinary course of
business not materially interfering with the conduct of the business of the
Company or any of its Subsidiaries or materially detracting from the value of
the relative assets of the Company or any Subsidiary;
(k) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the Company or any
of its Subsidiaries in the ordinary course of business;
(l) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to the
Holders of the notes than the terms of the Liens securing such refinanced
Indebtedness, and provided that the Indebtedness secured is not increased and
the Lien is not extended to any additional assets or property that would not
have been security for the Indebtedness refinanced; and
(m) Liens securing Senior Debt of the Company or any Guarantor, including
Indebtedness incurred under the Credit Agreement in accordance with the terms of
clause (b) of the covenant "--Limitation on Incurrence of Additional
Indebtedness."
"Person" or "person" means any corporation, individual, limited liability
company, joint stock company, joint venture, partnership, unincorporated
association, governmental regulatory entity, country, state or political
subdivision thereof, trust, municipality or other entity.
"Preferred Stock" means any Equity Interest of any class or classes of a
Person (however designated) which is preferred as to payments of dividends, or
as to distributions upon any liquidation or dissolution, over Equity Interests
of any other class of such Person.
"Pro Forma" or "pro forma" shall have the meaning set forth in Regulation
S-X of the Securities Act, unless otherwise specifically stated herein.
"Public Equity Offering" means an underwritten public offering for cash
pursuant to a registration statement filed with the SEC in accordance with the
Securities Act of Qualified Capital Stock of the Company.
"Purchase Money Indebtedness" of any Person means any Indebtedness of such
Person to any seller or other Person incurred solely to finance the acquisition
(including in the case of a Capitalized Lease Obligation,
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the lease), construction, installation or improvement of any after acquired real
or personal tangible property (including Capital Stock) which, in the reasonable
good faith judgment of the Board of Directors of the Company, is directly
related to a Related Business of the Company and which is incurred concurrently
with such acquisition, construction, installation or improvement and is secured
only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means:
(1) any legal defeasance, redemption, retirement, repurchase or other
acquisition of Capital Stock, or Indebtedness of the Company issued after the
Issue Date with the Net Cash Proceeds received by the Company from the
substantially concurrent sale of its Qualified Capital Stock (other than to a
Subsidiary); or
(2) any issuance of Qualified Capital Stock of the Company in exchange for
any Capital Stock or Indebtedness of the Company issued after the Issue Date.
"Reference Period" with regard to any Person means the four full fiscal
quarters ended immediately preceding any date upon which any determination is to
be made pursuant to the terms of the notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness (including Disqualified
Capital Stock) (a) issued in exchange for, or the proceeds from the issuance and
sale of which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in part,
or (b) constituting an amendment, modification or supplement to, or a deferral
or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness (including Disqualified Capital Stock) in a principal amount or, in
the case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing plus the amount of any premium paid in
connection with such Refinancing in accordance with the terms of the documents
governing the Indebtedness refinanced without giving effect to any modification
thereof made in connection with or in contemplation of such refinancing) the
lesser of (1) the principal amount or, in the case of Disqualified Capital
Stock, liquidation preference, of the Indebtedness (including Disqualified
Capital Stock) so Refinanced and (2) if such Indebtedness being Refinanced was
issued with an original issue discount, the accreted value thereof (as
determined in accordance with GAAP) at the time of such Refinancing; provided,
that (A) such Refinancing Indebtedness is incurred by us or by the Subsidiary
who is the obligor on the Indebtedness being refinanced, (B) such Refinancing
Indebtedness shall (x) not have an Average Life shorter than the Indebtedness
(including Disqualified Capital Stock) to be so refinanced at the time of such
Refinancing and (y) in all respects, be no less contractually subordinated or
junior, if applicable, to the rights of Holders of the notes than was the
Indebtedness (including Disqualified Capital Stock) to be refinanced, (C) such
Refinancing Indebtedness shall have a final stated maturity or redemption date,
as applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness (including Disqualified Capital Stock) to be so
refinanced or, if sooner, 91 days after the Stated Maturity of the notes, and
(D) such Refinancing Indebtedness shall be secured (if secured) in a manner no
more adverse to the Holders of the notes than the terms of the Liens (if any)
securing such refinanced Indebtedness, including, without limitation, the amount
of Indebtedness secured shall not be increased.
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Issue Date, by and among the Company and the other parties named
on the signature pages thereof, as such agreement may be amended, modified or
supplemented from time to time.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than Permitted Investments.
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"Restricted Payment" means, with respect to any Person:
(a) the declaration or payment of any dividend or other distribution in
respect of Equity Interests of such Person or any parent of such Person;
(b) any payment (except to the extent with Qualified Capital Stock) on
account of the purchase, redemption or other acquisition or retirement for value
of Equity Interests of such Person or any or parent of such Person;
(c) other than with the proceeds from the substantially concurrent sale of,
or in exchange for, Refinancing Indebtedness, any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such Person or a parent or Subsidiary of such Person prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Subordinated Indebtedness; and
(d) any Restricted Investment by such Person;
provided, however, that the term "Restricted Payment" does not include (1) any
dividend, distribution or other payment on or with respect to Equity Interests
of an issuer to the extent payable solely in shares of Qualified Capital Stock
of such issuer or in options, warrants or other rights to purchase such
Qualified Capital Stock, or (2) any dividend, distribution or other payment to
the Company, or to any Guarantor, by any Subsidiary of the Company.
"Senior Debt" of the Company or any Guarantor means Indebtedness (including
any monetary obligation in respect of the Credit Agreement, and interest,
whether or not allowable, accruing on Indebtedness incurred pursuant to the
Credit Agreement after the filing of a petition initiating any proceeding under
any bankruptcy, insolvency or similar law) of the Company or such Guarantor,
including Indebtedness arising under the Credit Agreement, unless by the terms
of the instrument creating or evidencing such Indebtedness, such Indebtedness is
expressly designated equal or junior in right of payment to the notes or the
applicable guarantee; provided, that in no event shall Senior Debt include (a)
Indebtedness to any Subsidiary of the Company or any officer, director or
employee of the Company or any Subsidiary of the Company, (b) Indebtedness
incurred in violation of the terms of the Indenture; provided, that no such
violation shall be deemed to exist for purposes of this clause (b) if the
holder(s) of such Indebtedness incurred (or their representative) shall have
received, or pursuant to the Credit Agreement shall be deemed to have received,
a representation or warranty by the Company to the effect that the incurrence of
such Indebtedness does not violate the Indenture, (c) Indebtedness to trade
creditors, (d) Disqualified Capital Stock, and (e) any liability for taxes owed
or owing by the Company or such Guarantor.
"Significant Subsidiary" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date.
"Stated Maturity," when used with respect to any note, means June 15, 2011.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor that is subordinated in right of payment by its terms or the terms of
any document or instrument relating thereto ("contractually") to the notes or
such guarantee, as applicable, in any respect.
"Subsidiary," with respect to any Person, means (1) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person, (2) any other Person (other than a
corporation) in which such Person, one or more Subsidiaries of such Person, or
such Person and one or more Subsidiaries of such Person, directly or indirectly,
at the date of determination thereof has a majority ownership interest, or (3) a
partnership in which such Person or a Subsidiary of such Person is, at the time,
a general partner. Notwithstanding the foregoing, (i) an Unrestricted Subsidiary
shall not be a Subsidiary of the Company or of any Subsidiary of the Company and
(ii) ComMunic GmbH Kongresse-Messen Seminare shall be a Subsidiary of the
Company so long as the Company or any Subsidiary of the Company holds at least
50% of the Voting Equity Interests and maintains control thereof. Unless the
context requires otherwise, Subsidiary means each direct and indirect Subsidiary
of the Company.
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"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that such Subsidiary at the time of such
designation (a) has no Indebtedness other than Non-Recourse Indebtedness; (b) is
not party to any agreement, contract, arrangement or understanding with the
Company or any Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company; (c) is a Person with respect to which neither
the Company nor any of its Subsidiaries has any direct or indirect obligation
(x) to subscribe for additional Equity Interests or (y) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Subsidiaries. The Board of Directors of the Company may
designate any Unrestricted Subsidiary to be a Subsidiary, provided, that (1) no
Default or Event of Default is existing or will occur as a consequence thereof
and (2) immediately after giving effect to such designation, on a pro forma
basis, the Company could incur at least $1.00 of Indebtedness pursuant to the
Debt Incurrence Ratio of the covenant "--Limitation on Incurrence of Additional
Indebtedness." Each such designation shall be evidenced by filing with the
Trustee a certified copy of the resolution giving effect to such designation and
an Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
"Voting Equity Interests" means Equity Interests which at the time are
entitled to vote in the election of, as applicable, directors, members or
partners generally.
"Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests of
which (other than directors' qualifying Shares) are owned by the Company or one
or more Wholly Owned Subsidiaries of the Company or a combination thereof.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The exchange notes will be in the form of one or more registered global
notes without interest coupons. Upon issuance, the global notes will be
deposited with the Trustee, as custodian for DTC, in New York, New York, and
registered in the name of DTC or its nominee for credit to the accounts of DTC's
Direct and Indirect Participants (as defined below).
The global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the global notes may be exchanged
for notes in certificated form in certain limited circumstances. See "--Transfer
of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations, referred to as Direct
Participants, and to facilitate the clearance and settlement of transactions in
those securities between Direct Participants through electronic book-entry
changes in accounts of Direct Participants. The Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities that clear through or maintain a direct or indirect, custodial
relationship with a Direct Participant, referred to as Indirect Participants.
DTC has advised us that, pursuant to DTC's procedures, (1) upon deposit of
the global notes, DTC will credit the accounts of the Direct Participants with
portions of the principal amount of the global notes that have
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been allocated to them, and (2) DTC will maintain records of the ownership
interests of such Direct Participants in the global notes and the transfer of
ownership interests by and between Direct Participants. DTC will not maintain
records of the ownership interests of, or the transfer of ownership interests by
and between, Indirect Participants or other owners of beneficial interests in
the global notes. Direct Participants and Indirect Participants must maintain
their own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the global notes.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
global note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that are not Direct Participants in DTC or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the notes see "--Transfers of Interests
in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "--TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, we, the Guarantors and the Trustee will
treat the persons in whose names the notes are registered (including notes
represented by global notes) as the owners thereof for the purpose of receiving
payments and for any and all other purposes whatsoever. Payments in respect of
the principal of, premium, Liquidated Damages, if any, and interest on global
notes registered in the name of DTC or its nominee will be payable by the
Trustee to DTC or its nominee as the registered holder under the Indenture.
Consequently, neither we, the Trustee nor any of our or the Trustee's agents has
or will have any responsibility or liability for (1) any aspect of DTC's records
or any Direct Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the global notes
or for maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any global note or (2) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised us that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the notes
is to credit the accounts of the relevant Direct Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the global notes as shown on DTC's records.
Payments by Direct Participants and Indirect Participants to the beneficial
owners of the notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the Trustee,
us or the Guarantors. Neither we, the Guarantors nor the Trustee will be liable
for any delay by DTC or its Direct Participants or Indirect Participants in
identifying the beneficial owners of the notes, and we and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the notes for all purposes.
The global notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of such
Direct Participant but generally will settle in immediately available funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more Direct Participants to
whose account interests in the global notes are credited and only in respect of
such portion of the aggregate principal amount of the notes to which such Direct
Participant or Direct Participants has or have given direction. However, if
there is an Event of Default under the notes, DTC reserves the right to exchange
global notes (without the direction of one or more of its Direct Participants)
for legended
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notes in certificated form, and to distribute such certificated forms of notes
to its Direct Participants. See "--Transfers of Interests in Global Notes for
Certificated Notes."
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in global notes among Direct Participants, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of us, the Guarantors or the
Trustee shall have any responsibility for the performance by DTC or its Direct
and Indirect Participants of their respective obligations under the rules and
procedures governing any of their operations.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire global note may be exchanged for definitive notes in registered,
certificated form without interest coupons if (1) DTC (a) notifies us that it is
unwilling or unable to continue as depositary for the global notes and we
thereupon fail to appoint a successor depositary within 90 days or (b) has
ceased to be a clearing agency registered under the Exchange Act, (2) we, at our
option, notify the Trustee in writing that we elect to cause the issuance of
certificated notes or (3) there shall have occurred and be continuing a Default
or an Event of Default with respect to the notes. In any such case, we will
notify the Trustee in writing that, upon surrender by the Direct and Indirect
Participants of their interest in such global note, certificated notes will be
issued to each person that such Direct and Indirect Participants and DTC
identify as being the beneficial owner of the related notes.
Beneficial interests in global notes held by any Direct or Indirect
Participant may be exchanged for certificated notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated notes
delivered in exchange for any beneficial interest in any global note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither we, the Guarantors nor the Trustee will be liable for any delay by
the holder of any global note or DTC in identifying the beneficial owners of
notes, and we and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of the global note or DTC for all
purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the notes represented by
the global notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such global note.
With respect to certificated notes, we will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available same day funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. We expect that secondary trading in the
certificated notes will also be settled in immediately available funds.
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FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the U.S. federal income tax consequences
relevant to the exchange of outstanding notes for exchange notes in accordance
with the exchange offer, and the ownership and disposition of the exchange
notes. This summary is based upon the U.S. Internal Revenue Code, Treasury
Regulations, judicial authorities, published positions of the IRS and other
applicable authorities, all as in effect on the date of this prospectus and all
of which are subject to change or differing interpretations, possibly with
retroactive effect. This discussion is limited to holders that acquire exchange
notes in connection with this exchange offer and that hold exchange notes as
capital assets within the meaning of Section 1221 of the U.S. Internal Revenue
Code of 1986 and not as part of a hedging, straddle, conversion or other
integrated transaction. Moreover, this discussion is for general information
only and does not address all of the tax consequences that may be relevant to a
particular holder or to holders subject to special treatment under U.S. federal
income tax laws (including financial institutions, insurance companies, broker
dealers, tax-exempt organizations, persons who have ceased to be United States
citizens or to be subject to tax as resident aliens, and persons whose
functional currency is not the U.S. dollar, all of whom may be subject to tax
rules that differ significantly from those summarized below). No ruling has been
or will be sought from the IRS regarding any matter discussed herein. No
assurance can be given that the IRS would not assert, or that a court would not
sustain, a position contrary to any of the tax aspects set forth below.
Prospective investors are urged to consult their tax advisors as to the U.S.
federal income tax consequences of acquiring, holding and disposing of exchange
notes, as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
For purposes of this discussion, a "U.S. holder" means a beneficial owner
of an outstanding note or an exchange note that is for, U.S. federal income tax
purposes, any one of the following:
- an individual who is a citizen or resident of the United States;
- a corporation or partnership (including an entity treated as a
corporation or partnership for U.S. federal income tax purposes) created
in or organized under the law of the United States or any state or
political subdivision thereof;
- an estate the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust, the administration of which is subject to the primary
supervision of a United States court and that has one or more United
States persons who have the authority to control all substantial
decisions of the trust, or that was in existence on August 20, 1996, and
properly elected to continue to be treated as a United States person.
The U.S. federal income tax consequences to an owner of an outstanding note
or an exchange note that is a partnership may depend on the status of its
partners and the activities of the partnership. Partnerships and their partners
should consult their tax advisors as to the particular federal income tax
consequences applicable to them.
A beneficial owner of an outstanding note or exchange note that is not a
U.S. holder is referred to herein as a "non-U.S. holder."
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
The exchange of outstanding notes for exchange notes pursuant to the
exchange offer will not be a taxable event for U.S. federal income tax purposes.
U.S. holders and non-U.S. holders will not recognize gain or loss as a result of
such exchange and will have the same tax basis and holding period in exchange
notes received as in outstanding notes surrendered in exchange therefor.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS OF OWNERSHIP OF EXCHANGE
NOTES
In general, the federal income tax consequences of holding and disposing of
exchange notes will be the same as those applicable to outstanding notes.
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TREATMENT OF STATED INTEREST AND ORIGINAL ISSUE DISCOUNT
Payments of stated interest on exchange notes generally will be taxable to
a U.S. holder as ordinary interest income at such time as such payments are
received or accrued in accordance with the U.S. holder's regular method of tax
accounting. A U.S. holder required to include original issue discount in income
with respect to outstanding notes will continue to be so required with respect
to exchange notes.
SALE, REDEMPTION, OR DISPOSITION OF EXCHANGE NOTES
A U.S. holder will generally recognize capital gain or loss upon the sale,
redemption, or other disposition of an exchange note in an amount equal to the
difference between the amount realized on the sale, redemption or other
disposition (not including any amount attributable to accrued but unpaid stated
interest) and the U.S. holder's adjusted tax basis in the exchange note. Any
capital gain or loss will be long-term if the exchange note has been held for
more than one year. The claim of a deduction in respect of a capital loss, for
U.S. federal income tax purposes, is subject to limitations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the IRS and to each U.S. holder that is not an
exempt recipient any interest (including original issue discount) paid to such a
U.S. holder. In addition, information reporting requirements apply to certain
payments of principal paid on the exchange notes and to the proceeds of the
sale, redemption or other disposition of an exchange note.
A backup withholding tax will apply to those payments if a U.S. holder
fails to provide a taxpayer identification number or a certification of exempt
status or fails to report in full interest income. Backup withholding is not an
additional tax. Any amounts withheld from a payment to a U.S. holder under the
backup withholding rules will be allowed as a credit against such holder's U.S.
federal income tax liability and may entitle such holder to a refund, provided
that the required information is furnished to the IRS and the requisite
procedures are followed.
U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OWNERSHIP OF
EXCHANGE NOTES
PAYMENT OF INTEREST
Subject to the discussion below concerning backup withholding, payments of
interest (including original issue discount) on the exchange notes to any
non-U.S. holder will not be subject to U.S. federal income tax or withholding
tax, provided that:
- the interest (including original issue discount) is not effectively
connected with the conduct by such holder of a trade or business in the
United States;
- the holder (1) does not own, actually or constructively, 10% or more of
the total combined voting power of all our classes of stock entitled to
vote, (2) is not a controlled foreign corporation related, directly or
indirectly, to us through stock ownership, (3) is not a foreign
tax-exempt organization or foreign private foundation and (4) is not a
bank receiving interest described in Section 881(c)(3)(A) of the Code;
and
- the certification requirement, as described below, has been fulfilled
with respect to the beneficial owner.
The certification requirement referred to above will be fulfilled if the
beneficial owner of an exchange note certifies on IRS Form W-8BEN or successor
form under penalties of perjury that it is not a United States person and
provides its name and address and (1) such beneficial owner files such Form
W-8BEN or successor form with the withholding agent or (2) in the case of an
exchange note held on behalf of the beneficial owners by a securities clearing
organization, bank or other financial institution holding customers' securities
in the ordinary course of its trade or business, such financial institution
files with the withholding agent a statement that it has received the Form
W-8BEN or successor form from the non-U.S. holder, furnishes the withholding
agent with a copy thereof and otherwise complies with the applicable IRS
requirements.
Alternatively, these certification requirements will not apply if the
beneficial owner of an exchange note holds such note directly through a
"qualified intermediary" (which is a non-U.S. office of a bank, securities
dealer or similar intermediary that has signed an agreement with the IRS
concerning withholding tax procedures),
93
99
the qualified intermediary has sufficient information in its files to indicate
that the holder is a non-U.S. holder and the intermediary complies with IRS
requirements. Special rules may apply with respect to exchange notes held by a
foreign partnership. Foreign partnerships and their partners and holders who
hold their exchange notes through a qualified intermediary are urged to consult
their tax advisers regarding possible reporting requirements.
The gross amount of payments of interest (including original issue
discount) that do not qualify for the exception from withholding described above
and that are not effectively connected with the conduct by such holder of a
trade or business in the United States will be subject to U.S. withholding tax
at a rate of 30% unless a treaty applies to reduce or eliminate withholding and
the non-U.S. holder properly certifies to its entitlement to such treaty
benefits.
SALE, REDEMPTION, OR DISPOSITION OF EXCHANGE NOTES
Subject to the discussion below concerning backup withholding, a non-U.S.
holder of an exchange note generally will not be subject to U.S. federal income
tax on gain realized on the sale, redemption or other disposition of such
exchange note, unless:
- such holder is an individual who is present in the United States for 183
days or more in the taxable year of disposition and certain other
conditions are met; or
- such gain is effectively connected with the conduct by such holder of a
trade or business in the United States; or
- the holder is subject to the special rules applicable to certain former
citizens and residents of the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the IRS and to each non-U.S. holder any interest
(including original issue discount) paid to the non-U.S. holder. Copies of these
information returns may also be made available under the provisions of a
specific treaty or other agreement to the tax authorities of the country in
which a non-U.S. holder resides.
Under current U.S. federal income tax law, backup withholding tax will not
apply to payments of interest by us or any paying agent thereof on an exchange
note if the certifications described above under "-- U.S. Federal Income Tax
Consequences to Non-U.S. Holders of Ownership of Exchange Notes -- Payment of
Interest" are received, provided that we or such paying agent, as the case may
be, do not have actual knowledge or reason to know that the payee is a U.S.
person or that the conditions of any other exemption are not in fact satisfied.
Payments on the sale, exchange or other disposition of an exchange note
made to or through a foreign office of a foreign broker generally will not be
subject to backup withholding or information reporting. However, if such broker
is for U.S. federal income tax purposes a U.S. person, a controlled foreign
corporation, a foreign person 50% or more of whose gross income is effectively
connected with a U.S. trade or business for a specified three-year period or a
foreign partnership with certain connections to the United States, then
information reporting will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a U.S. person and certain
other conditions are met or the beneficial owner otherwise establishes an
exemption. Backup withholding may apply to any payment that such broker is
required to report if the broker has actual knowledge or reason to know that the
payee is a U.S. person. Payments to or through the U.S. office of a broker will
be subject to backup withholding and information reporting unless the holder
certifies, under penalties of perjury, that it is not a U.S. person or otherwise
establishes an exemption. Recently promulgated Treasury Regulations provide
certain presumptions under which a non-U.S. holder will be subject to backup
withholding and information reporting unless such holder certifies as to its
non-U.S. status or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld from a
payment to a non-U.S. holder under the backup withholding rules will be allowed
as a credit against such holder's U.S. federal income tax liability and may
entitle such holder to a refund, provided that the required information is
furnished to the IRS and the requisite procedures are followed.
94
100
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of exchange 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 exchange notes received in exchange
for outstanding notes where such outstanding notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for a
period of 180 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 such resale. In addition, until October 12, 2002, all dealers effecting
transactions in the exchange offer may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to the
prospectus to any broker-dealer that requests such 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 outstanding notes,
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the exchange notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
us by Jones, Day, Reavis & Pogue, Cleveland, Ohio.
INDEPENDENT ACCOUNTANTS
The financial statements included and incorporated by reference in this
prospectus to the Annual Report on Form 10-K of Penton Media, Inc. (formerly
Penton Publishing, Inc. and, prior to August 7, 1998, a wholly owned subsidiary
of Pittway Corporation) for the year ended December 31, 2000 have been so
included and incorporated in reliance on the report(s) of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
95
101
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Penton Media, Inc. Consolidated Financial Statements
(Audited):
Report of Independent Accountants......................... F-2
Consolidated Statements of Income for the years ended
December 31, 1998, 1999, and 2000...................... F-3
Consolidated Balance Sheets at December 31, 1999 and
2000................................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999, and 2000...................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1999, and 2000.......... F-6
Notes to Consolidated Financial Statements................ F-7
Penton Media, Inc. Consolidated Financial Statements
(Unaudited):
Consolidated Statements of Income for the three and six
months ended June 30, 2000 and 2001.................... F-38
Consolidated Balance Sheets at December 31, 2000 and June
30, 2001............................................... F-39
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 2001........................... F-40
Notes to Unaudited Consolidated Financial Statements...... F-41
</Table>
F-1
102
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Penton Media, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Penton Media, Inc. (formerly Penton Publishing, Inc. and, prior to
August 7, 1998, a wholly owned subsidiary of Pittway Corporation) and its
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers, LLP
Cleveland, Ohio
February 7, 2001 except as to Note 20 which is as of June 6, 2001
F-2
103
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998 1999 2000
--------- --------- ---------
(DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE DATA)
REVENUES.................................................... $207,682 $300,824 $404,571
-------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation..................... 86,091 116,924 147,012
Selling, general and administrative....................... 87,582 116,592 166,271
Impairment of Internet assets............................. -- -- 2,095
Impairment of other assets................................ -- -- 1,051
Depreciation and amortization............................. 7,791 27,918 33,431
-------- -------- --------
181,464 261,434 349,860
-------- -------- --------
OPERATING INCOME............................................ 26,218 39,390 54,711
OTHER INCOME (EXPENSE):
Interest expense, net of interest earned.................. (5,545) (21,131) (14,133)
Gain on sale of investments............................... -- 5,906 110,210
Writedown of Internet investments......................... -- -- (9,490)
Miscellaneous, net........................................ (45) (170) (64)
-------- -------- --------
(5,590) (15,395) 86,523
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....... 20,628 23,995 141,234
PROVISION FOR INCOME TAXES.................................. 9,442 16,065 61,559
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................... 11,186 7,930 79,675
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations (less
applicable income taxes (benefit) of $(199), and $34 in
1998 and 1999, respectively)........................... (296) 33 --
Gain (loss) on sale of discontinued operations, including
provision of $60 in 1999 for operating losses during
phaseout period (less applicable income taxes (benefit)
of $5,771 and $(57), in 1999 and 2000, respectively)... -- 8,660 (85)
-------- -------- --------
(296) 8,693 (85)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM............................ 10,890 16,623 79,590
EXTRAORDINARY ITEM -- EARLY EXTINGUISHMENT OF DEBT (NET OF
INCOME TAXES OF $5,600)................................... -- (8,413) --
-------- -------- --------
NET INCOME.................................................. $ 10,890 $ 8,210 $ 79,590
======== ======== ========
EARNINGS PER COMMON SHARE -- BASIC:
Income from continuing operations......................... $ 0.51 $ 0.28 $ 2.51
Discontinued operations................................... (0.01) 0.31 --
Extraordinary item........................................ -- (0.30) --
-------- -------- --------
Net income................................................ $ 0.50 $ 0.29 $ 2.51
======== ======== ========
EARNINGS PER COMMON SHARE -- DILUTED:
Income from continuing operations......................... $ 0.51 $ 0.28 $ 2.49
Discontinued operations................................... (0.01) 0.31 --
Extraordinary item........................................ -- (0.30) --
-------- -------- --------
Net income................................................ $ 0.50 $ 0.29 $ 2.49
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic..................................................... 21,882 28,108 31,730
======== ======== ========
Diluted................................................... 21,882 28,209 32,010
======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
104
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF DECEMBER 31,
----------------------
1999 2000
--------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 30,370 $ 11,605
Accounts and notes receivable, less allowance for doubtful
accounts of $3,958 and $3,863, respectively............ 40,199 70,059
Inventories............................................... 818 798
Deferred tax assets....................................... -- 5,562
Prepayments, deposits and other........................... 7,583 11,763
Net investment in discontinued operations................. 4,228 --
-------- --------
Total current assets................................... 83,198 99,787
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, buildings and improvements.......................... 3,730 8,205
Machinery and equipment................................... 41,608 63,998
-------- --------
45,338 72,203
Less: accumulated depreciation............................ 30,252 36,706
-------- --------
15,086 35,497
-------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of $27,399 and
$49,142 in 1999 and 2000, respectively................. 411,173 574,626
Other intangibles, less accumulated amortization of $9,541
and $14,901 in 1999 and 2000, respectively............. 40,063 54,122
Investments............................................... 259,859 17,725
-------- --------
711,095 646,473
-------- --------
$809,379 $781,757
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility...................................... $ 3,875 $ 11,250
Accounts payable.......................................... 6,397 12,054
Income taxes payable...................................... 10,172 3,260
Accrued earnouts.......................................... 7,447 14,704
Accrued compensation and benefits......................... 8,599 18,485
Other accrued expenses.................................... 11,426 15,024
Deferred tax liability.................................... 39,634 --
Unearned income, principally trade show and conference
deposits............................................... 30,214 55,772
-------- --------
Total current liabilities.............................. 117,764 130,549
-------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Revolving credit facility................................. -- 91,000
Senior debt facility...................................... 211,125 199,875
Net deferred pension credits.............................. 16,269 15,395
Deferred taxes............................................ 60,887 5,978
Other..................................................... 733 2,391
-------- --------
289,014 314,639
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, 2,000,000 shares authorized; none
issued................................................. -- --
Common stock, $0.01 par value, 60,000,000 shares
authorized; 31,325,896 and 31,836,316 shares issued and
outstanding at December 31, 1999, and 2000,
respectively........................................... 313 318
Notes receivable officers/directors....................... -- (10,207)
Capital in excess of par value............................ 214,551 226,446
Retained earnings......................................... 36,970 112,745
Accumulated other comprehensive income.................... 150,767 7,267
-------- --------
402,601 336,569
-------- --------
$809,379 $781,757
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
105
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1998 1999 2000
-------- --------- --------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 10,890 $ 8,210 $ 79,590
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 7,791 27,918 33,431
Gain on sale of investments............................. -- (5,906) (110,210)
Loss (gain) from discontinued operations................ 296 (8,693) 85
Extraordinary loss on extinguishment of debt............ -- 8,413 --
Deferred income taxes................................... (5,093) (363) (4,379)
Retirement and deferred compensation plans.............. (1,584) (1,182) (875)
Provision for losses on accounts receivable............. 282 943 1,714
Impairment of assets.................................... -- -- 1,051
Impairment of Internet assets........................... -- -- 2,095
Writedown of Internet investments....................... -- -- 9,490
Changes in assets and liabilities, excluding effects from
acquisitions and dispositions:
Accounts and notes receivable......................... (1,960) (3,470) (22,817)
Inventories........................................... 284 (389) 403
Prepayments and deposits.............................. (1,481) 869 1,295
Accounts payable and accrued expenses................. 10,170 (5,444) 7,531
Unearned income....................................... 2,421 12,325 12,894
Other changes, net.................................... 3,733 1,126 (2,058)
-------- --------- --------
Net cash provided by operating activities.......... 25,749 34,357 9,240
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (5,775) (5,884) (27,272)
Acquisitions and investments, net of cash acquired........ (283,382) (57,415) (200,996)
Proceeds from sale of internet.com stock and interests.... 18,000 6,640 113,100
Net proceeds from sale of discontinued operations......... -- 28,889 4,000
-------- --------- --------
Net cash used for investing activities............. (271,157) (27,770) (111,168)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from $325 million senior debt facility........... 306,000 24,500 --
Repayment of $325 million senior debt facility............ -- (330,500) --
Proceeds from $340 million senior debt facility........... -- 235,000 91,000
Repayment of $340 million senior debt facility............ -- (20,000) (3,875)
Payment of notes payable.................................. (38,066) (1,000) --
Payment of financing costs................................ (14,754) (3,461) (283)
Advances to parent company................................ (4,820) -- --
Proceeds from equity offering, net........................ -- 118,416 --
Employee stock purchase plan.............................. -- -- (209)
Proceeds from deferred shares and options exercised....... -- 170 473
Dividends paid............................................ (1,367) (3,246) (3,800)
-------- --------- --------
Net cash provided by financing activities.......... 246,993 19,879 83,306
-------- --------- --------
Effect of exchange rate changes on cash..................... (51) (49) (143)
-------- --------- --------
Net increase (decrease) in cash and equivalents............. 1,534 26,417 (18,765)
Cash and equivalents at beginning of period................. 2,419 3,953 30,370
-------- --------- --------
Cash and equivalents at end of period....................... $ 3,953 $ 30,370 $ 11,605
======== ========= ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
106
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
NOTES OTHER
COMMON CAPITAL IN RECEIVABLE COMPREHENSIVE
PREFERRED COMMON STOCK EXCESS OF RETAINED OFFICERS/ INCOME
SHARES SHARES PAR VALUE PAR VALUE EARNINGS DIRECTORS (LOSS) TOTAL
--------- ------ --------- ---------- -------- ---------- ------------- --------
(DOLLARS IN THOUSANDS)
Balance at December 31, 1997... -- 21,240 $212 $ 29,630 $ 39,771 $ -- $ -- $ 69,613
------ ------ ---- -------- -------- -------- -------- --------
Comprehensive income:
Net income................... -- -- -- -- 10,890 -- -- 10,890
Other comprehensive income:
Foreign currency
translation
adjustments.............. -- -- -- -- -- -- (51) (51)
--------
Comprehensive income......... -- -- -- -- -- -- -- 10,839
--------
Dividends...................... -- -- -- -- (1,367) -- -- (1,367)
Issuance of common stock:
In conjunction with
acquisitions............... -- 1,542 16 25,420 -- -- -- 25,436
Dividends to Pittway........... -- -- -- -- (17,032) -- -- (17,032)
------ ------ ---- -------- -------- -------- -------- --------
Balance at December 31, 1998... -- 22,782 $228 $ 55,050 $ 32,262 $ -- $ (51) $ 87,489
------ ------ ---- -------- -------- -------- -------- --------
Comprehensive income:
Net income................... -- -- -- -- 8,210 -- -- 8,210
Other comprehensive income:
Foreign currency
translation
adjustments.............. -- -- -- -- -- -- (787) (787)
Unrealized gain on
securities reported at
fair value............... -- -- -- -- -- -- 151,605 151,605
--------
Comprehensive income......... -- -- -- -- -- -- -- 159,028
--------
Dividends...................... -- -- -- -- (3,502) -- -- (3,502)
Issuance of common stock:
Stock offering............... -- 6,430 64 118,352 -- -- -- 118,416
In conjunction with
acquisitions............... -- 2,103 21 40,979 -- -- -- 41,000
Exercise of deferred shares
and stock options.......... -- 11 -- 170 -- -- -- 170
------ ------ ---- -------- -------- -------- -------- --------
Balance at December 31, 1999... -- 31,326 $313 $214,551 $ 36,970 $ -- $150,767 $402,601
------ ------ ---- -------- -------- -------- -------- --------
Comprehensive income:
Net income................... -- -- -- -- 79,590 -- -- 79,590
Other comprehensive income:
Unrealized loss on
securities reported at
fair value............... -- -- -- -- -- -- (73,323) (73,323)
Reclassification adjustment
for gain on securities... -- -- -- -- -- -- (70,272) (70,272)
Foreign currency
translation adjustment... -- -- -- -- -- -- 95 95
--------
Comprehensive income......... (63,910)
--------
Dividends...................... -- -- -- -- (3,815) -- -- (3,815)
Issuance of common stock:
Executive loan program....... -- 410 4 9,662 -- -- -- 9,666
Contingent shares............ -- 52 1 1,428 -- -- -- 1,429
Exercise of stock options.... -- 48 -- 1,014 -- -- -- 1,014
Employee stock purchase
plan....................... -- -- -- (209) -- -- -- (209)
Receivable from
officers/directors........... -- -- -- -- -- (10,207) -- (10,207)
------ ------ ---- -------- -------- -------- -------- --------
Balance at December 31, 2000... -- 31,836 $318 $226,446 $112,745 $(10,207) $ 7,267 $336,569
====== ====== ==== ======== ======== ======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
107
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Penton Media, Inc., ("Penton") is a leading diversified
business-to-business media company that produces market focused magazines, Web
sites, trade shows and conferences. Penton's integrated media portfolio serves
the following market sectors: Internet/broadband; information technology;
electronics; design/engineering; natural products; food/retail;
government/compliance; leisure/hospitality; manufacturing; mechanical
systems/construction; supply chain and aviation.
Prior to August 7, 1998, Penton was a wholly owned subsidiary of Pittway
Corporation. On August 7, 1998, Pittway distributed 100% of Penton's common
stock on a share-for-share basis to holders of Pittway stock.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Penton and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated. All acquisitions have been accounted for under the purchase
method of accounting and are included in the consolidated financial statements
from their respective dates of acquisition. The consolidated financial
statements also include the accounts of all companies more than 50% owned where
the Company exercises control.
Investments in companies in which Penton has significant influence, but
less than a controlling voting interest, are accounted for under the equity
method. Investments in companies in which Penton does not have a controlling
interest, or an ownership and voting interest so large as to exert significant
influence, are accounted for at market value if the investments are publicly
traded. Unrealized gain/(loss) on investments accounted for at market value are
reported net-of-tax as a component of accumulated other comprehensive
income(loss) until the investment is sold, at which time the realized
gain/(loss) is included in earnings as the Company considers these investments
to be available for sale. If the investment is not publicly traded, then the
investment is accounted for at cost.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include primarily cash on hand and short-term
investments. Short-term investments that have an original maturity of three
months or less are considered cash equivalents. All investments in debt
securities that have an original maturity of three months or less are considered
to be held to maturity. Short-term securities are carried at amortized cost,
which approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost or market. Penton's inventory
consists of paper stock, which is valued using the last-in, first-out (LIFO)
method. The LIFO reserve balances are $0.3 million and $0.1 million at December
31, 1999, and 2000, respectively.
F-7
108
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Penton records
depreciation using the straight-line method over the following estimated useful
lives:
<Table>
Computer equipment and software............. 3-5 years
Furniture, fixtures and equipment........... 3-10 years
Building.................................... 18-40 years
Leasehold improvements...................... Estimated useful lives or lease term,
whichever is shorter
</Table>
Depreciation expense amounted to $3.4 million, $4.9 million and $6.9
million for the years ended December 31, 1998, 1999 and 2000, respectively.
Maintenance and repair expenditures are charged to appropriate expense
accounts in the period incurred; replacements, renewals and betterments are
capitalized. Upon sale or other disposition of property, the cost and
accumulated depreciation of such properties are eliminated from the accounts,
and the gains or losses thereon are reflected in operations.
INTANGIBLE ASSETS
Goodwill, trademarks and trade names identified in purchase transactions
are amortized using the straight-line method over periods ranging from 15 to 40
years. Effective October 1, 1998, Penton changed its estimated useful life on
goodwill associated with trade show acquisitions from 40 years to 20 years. The
change decreased 1998 net income by $0.3 million, or $0.01 per share. The change
was made to better reflect the estimated useful life of goodwill and to be
consistent with prevalent industry practice.
Other intangibles developed internally or acquired in purchase
transactions, consisting of non-compete agreements, customer mailing lists,
exhibitor lists, patents and copyrights, are being amortized using the straight-
line method over their estimated useful lives, ranging from 3 to 15 years.
Amortization expense amounted to $4.4 million, $23.0 million and $26.6
million for the years ended December 31, 1998, 1999 and 2000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually monitors events or changes in circumstances that
could indicate that the carrying amount of long-lived assets, including goodwill
and intangible assets, may not be recoverable. Long-lived assets held for use
are reviewed for impairment by comparing estimated undiscounted cash flows over
remaining useful lives to net book value. When impairment is indicated for a
long-lived asset held for use, the amount of impairment loss is the excess of
net book value over fair value. Assets to be disposed of are recorded at the
lower of the carrying amount or fair value less cost of disposal. The Company
evaluates the recoverability of goodwill by estimating the future discounted
cash flows of the businesses to which the goodwill relates. At December 31,
2000, the Company recorded impairment charges related to certain assets, as
discussed in Note 16.
DEFERRED FINANCING COSTS
Costs incurred in obtaining long-term financing are included in "Other
intangibles" in the accompanying Consolidated Balance Sheets, and are amortized
over the terms of the related indebtedness.
INTEREST RATE SWAP AGREEMENTS
Penton's interest rate swap agreements are designated and effective as
modifications to existing debt obligations to reduce the impact of changes in
the interest rates on its floating-rate borrowings and, accordingly,
F-8
109
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are accounted for using the settlement method of accounting. The differentials
to be paid or received under the interest rate swap agreements are accrued as
interest rates change and are recognized as adjustments to interest expense.
Penton considers swap terms, including the reference rate, payment and maturity
dates, and the notional amount, in determining if an interest rate swap
agreement is effective at modifying an existing debt obligation. If the criteria
for designation are no longer met or the underlying instrument matures or is
extinguished, Penton accounts for outstanding swap agreements at fair market
value, and any resulting gain or loss is recognized. Any gains or losses upon
early termination of the agreements are deferred and amortized over the shorter
of the remaining life of the hedged existing debt obligation or the original
life of the interest rate swap agreement.
At December 31, 1999 and 2000, the effects of swap transactions were
immaterial and recorded in interest expense. There were no swap agreements in
effect at December 31, 1998.
REVENUE RECOGNITION
Advertising revenues from Penton's trade magazines are recognized in the
month the publications are mailed. Amounts received in advance of trade shows
and conferences are deferred until the month the events are held. As such,
revenues from trade shows and conferences are recognized in the month the events
are held. Web site revenues, which include primarily advertising revenues, are
recognized on a straight-line basis over the contract term. Licensing revenues
are recognized on a straight-line basis over the term of the license agreement.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are expensed as incurred. These costs
amounted to $12.4 million, $18.2 million and $26.1 million in 1998, 1999 and
2000, respectively.
INCOME TAXES
Income taxes are accounted for using the asset and liability method.
Deferred tax assets and liabilities are recognized for the expected future tax
consequences attributable to temporary differences between the financial
statement carrying amounts and the tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of Penton's foreign operations is their local
currency. Accordingly, assets and liabilities of foreign operations are
translated to U.S. dollars at the rates of exchange at December 31, 1999, and
2000; income and expense are translated at the average rates of exchange
prevailing during the applicable year. There were no significant foreign
currency gains or losses in 1998, 1999 or 2000. The effects of translation are
included in "Accumulated other comprehensive income" in stockholders' equity.
EARNINGS PER SHARE
Basic earnings per share are based upon the weighted-average number of
common shares outstanding. Diluted earnings per share assumes the exercise of
all options which are dilutive, whether exercisable or not.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). Penton was required
to adopt this statement in the first quarter of 2000. In June 1999, the FASB
issued SFAS
F-9
110
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the
effective date of adoption of SFAS 133 to all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 was subsequently amended by SFAS
138 "Accounting for Certain Derivative and Certain Hedging Activities -- an
Amendment of FASB Statement No 133" ("SFAS 138"). Penton is required to adopt
this statement effective January 1, 2000. Even though Penton has entered into
interest rate cap, collar and swap agreements, management does not believe that
these statements, when adopted, will have a material impact on Penton's
business, results of operations or financial condition.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provided guidance on applying existing generally accepted
accounting principles to revenue recognition issues in financial statements. The
Company adopted SAB 101 during the fourth quarter of 2000. The adoption of SAB
101 did not have a material effect on the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1999 financial
statements to conform to the 2000 presentation.
NOTE 3 -- ACQUISITIONS
2000 ACQUISITIONS
In November 2000, Penton acquired the stock of Group Computing for $0.2
million in cash. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $0.2 million is being amortized
over 20 years. Group Computing serves Lotus professionals through its magazine
and online resources.
In September 2000, Penton acquired the stock of Duke Communications
International ("Duke") for $100.0 million in cash plus contingent consideration
of up to $50 million based on the achievement of specified business targets
through 2002. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $103.3 million is being amortized
over periods ranging from 15 to 40 years. Duke is a leading integrated media
company serving the Windows 2000 and AS/400 operating systems markets.
In September 2000, Penton acquired the assets of Professional Trade Shows
("PTS") for $17.0 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $16.1 million
is being amortized over 20 years. PTS produces 50 regional trade shows for the
plant engineering and maintenance, material handling, buildings and facilities
maintenance, design engineering, and machine tool industries.
In September 2000, Penton acquired the stock of Streaming Media, Inc., for
$65.0 million in cash plus contingent consideration of up to $35.0 million based
on the achievement of specified business targets in 2001. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $62.9 million is being amortized over periods ranging from 15 to
20 years. Streaming Media, Inc. is a leading integrated media company serving
the streaming media market.
In July 2000, Penton acquired the stock of Meko Ltd. ("Meko") of Surrey,
UK, for $0.3 million in cash. The excess of the aggregate purchase price over
the fair market value of net assets acquired of approximately $0.3 million is
being amortized over 20 years. Meko is a provider of newsletters, comprehensive
market studies, and custom information services for the European computer
display market.
In July 2000, Penton acquired the assets of National Advisory Group ("NAG")
for $1.5 million in cash. The excess of the aggregate purchase price over the
fair market value of net assets acquired of approximately
F-10
111
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1.4 million is being amortized over 20 years. NAG is a trade group serving the
convenience store and petroleum marketing industry through its business
development services and its conferences.
In May 2000, Penton purchased 50% of the outstanding stock of a German
Corporation, ComMunic GmbH, which produces trade shows, conferences and business
publications in Germany and its German speaking neighboring countries. ComMunic
serves the Internet, telecommunications and other growing technology markets.
Penton paid approximately $1.4 million in cash with the potential for future
contingent payments in 2000 and 2001 tied to future earnings. At December 31,
2000, Penton accrued contingent payments of approximately $2.9 million.
In February 2000, Penton acquired the assets of Profit.Net, Inc. for $0.4
million in cash and contingent payments of up to $0.1 million in 2000. The
excess of the aggregate purchase price over the fair market value of net assets
acquired of approximately $0.4 million is being amortized over 5 years. The
assets of Profit.Net, Inc. include bakery-net.com, a Web site for the commercial
baking market. At December 31, 2000, Penton accrued contingent payments of $0.1
million.
1999 ACQUISITIONS
In December 1999, Penton completed the acquisition of the assets of
Nutracon for $3.1 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $3.1 million
is being amortized over 20 years. Nutracon is a conference serving the
functional foods/ nutraceutical market.
In October 1999, Penton acquired all the outstanding stock of Stardust.com
and simultaneously purchased the net assets of Stardust Technologies Inc.
(collectively "Stardust"), for a combined purchase price of $4.0 million in cash
and future contingent payments of up to $5.0 million tied to future earnings of
Stardust through the year 2002. The excess of the aggregate purchase price over
the fair market value of net assets acquired of approximately $3.7 million is
being amortized over 20 years. Stardust, through its Web portal site,
conferences, forums and newsletters, facilitates collaboration among Internet
technology standards bodies, technology product vendors and the IT user
community to speed market adoption of next-generation Internet technologies. At
December 31, 2000, Penton accrued contingent payments of approximately $1.7
million.
In August 1999, Penton completed the asset acquisition of Multimedia Week
for $0.2 million in cash. Multimedia Week is a weekly publication that features
IPOs and venture capital tracking, in-depth product and technology spotlights,
information about new and emerging technologies, and market data.
In May 1999, Penton acquired substantially all of the assets of New Hope.
In full consideration for the transfer of the assets, Penton agreed to pay a
total purchase price of up to $97.0 million for New Hope. The purchase price
comprised $41.0 million in cash and $41.0 million (2,102,564 shares) in common
stock which were paid and issued at the closing. New Hope is eligible to earn a
contingent payment of up to $15.0 million to be paid half in cash and half in
common stock, based on New Hope's performance for the fiscal years 1999, 2000
and 2001. The excess of the aggregate purchase price over the fair market value
of net assets acquired of approximately $78.2 million is being amortized over
periods ranging from 20 to 40 years. New Hope is a leading business media
company serving the natural products industry through trade shows, conferences,
magazines and Web sites. At December 31, 1999 and 2000, Penton accrued
contingent payments of approximately $2.3 million and $10.1 million,
respectively. The 2000 contingent payment was paid all in cash.
In May 1999, Penton completed the acquisition of Jon Peddie Associates for
$1.3 million in cash and contingent payments of up to $3.0 million tied to
future earnings of Jon Peddie through the year 2001. The excess of the aggregate
purchase price over the fair market value of net assets acquired of
approximately $1.0 million is being amortized over 40 years. At December 31,
1999, Penton accrued $1.0 million for the 1999 contingent payout. No amounts
were accrued for 2000. Jon Peddie is an information company that conducts
research,
F-11
112
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
publishes market studies and special reports, and provides consulting services
to the electronics, semiconductor and digital media industries.
In February 1999, Penton acquired the assets of MFG Publishing, Inc. for a
total purchase price of up to $2.5 million, of which $0.8 million was paid in
cash and the remaining $1.7 million is contingent upon earnings through the year
2001. The excess of the aggregate purchase price over the fair market value of
net assets acquired of approximately $0.6 million is being amortized over 40
years. MFG provides information to the enterprise resource planning segment of
the manufacturing technology industry.
1998 ACQUISITIONS
In November 1998, Penton completed a cash tender offer for all the
outstanding shares of Mecklermedia Corporation ("Mecklermedia"). Each
Mecklermedia shareholder received $29.00 in cash for each share of common stock
held. The total value of the transaction was $273.8 million, funded with the net
proceeds from Penton's credit facility. Simultaneous with the completed
transaction, Penton sold an 80.1% equity interest in internet.com Corporation to
Alan M. Meckler for $18.0 million (see Note 6) and renamed Mecklermedia Internet
World Media, Inc ("IWM"). The excess of the aggregate purchase price over the
fair market value of net assets acquired of approximately $244.0 million is
being amortized over periods ranging from 20 to 40 years. Penton increased its
goodwill by $1.5 million in 1999 as a result of resolving certain contingencies
existing at the date of acquisition. IWM is a business media company serving the
Internet market through publications, trade shows and conferences, and Web
sites.
In August 1998, Penton completed the acquisition of DM Publishing for $7.0
million in cash, 1,541,638 shares of Penton common stock and an additional $3.0
million in cash based on DM Publishing's pre-tax income for the years 1998 and
1999. The excess of the aggregate purchase price over the fair market value of
net assets acquired of approximately $31.3 million is being amortized over 40
years.
NOTE 4 -- DISCONTINUED OPERATIONS
During the first quarter of 2000, Penton completed the sale of the net
assets of its Direct Mail segment for $4.0 million in cash. An additional
operating loss through the date of sale of $0.08 million, net of a tax benefit
of $0.06 million, was recorded and classified as loss on sale of discontinued
operations in the accompanying financial statements for the year ended December
31, 2000. This was in addition to the $0.06 million that was accrued in 1999.
Operating results for the discontinued Direct Mail segment for 1998 and
1999 are as follows (in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------
1998 1999
--------- ---------
Revenues.................................................... $13,779 $12,199
------- -------
Loss before income tax benefit.............................. (1,316) (464)
Benefit for income taxes.................................... (527) (186)
------- -------
Loss from discontinued operations........................... $ (789) $ (278)
======= =======
</Table>
F-12
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PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 30, 1999, Penton sold its Printing segment, realizing cash
proceeds of $31.0 million. The sale resulted in a gain of $9.3 million, net of
$6.2 million in income taxes. Operating results of the discontinued Printing
segment for 1998 and 1999 are as follows (in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------
1998 1999
--------- ---------
Revenues.................................................... $11,657 $10,424
------- -------
Income before income tax expense............................ 821 531
Provision for income taxes.................................. 328 220
------- -------
Income from discontinued operations......................... $ 493 $ 311
======= =======
</Table>
NOTE 5 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information for the years ended
December 31, 1999 and 2000, assumes that the 1999 and 2000 acquisitions occurred
as of the beginning of the respective periods, after giving effect to certain
adjustments, including the amortization of intangible assets, interest expense
on acquisition debt, offering proceeds used directly for acquisitions and
related income tax effects. The pro forma information excludes the effects of
synergies and cost reduction initiatives directly related to all acquisitions.
These actions have already commenced and are expected to continue in the year
2001.
The pro forma information is presented for information purposes only and is
not necessarily indicative of the results of operations that actually would have
been achieved had these transactions been consummated at the beginning of the
period presented (in thousands, except per share data):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
-------------------------
1999 2000
---------- ----------
Pro forma revenues.......................................... $376,205 $449,366
======== ========
Pro forma income (loss) from continuing operations.......... $ (1,093) $ 72,710
======== ========
Pro forma net income (loss) applicable to common
stockholders.............................................. $ (813) $ 72,625
======== ========
Per share data:
Earnings per common share -- basic:
Income (loss) from continuing operations.................. $ (0.04) $ 2.29
Discontinued operations................................... 0.31 --
Extraordinary item........................................ (0.30) --
-------- --------
Net income (loss)......................................... $ (0.03) $ 2.29
======== ========
Earnings per common share -- diluted:
Income (loss) from continuing operations.................. $ (0.04) $ 2.27
Discontinued operations................................... 0.31 --
Extraordinary item........................................ (0.30) --
-------- --------
Net income (loss)......................................... $ (0.03) $ 2.27
======== ========
</Table>
The pro forma information above does not include the operations of Jon
Peddie and Multimedia Week, which were acquired in 1999, and Profit.Net, Inc.
and ComMunic, which were acquired in 2000, as the historical information is
immaterial.
F-13
114
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENTS
In November 1998, Penton entered into a joint venture agreement with Mr.
Meckler, formerly associated with Mecklermedia, with respect to internet.com,
LLC. As part of the acquisition of Mecklermedia, Penton sold 80.1% of its
interest in internet.com, LLC to Mr. Meckler; other ownership interests were
contributed to internet.com, LLC management such that Penton's ownership
interest decreased to 19.0%. In April and June 1999, Penton contributed $0.4
million in cash and exercised a warrant for $3.0 million in cash, respectively,
increasing its ownership interest from 19.0% to 27.4%.
In June 1999, internet.com, LLC converted into a corporation and completed
its initial public offering at $14.00 per share. At that time, Penton received
5,483,383 shares in exchange for its interest in internet.com, LLC, retaining a
23.4% ownership interest. In July 1999, Penton sold 510,000 shares of
internet.com Corporation stock as part of internet.com Corporation's initial
public offering over-allotment option, which reduced Penton's ownership interest
to 21.25%. Penton received cash of $6.6 million, net of expenses, and recognized
a gain of $5.9 million. In February 2000, Penton sold 2.0 million shares of
internet.com Corporation stock as part of a 3.75 million-share offering. Penton
received cash of $113.1 million and recognized a pre-tax gain of approximately
$110.2 million. At December 31, 2000, Penton maintains an 11.8% ownership
interest, representing approximately 3.0 million shares, in internet.com
Corporation.
Prior to the sale of its shares in February 2000, Penton did not have
significant influence over the operating affairs of internet.com Corporation and
intended for its investment to be temporary; accordingly, Penton marked to
market its investment in internet.com Corporation and continues to mark its
investment to market as it is an available for sale security. At December 31,
2000, the fair market value of Penton's investment totaled $17.7 million,
including a cumulative mark to market adjustment of $13.4 million and related
adjustment in long-term deferred taxes of $5.3 million and other comprehensive
income of $8.0 million.
NOTE 7 -- DEBT
SENIOR SECURED CREDIT FACILITY
Penton maintains a credit agreement with several banks under which it may
borrow up to $340.0 million. The agreement provides for a revolving credit
facility of up to $125.0 million, a long-term loan of $140.0 million ("Term Loan
A") and a long-term loan of $75.0 million ("Term Loan B").
The credit facility is collateralized by all tangible and intangible assets
of Penton, including the equity interests in all of its U.S. subsidiaries and
not less than 65% of the equity interests of any of its foreign subsidiaries.
Under the terms of the agreement, Penton is required to maintain certain
financial ratios and other financial conditions. The agreement also prohibits
Penton from incurring certain additional indebtedness; limits certain
investments, advances or loans; and restricts substantial asset sales and cash
dividends. At December 31, 2000, Penton was in compliance with all loan
covenants.
In October 2000, Penton amended its Credit Agreement to give the Company
the option to increase, in the aggregate, its Term Loan A, Term Loan B and/or
its Revolver by $100.0 million. The Term Loans and the Revolver cannot be
increased on more than three separate occasions and any increase must take place
by September 30, 2001.
In April 2000, Penton amended its Credit Agreement to give the Company the
flexibility to sell assets of up to $30.0 million and the ability to monetize
the Company's joint venture investments.
The revolving credit facility bears interest, at Penton's option, at either
the Alternative Base Rate ("ABR"), defined as the higher of the Administrative
Agent's Prime Rate or the Federal Funds Rate plus 0.50%, or at LIBOR, plus a
rate margin ranging from 0.25% to 2.125% based on Penton's consolidated leverage
ratio, as defined. Up to the full amount of the revolving credit facility may be
borrowed, repaid and reborrowed until maturity on August 31, 2006; however, the
revolving credit facility commitment shall be reduced as of
F-14
115
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
September 30, 2003, by 7.5% per quarter until September 30, 2005, at which time
it will be reduced by 10% per quarter until maturity. At December 31, 2000,
$91.0 million was outstanding under the revolving credit facility. Penton has
agreed to pay a commitment fee ranging from 0.375% to 0.50%, based on Penton's
consolidated leverage ratio, on the average unused portion of the revolving
credit facility commitment.
Term Loan A bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.25% to 2.125%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At December 31, 2000, the
rate in effect was 7.9375%. The loan, which requires quarterly principal
payments starting in September 2000, will mature on August 31, 2006. At December
31, 2000, $136.5 million was outstanding under Term Loan A.
Term Loan B bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.5% to 2.50%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At December 31, 2000, the
rate in effect was 8.4375%. The loan requires quarterly principal payments of
approximately $0.2 million starting in September 2000, and four balloon payments
of $17.6 million beginning in September 2006, and will mature on August 31,
2007. At December 31, 2000, $74.6 million was outstanding under Term Loan B.
As of December 31, 2000, the scheduled principal payments of the Term A and
B loans for the next five years and thereafter are as follows (in thousands):
<Table>
<Caption>
YEAR AMOUNT
---- --------
2001........................................................ $ 11,250
2002........................................................ 18,250
2003........................................................ 25,250
2004........................................................ 32,250
2005........................................................ 35,750
Thereafter.................................................. 88,375
--------
$211,125
========
</Table>
In the third quarter of 1999, Penton recognized a non-cash extraordinary
charge of approximately $6.3 million ($0.20 per share), net of $4.2 million in
taxes, relating to the write-off of unamortized deferred finance costs
associated with the former credit facility. In May 1999, Penton recognized a
non-cash extraordinary charge of approximately $2.1 million ($0.08 per share),
net of approximately $1.4 million in taxes, for the write-off of unamortized
deferred finance costs upon the extinguishment of part of the outstanding former
senior debt with the proceeds from the 6.5 million share common stock offering
completed in May 1999.
The Credit Agreement requires Penton to hedge not less than 50% of the term
loans outstanding for a period of at least three years (see Note 8).
Cash paid for interest for 1998, 1999 and 2000, was $5.5 million, $19.9
million and $19.5 million, respectively. Included in interest expense in the
Consolidated Statements of Income are $0.01 million, $0.9 million and $3.6
million of interest income for 1998, 1999 and 2000, respectively.
NOTE 8 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable and accrued expenses approximate fair value due to
the short maturity of these instruments. The fair values of certain investments
are determined using quoted market prices for those securities. The carrying
amount of long-term debt approximates fair value, as the effective rates for
these instruments are comparable to market rates at year-end.
F-15
116
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2000, Penton had the following interest rate instruments in
effect that provide protection on the three-month LIBOR rate upon which Penton's
variable-rate term loans are based (actual rate paid is LIBOR plus the
respective margin) (in thousands):
<Table>
<Caption>
NOTIONAL
AMOUNT RATE PERIOD
-------- ---- -----------
Interest rate swap.......................................... $26,875 6.22% 1/00-10/02
Interest rate swap.......................................... $35,832 6.77% 5/00-11/02
Interest rate swap.......................................... $25,000 7.09% 6/00-12/01
Interest rate swap.......................................... $17,916 5.95% 9/99-10/02
Interest rate cap........................................... $26,875 8.50% 10/99-10/02
Interest rate cap........................................... $28,500 8.50% 2/99-2/01
</Table>
At December 31, 1999 and 2000, the interest rate instruments, had fair
values of $0.4 million and $(1.2) million, respectively. The Company is exposed
to credit loss in the event of non-performance by the other parties to the
interest rate swap agreements. However, the Company does not anticipate
non-performance by the counter-parties as they are major financial institutions.
The Company controls the credit risk of its interest rate swap agreements
through credit approvals, limits and monitoring procedures.
NOTE 9 -- INCOME TAXES
The source of income (loss) on continuing operations before income tax
expense consists of (in thousands):
<Table>
<Caption>
1998 1999 2000
------- ------- --------
U.S. domestic................................ $20,359 $23,021 $135,164
Foreign...................................... 269 974 6,070
------- ------- --------
$20,628 $23,995 $141,234
======= ======= ========
</Table>
The provision for income taxes (benefits) on continuing operations in the
consolidated statements of income is as follows (in thousands):
<Table>
<Caption>
1998 1999 2000
------- ------- -------
Current --
Federal..................................... $11,379 $12,797 $51,052
State and local............................. 2,423 2,837 12,828
Foreign..................................... 733 794 2,058
------- ------- -------
14,535 16,428 65,938
------- ------- -------
Deferred --
Federal..................................... (4,348) (301) (3,814)
State and local............................. (816) (62) (565)
Foreign..................................... 71 -- --
------- ------- -------
(5,093) (363) (4,379)
------- ------- -------
$ 9,442 $16,065 $61,559
======= ======= =======
</Table>
F-16
117
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated provision for income taxes is comprised of the following
(in thousands):
<Table>
<Caption>
1998 1999 2000
------ ------- -------
Provision for income taxes from continuing
operations:.................................. $9,442 $16,065 $61,559
Provision for income taxes (benefit) from
discontinued operations:..................... (199) 5,805 (57)
Provision for income (benefit) from
extraordinary item:.......................... -- (5,600) --
------ ------- -------
Consolidated tax provision..................... $9,243 $16,270 $61,502
====== ======= =======
</Table>
The difference between the actual income tax provision on continuing
operations and the tax provision computed by applying the statutory federal
income tax rate of 35% to income before income taxes is as follows (in
thousands):
<Table>
<Caption>
1998 1999 2000
------ ------- -------
Income tax at statutory rate................... $7,220 $ 8,398 $49,432
Tax effect of:
State income taxes, net of federal benefit... 1,049 1,804 7,766
Non-deductible goodwill...................... -- 4,830 5,104
Non-deductible expenses...................... 1,173 548 259
Other items, net............................. -- 485 (1,002)
------ ------- -------
Actual income tax provision.................... $9,442 $16,065 $61,559
====== ======= =======
Effective income tax rate...................... 45.8% 67.0% 43.6%
====== ======= =======
</Table>
The components of deferred tax assets and liabilities at December 31, 1998,
1999 and 2000 are as follows (in thousands):
<Table>
<Caption>
1998 1999 2000
-------- --------- --------
Deferred tax assets --
Deferred pension credits................. $ 7,087 $ 6,532 $ 6,100
Accrued vacation......................... 1,335 989 889
Bad debts................................ 2,541 1,551 1,963
Reserves recorded for financial reporting
purposes.............................. 1,735 2,107 3,420
Inventory capitalization................. 164 158 270
Investment writedown..................... -- -- 3,821
Branch net operating losses.............. -- 452 1,133
Other.................................... 379 30 13
-------- --------- --------
Total deferred tax assets........ 13,241 11,819 17,609
-------- --------- --------
Deferred tax liabilities --
Mark to market adjustment for
securities............................ -- (101,070) (5,340)
Depreciation............................. (3,312) (1,366) (896)
Amortization............................. (9,249) (9,209) (10,265)
Trade show expenses...................... (196) (668) (954)
Other.................................... -- (27) (570)
-------- --------- --------
Total deferred tax liabilities... (12,757) (112,340) (18,025)
-------- --------- --------
Net deferred tax asset (liability)......... $ 484 $(100,521) $ (416)
======== ========= ========
</Table>
F-17
118
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These balances are allocated between "Current assets" and "Long-term
liabilities" in the accompanying Consolidated Balance Sheets.
The net change from the net deferred liability as of December 31, 1999, and
the net deferred liability as of December 31, 2000, is primarily the result of
the mark to market adjustment for investments, with such change having a balance
sheet impact only.
For 1998, 1999, and 2000, cash paid for income taxes was $10.0 million,
$13.9 million and $71.6 million, respectively.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
Penton has various non-contributory retirement plans covering substantially
all current and former domestic employees. Retirement benefits for employees in
foreign countries generally are provided by national statutory programs.
Benefits for domestic employees are based on years of service and annual
compensation as defined by each plan.
The following table sets forth the funded status of the plan and amounts
recognized in the Consolidated Balance Sheets (in thousands):
<Table>
<Caption>
1999 2000
-------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, January 1........................ $ 42,370 $ 37,433
Service cost...................................... 2,107 1,889
Interest cost..................................... 2,666 3,089
Benefits paid..................................... (2,947) (5,236)
Actuarial (gain) loss............................. (6,099) 3,555
Plan amendments................................... 91 604
Curtailments...................................... (755) --
-------- --------
Benefit obligation, December 31...................... $ 37,433 $ 41,334
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1.............. $ 37,800 $ 40,908
Actual return on plan assets...................... 6,055 10,100
Benefits paid..................................... (2,947) (5,236)
-------- --------
Fair value of plan assets, December 31............... $ 40,908 $ 45,772
======== ========
FUNDED STATUS OF THE PLAN
Projected benefit obligation (in excess of) less
than fair value of assets, December 31.......... $ 3,475 $ 4,503
Unrecognized actuarial gain....................... (19,926) (20,795)
Unrecognized prior service cost................... 1,022 897
Unrecognized net transition asset................. (840) --
-------- --------
Net deferred pension credits...................... $(16,269) $(15,395)
======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
Accrued benefit cost.............................. $(16,269) $(15,395)
Additional minimum liability...................... -- (297)
Intangible assets................................. -- 297
-------- --------
Net amount recognized, December 31................... $(16,269) $(15,395)
======== ========
</Table>
F-18
119
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
1999 2000
-------- --------
ASSUMPTIONS AS OF DECEMBER 31
Discount rate
Pre-Retirement.................................... 8.00% 7.50%
Post-Retirement................................... 7.00% 6.50%
Expected return on plan assets....................... 9.00% 9.00%
Weighted-average salary increase rate................ 5.00% 5.00%
</Table>
The following table summarizes the components of pension expense for the
years ended December 31, (in thousands, except for percentages):
<Table>
<Caption>
1998 1999 2000
------- ------- ------
NET PERIODIC COST
Service cost.................................. $ 1,684 $ 2,107 $1,889
Interest cost................................. 2,488 2,666 3,089
Expected return on assets..................... (3,065) (3,782) (3,737)
Amortization of:
Transition asset........................... (841) (841) (840)
Prior service cost......................... 357 346 169
Actuarial (gain) loss...................... (2,207) (1,678) (1,445)
------- ------- ------
Net pension expense (income).................... $(1,584) $(1,182) $ (875)
------- ------- ------
Related to Printing segment:
Cost of special termination benefits.......... -- 91 --
Curtailment gain.............................. -- (647) --
------- ------- ------
Total net periodic pension cost
(benefit)........................... $(1,584) $(1,738) $ (875)
======= ======= ======
ASSUMPTIONS AS TO PERIODIC PENSION COST
Discount rate
Pre-Retirement............................. 7.00% 7.75% 8.00%
Post-Retirement............................ 7.00% 6.75% 7.00%
Expected return on plan assets................ 7.00% 9.00% 9.00%
Weighted-average salary increase rate......... 5.00% 5.00% 5.00%
</Table>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In February 2000, the Board of Directors approved the addition of 10 key
employees to participate in Penton's supplemental executive retirement plan
("SERP") in addition to the two executives already participating in the plan.
The projected benefit obligation and accumulated benefit obligation, for the
SERP plan, which has an accumulated benefit obligation in excess of plan assets,
were $0.8 million and $0.5 million, respectively, as of December 31, 2000.
Amounts in 1999 were immaterial. The SERP plan is an unfunded, non-qualified
plan, and hence has no plan assets.
401(k) PLAN
Effective September 1, 1998, the Company adopted the Penton Media, Inc.
Retirement Savings Plan (the "401(k) Plan") covering substantially all domestic
officers and employees. The 401(k) Plan permits participants to defer up to a
maximum of 15% of their compensation. Penton matches 50% of the employee's
contributions up to a maximum of 6% of the employee's annual compensation. The
employee's contribution and Penton's matching contribution vest immediately.
Penton's contributions to the 401(k) Plan for the years ended December 31, 1998,
1999, and 2000 were $0.4 million, $1.5 million and $1.7 million, respectively.
F-19
120
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
Penton leases certain office space and equipment under non-cancelable
operating leases. Some of the leases contain renewal options, and certain
equipment leases include options to purchase during or at the end of the lease
term. Following is a schedule of approximate annual future minimum rental
payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 2000 (in
thousands):
<Table>
<Caption>
YEARS ENDING
DECEMBER 31,
------------
2001........................................................ $ 8,257
2002........................................................ 7,544
2003........................................................ 6,731
2004........................................................ 5,992
2005........................................................ 5,549
Thereafter.................................................. 19,801
-------
$53,874
=======
</Table>
On January 5, 2000, Penton signed a 10-year lease agreement to relocate its
corporate headquarters. The lease begins on December 1, 2000, with annual
minimum rental payments for 2001, 2002, 2003, 2004 and thereafter of $2.5
million, $2.6 million, $2.6 million, $2.6 million and $16.6 million,
respectively. The lease provides that Penton pay taxes, maintenance, insurance
and certain other operating expenses applicable to the premises. Penton has an
option to extend this lease for two terms of five years each.
Future minimum lease payments under capital leases are as follows (in
thousands):
<Table>
<Caption>
YEARS ENDING
DECEMBER 31,
------------
2001........................................................ $101
2002........................................................ 57
2003 and Thereafter......................................... 17
Less: amount representing interest.......................... (17)
----
Present value of net minimum lease payments................. 158
Less: current portion....................................... (73)
----
Long-term obligations (included in other long-term
liabilities).............................................. $ 85
====
</Table>
For the years ended December 31, 1998, 1999, and 2000, the total rent
expense (including taxes, insurance and maintenance when included in the rent)
incurred by Penton was approximately $6.3 million, $7.5 million and $8.4
million, respectively.
In connection with the acquisition of Mecklermedia, a lawsuit was brought
against Penton by a former shareholder of Mecklermedia for an unspecified
amount, as well as other relief. The plaintiff is claiming that Penton violated
federal securities laws by selling Mr. Meckler an 80.1% interest in
internet.com, LLC for what the plaintiff alleges was a below-market price,
thereby giving to Mr. Meckler more consideration for his common stock in
Mecklermedia than was paid to the other shareholders of Mecklermedia. Penton
believes that the allegations are without merit and intends to contest them
vigorously. In January 2000, the United States District Court for the Southern
District of New York denied class certification for this case. Two other former
shareholders have since moved to intervene as plaintiffs and renewed the motion
for class certification. This motion was also denied by the United States
District court for the Southern District of New York.
F-20
121
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the normal course of business, Penton is subject to a number of lawsuits
and claims, both actual and potential in nature. While management believes that
resolution of existing claims and lawsuits will not have a material adverse
effect on Penton's financial statements, management is unable to estimate the
magnitude or financial impact of claims and lawsuits that may be filed in the
future.
NOTE 12 -- COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
In connection with the spinoff (see Note 1), Penton amended its Certificate
of Incorporation in June 1998, to authorize capital stock consisting of
60,000,000 shares of common stock, par value $0.01 per share, and 2,000,000
shares of preferred stock, par value $0.01 per share. Immediately thereafter,
Penton issued 21,240,000 shares of common stock in replacement of the 1,000
shares of $1 par value stock previously outstanding. An amount of $0.2 million
was transferred from capital in excess of par value to common stock. The
financial statements and related notes have been restated to reflect this
re-capitalization retroactively. Penton's transfer agent and registrar for
preferred and common shares is Computershare Investor Services LLC.
STOCK OFFERINGS
In September 2000, Penton arranged a secondary offering in which existing
stockholders, other than management, offered 3,638,320 shares of common stock at
a price of $30.00 per share. The Company did not receive any proceeds from this
offering.
In May 1999, Penton completed a 6,500,000 common share offering. Penton
offered 6,250,000 of the shares and existing stockholders offered 250,000
shares. The underwriters exercised their option to purchase an additional
180,000 shares from Penton and 795,000 shares from existing stockholders to
cover over-allotments. Penton received net proceeds of approximately $118.4
million, which were used to repay debt, finance the acquisition of New Hope and
for general corporate purposes. Penton did not receive any proceeds from the
shares sold by the selling stockholders.
SHAREHOLDER RIGHTS AGREEMENT
In June 2000, the Company adopted a Shareholder Rights Agreement (the
"Rights Agreement"). Under the plan, the rights will initially trade together
with the Company's common stock and will not be exercisable. In the absence of
further board action, the rights generally will become exercisable and allow the
holder to acquire the Company's common stock at a discounted price if any person
or group acquires 20 percent or more of the outstanding shares of the Company's
common stock. Rights held by the persons who exceed the applicable threshold
will be void.
Under certain circumstances, the rights will entitle the holder to buy
shares in an acquiring entity at a discounted price. The plan also includes an
exchange option. In general, after the rights become exercisable, the Penton
board may, at its option, effect an exchange of part or all of the rights, other
than rights that have become void, for shares of the Company's common stock.
Under this option, the Company would issue one share of common stock for each
right, subject to adjustment in certain circumstances.
The Penton board may, at its option, redeem all rights for $0.01 per right,
generally at any time prior to the rights becoming exercisable. The rights will
expire June 27, 2010, unless earlier redeemed, exchanged or amended by the
Penton board. The Rights Agreement has no impact on the financial statements or
earnings per share.
EMPLOYEE STOCK PURCHASE PLAN
Effective January 2000, the Company established an Employee Stock Purchase
Plan, with the intent of aligning the interests of Penton's employees and its
shareholders by allowing employees the opportunity to purchase shares of Penton.
The plan allows employees to purchase common stock at 85% of the lower of the
F-21
122
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market price at the beginning or end of each quarter. This plan was deemed to be
non-compensatory pursuant to the appropriate sections of the Internal Revenue
Service Codes. As of December 31, 2000, 38,002 shares were purchased by
employees under this plan.
MANAGEMENT STOCK PURCHASE PLAN
Effective January 2000, the Company established a Management Stock Purchase
Plan for designated officers and other key employees. Participants in the plan
may elect to receive restricted stock units ("RSUs") in lieu of a designated
portion of up to 100% of their annual incentive bonus. Each RSU represents the
right to receive one share of Penton common stock. RSUs are granted at a 20%
discount from fair market value on the date awarded. RSUs vest two years after
the date of grant and are settled in shares of common stock after a period of
deferral (of no less than two years) selected by the participant, or upon
termination of employment. In February 2000 and 2001, respectively, 25,507 RSUs
and 31,942 RSUs were granted at a fair market value of $25.94 and $25.10 per
share. As of December 31, 2000, 25,507 RSUs were outstanding. The discount is
recorded as compensation expense over the vesting period.
EXECUTIVE LOAN PROGRAM
In January 2000, the Company established the Executive Loan Program, which
allowed Penton to issue an aggregate of up to 400,000 shares of Penton common
stock at fair market value to six key executives, in exchange for recourse
notes. In addition, on October 27, 2000, the Board of Directors authorized one
additional executive to borrow up to $1.0 million under the Executive Loan
Program for the purchase of Penton stock at fair value in exchange for a
recourse note. All notes bear interest compounded semiannually, at a rate equal
to the applicable interest rate as published by the Internal Revenue Service,
and mature on or before the fifth anniversary of the first loan date. No
principal or interest payments are required until maturity, at which time all
outstanding amounts are due. At December 31, 2000, 410,000 shares had been
issued under the Executive Loan Program and the outstanding loan balance was
approximately $10.2 million (including $0.5 million of accrued interest), which
is classified in the stockholders' equity section of the balance sheet as notes
receivable from officers and directors.
EQUITY AND PERFORMANCE INCENTIVE PLAN
Effective August 1998, Penton established the Equity and Performance
Incentive Plan, a stock plan under which Penton may issue non-qualified stock
options and other awards to key employees, including officers, up to an
aggregate of 2,500,000 shares of common stock. Awards may be issued in the form
of options to purchase shares of common stock, stock appreciation rights
("SARs"), restricted shares, deferred shares, performance shares and performance
units.
In 1999 and 2000, 405,749 shares and 719,654 shares, respectively, were
granted under the Equity and Performance Incentive Plan, of which 349,500 and
548,600, respectively, were stock options; 56,249 and 0, respectively, were
deferred shares; and 0 and 171,054, respectively, were performance shares.
Stock Options
Options granted under the plan generally vest equally over three years from
the date of grant. However, most options granted are not exercisable until the
third anniversary. All options granted pursuant to the plan will expire no later
than 10 years from the date the option was granted.
F-22
123
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents a summary of Penton's stock option activity
and related information for the years ended 1998, 1999 and 2000 (in thousands,
except per share amounts):
<Table>
<Caption>
NUMBER OF OPTIONS
----------------------
EMPLOYEES DIRECTORS WEIGHTED AVERAGE
--------- --------- -----------------
Granted..................................... 686 69 $16.23
Exercised................................... -- -- --
Canceled.................................... (5) -- $16.23
----- ---
Balance, December 31, 1998.................. 681 69
----- ---
Granted..................................... 349 -- $21.50
Exercised................................... (4) -- $16.23
Canceled.................................... (65) -- $17.70
----- ---
Balance, December 31, 1999.................. 961 69
----- ---
Granted..................................... 519 30 $22.72
Exercised................................... (37) (8) $17.63
Canceled.................................... (70) -- $20.51
----- ---
Balance, December 31, 2000.................. 1,373 91
===== ===
</Table>
The following table summarizes information about stock options outstanding
at December 31, 2000 (in thousands, except number of years and per share
amounts):
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------ --------------------------
WEIGHTED-
AVERAGE WEIGHTED- OPTIONS WEIGHTED-
NUMBER REMAINING AVERAGE EXERCISABLE AT AVERAGE
OF CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE OPTIONS LIFE PRICE 2000 PRICE
-------------- ------- ----------- --------- -------------- ---------
$29.19....................... 20 9.8 years $29.19 -- --
$27.75....................... 16 9.4 years $27.75 -- --
$22.94....................... 484 9.2 years $22.94 -- --
$21.50....................... 298 8.1 years $21.50 -- --
$16.23....................... 646 7.5 years $16.23 85 $16.23
</Table>
Deferred Shares
As noted above, 56,249 deferred shares were granted in 1999. Of these
shares, 47,553 shares vest on the third anniversary of the grant date, while the
remaining 8,696 shares vest at the rate of 20% per year over a five-year period
from date of grant. Compensation expense is being recognized over the related
vesting period based on the fair value of the shares at the date of grant.
During 1999 and 2000, approximately $0.08 million and $0.4 million,
respectively, were charged to expense for these shares. The Board of Directors
may authorize the payment of dividend equivalents on such shares on a current,
deferred or contingent basis, either in cash or in additional shares of common
stock. At December 31, 2000, no such authorization had been made.
Performance Shares
As noted above, during 2000, the Board of Directors approved grants for an
aggregate of 171,054 performance shares to several key executives. Subject to
the attainment of certain performance goals over a three-year period, from
January 1, 2000 through December 31, 2002, each grantee is eligible to receive
up to 150% of the granted shares. Performance shares are not issuable until
earned. Compensation expense related to these shares is recorded over the
performance period.
F-23
124
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
Penton accounts for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and not the fair
value method as provided by Financial Accounting Standard 123, "Accounting and
Disclosure of Stock-Based Compensation" ("FAS 123"). Penton's Equity and
Incentive Plan requires options to be granted at the market price on Penton's
common stock on the date the options are granted and, as a result, under APB 25,
no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if Penton had accounted for its
employee stock options under the fair value method of FAS 123. The weighted
average fair value of options granted in 1998, 1999 and 2000 was $3.70, $5.07
and $10.95 respectively. For purposes of the pro forma presentation, the fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model, under the following assumptions for 1998,
1999 and 2000:
<Table>
<Caption>
1998 1999 2000
------- ------- -------
Risk-free interest rate............................... 5.40% 6.20% 5.06%
Dividend yields....................................... 0.30% 0.50% 0.40%
Expected volatility................................... 70.60% 61.25% 55.93%
Expected life......................................... 4 years 4 years 4 years
</Table>
Had compensation cost for Penton's stock-based compensation plans been
determined based on the fair values of the options granted at the grant dates,
consistent with FAS 123, Penton's net income and earnings per share would have
been as follows (dollars in thousands, except per share data):
<Table>
<Caption>
1998 1999 2000
------- ------ -------
Net income applicable to common stockholders
As reported............................................... $10,890 $8,210 $79,590
Pro forma................................................. $10,007 $6,238 $77,406
Basic earnings per share
As reported............................................... $ 0.50 $ 0.29 $ 2.51
Pro forma................................................. $ 0.46 $ 0.22 $ 2.44
Diluted earnings per share
As reported............................................... $ 0.50 $ 0.29 $ 2.49
Pro forma................................................. $ 0.46 $ 0.22 $ 2.42
</Table>
NOTE 13 -- RELATED-PARTY TRANSACTIONS
Included in the Consolidated Statement of Income for 1998 is an allocation
of corporate expenses related to services provided for Penton by Pittway. This
allocation was based on an estimate of the incremental corporate expenses
related to Penton's operations for the period presented, and, in the opinion of
management, has been made on a reasonable basis. However, the allocation is not
necessarily indicative of the level of expenses that might have been incurred
had Penton been a separate company. The aggregate allocated costs totaled $0.02
million for 1998. Penton's employees also participated in Pittway's pension
plan. Certain Penton employees participated in Pittway's 1990 stock awards plan,
for which Pittway allocated costs to Penton totaling $1.2 million in 1998.
Other transactions between Penton and Pittway, consisting principally of
taxes and other reimbursable expenses paid by Pittway, have been reflected in
the 1998 financial statements as though on a stand-alone basis, except that no
interest income or expense has been allocated on intercompany balances.
F-24
125
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pittway utilized a centralized cash management system. Under this system,
cash generated by Penton in excess of its cash requirements (including cash
requirements for Penton's income taxes and other reimbursable expenses paid by
Pittway) was transferred to Pittway. In August 1998, a final non-cash dividend
of $12.2 million was made to Pittway.
NOTE 14 -- EARNINGS PER SHARE
Earnings per share ("EPS") have been computed pursuant to the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
Computations of basic and diluted earnings per share for the years ended
December 31, 1998, 1999 and 2000 are as follows (in thousands, except per share
amounts):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1999 2000
------- ------ -------
Income from continuing operations applicable to common
stockholders.............................................. $11,186 $7,930 $79,675
======= ====== =======
Number of shares:
Basic -- average shares outstanding......................... 21,882 28,108 31,730
Effect of dilutive securities:
Stock options............................................. -- 71 280
Deferred shares........................................... -- 3 --
Contingent shares......................................... -- 27 --
------- ------ -------
Diluted -- average shares outstanding....................... 21,882 28,209 32,010
======= ====== =======
Per share amount:
Income from continuing operations
Basic.................................................. $ 0.51 $ 0.28 $ 2.51
Diluted................................................ $ 0.51 $ 0.28 $ 2.49
</Table>
Options to purchase 750,055 shares of common stock at $16.23 per share were
outstanding at December 31, 1998, but were not included in the computation of
diluted earnings per share because the options would have been anti-dilutive.
NOTE 15 -- COMPREHENSIVE INCOME
Comprehensive income, which is displayed in the Consolidated Statements of
Stockholders' Equity, represents net income plus the results of certain
stockholder equity changes not reflected in the Consolidated Statements of
Income.
The after-tax components of other comprehensive income (loss) are as
follows:
<Table>
<Caption>
1998 1999 2000
------- -------- --------
Net income.................................................. $10,890 $ 8,210 $ 79,590
Change in unrealized gain (loss) on securities reported at
fair value, net of tax of $60.6 million and $29.3 million
in 1999 and 2000, respectively............................ -- 151,605 (73,323)
Reclassification adjustment for gain on sale of securities,
net of tax of $28.1 million in 2000....................... -- -- (70,272)
Change in accumulated translation adjustments............... (51) (787) 95
------- -------- --------
Comprehensive income...................................... $10,839 $159,028 $(63,910)
======= ======== ========
</Table>
F-25
126
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- BUSINESS RESTRUCTURING AND OTHER CHARGES
In March 2000, Penton entered into a strategic alliance agreement with
Cayenta, Inc. ("Cayenta"), a subsidiary of the Titan Corporation. Cayenta is a
total service provider of end-to-end, e-commerce systems. As part of the
agreement, Penton purchased 250,000 shares of Cayenta stock, which was recorded
at its historical cost of $6.3 million due to the Company's inability to exert
significant influence over Cayenta.
In June 2000, Penton entered into a strategic investment and partnership
agreement with Leisurehub.com, an online B2B trading community for the global
leisure industry. Penton paid approximately $3.4 million for a 19.9% stake in
the company. As Penton has the ability to exercise significant influence over
Leisurehub.com, the Company accounts for its investment using the equity method
of accounting.
During the fourth quarter of 2000, the Company determined that its
investments in Cayenta and Leisurehub.com had suffered declines in value that
were other than temporary. The decision was based on current market conditions,
economic outlook and the future viability of these companies. As a result, the
Company recognized losses totaling $9.5 million and reduced its investment in
Cayenta Inc., and Leisurehub.com to zero.
The Company wrote off $2.1 million of impaired assets related to certain
internally funded Internet media initiatives. The Company is adjusting its
portfolio of Internet media products to focus on those that are demonstrating
revenue growth, customer acceptance and near-term opportunity for profit. The
impaired assets related to certain abandoned projects. The Company expects to
take approximately $5.0 million in restructuring charges in the first quarter of
2001 as a result of these actions.
In accordance with the Company's review of impairment of long-lived assets
in accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company recorded approximately a $1.0 million non-cash
charge in 2000 to write down the carrying value of certain leasehold
improvements, furniture and fixtures, and computer equipment to fair value.
NOTE 17 -- SEGMENT INFORMATION
Historically, Penton had three reportable segments: Media Services,
Printing and Direct Mail. As discussed in Note 4, due to the sale of the
Printing and Direct Mail segments, Penton currently has only one segment. The
Media Services segment serves specific industries with integrated product
offerings.
Revenues by product offerings are as follows for the years ended December
31, 1998, 1999 and 2000 (in thousands):
<Table>
<Caption>
1998 1999 2000
-------- -------- --------
Publishing and other.............................. $179,729 $202,472 $230,120
Trade shows and conferences....................... 27,953 97,444 168,436
Internet.......................................... -- 908 6,015
-------- -------- --------
$207,682 $300,824 $404,571
======== ======== ========
</Table>
Domestic revenues of our products and services comprised $191.7 million,
$277.3 million and $362.9 million of total revenues for the years ended December
31, 1998, 1999 and 2000, respectively. Foreign revenues totaled $16.0 million,
$23.5 million and $41.7 million of our revenues for the years ended December 31,
1998, 1999 and 2000, respectively, of which $12.0 million, $17.8 million and
$15.6 million, respectively, were from the United Kingdom. No single customer
accounted for 10% or more of sales during 1998, 1999, and 2000.
Long-lived assets at December 31, 1998, 1999 and 2000 include $31.7
million, $31.3 million and $36.4 million, respectively, identified with foreign
operations, substantially all of which are intangible assets,
F-26
127
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the remaining assets identified with domestic operations. Long-lived assets
from the United Kingdom comprise $31.7 million, $31.2 million and $29.8 million
of these foreign assets.
NOTE 18 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
INVESTING ACTIVITIES
Penton assumed liabilities of approximately $5.1 million, $5.6 million and
$21.0 million in connection with acquisitions completed in 1998, 1999 and 2000,
respectively. In conjunction with the acquisition of New Hope in May 1999,
Penton issued 2.1 million common shares valued at $41.0 million as
consideration.
In 1999 and 2000, Penton marked to market its investment in internet.com
Corporation stock by approximately $252.7 million and $13.4 million
respectively.
At December 31, 1999, Penton had $4.2 million of net investment in
discontinued operations for the Direct Mail segment and a related non-cash loss
of $0.7 million.
FINANCING ACTIVITIES
At December 31, 1998, 1999 and 2000, dividends of $0.7 million, $0.9
million and $1.0 million, respectively, were declared and not paid.
In August 1998, a final non-cash dividend of $12.2 million was made to
Pittway. In addition, 1,541,638 shares of common stock were issued in
conjunction with the DM publishing acquisition.
The foregoing transactions do not provide or use cash and, accordingly, are
not reflected in the statements of cash flows.
F-27
128
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 31, 1999 and
2000 are shown below (dollars in thousands, except per share amounts):
<Table>
<Caption>
1999 QUARTERS
----------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
------- ------- ------- -------- --------
Revenues............................... $52,518 $78,792 $64,435 $105,079 $300,824
Operating income (loss)................ (2,637) 14,705 (953) 28,275 39,390
Income (loss) from continuing
operations........................... (3,033) 2,710 (5)(a) 8,258 7,930
Discontinued operations................ 197 454 205 7,837 8,693(b)
Extraordinary item -- extinguishment of
debt................................. -- (2,156) (6,257) -- (8,413)
Net income (loss)...................... (2,836) 1,008 (6,057) 16,095 8,210
Earnings per share (basic and diluted):
Income (loss) from continuing
operations........................ (0.13) 0.10 -- 0.26 0.28
Discontinued operations.............. 0.01 0.02 0.01 0.25 0.31
Extraordinary item................... -- (0.08) (0.20) -- (0.30)
Net income (loss).................... (0.12) 0.04 (0.19) 0.51 0.29
</Table>
<Table>
<Caption>
2000 QUARTERS
------------------------------------------ TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
------- -------- ------- -------- --------
Revenues.............................. $75,825 $109,058 $76,720 $142,968 $404,571
Operating income (loss)............... 3,384 24,574(d) (714) 27,467(e) 54,711
Income (loss) from continuing
operations.......................... 66,423(c) 8,695 (1,244) 5,801(f) 79,675
Discontinued operations............... (85) -- -- -- (85)
Net income (loss)..................... 66,338 8,695 (1,244) 5,801 79,590
Earnings per share (basic):
Income (loss) from continuing
operations....................... 2.10 0.27 (0.04) 0.18 2.51
Discontinued operations............. -- -- -- -- --
Net income (loss)................... 2.10 0.27 (0.04) 0.18 2.51
Earnings per share (diluted):
Income (loss) from continuing
operations....................... 2.09 0.27 (0.04) 0.18 2.49
Discontinued operations............. -- -- -- -- --
Net income (loss)................... 2.09 0.27 (0.04) 0.18 2.49
</Table>
Income per share calculations for each of the quarters are based on the
weighted average number of shares outstanding for each quarter, and the sum of
the quarters may not necessarily be equal to the full year income per share
amount.
---------------
(a) Includes $5.9 million, or $0.11 per dilutive share, gain on sale of 0.5
million shares of internet.com stock.
(b) Includes gain on disposal of the Printing segment of $9.3 million, net of
tax, and loss on disposal of Direct Mail segment of $0.7 million, net of
tax.
(c) Includes $110.2 million, or $2.08 per dilutive share, gain on sale of 2.0
million shares of internet.com Corporation stock.
(d) Includes $1.0 million, or $0.02 per dilutive share, impairment of assets.
(e) Includes $2.1 million, or $0.04 per dilutive share, impairment of Internet
assets.
(f) Includes $9.5 million, or $0.18 per dilutive share, writedown of Internet
investments.
F-28
129
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth our condensed consolidating balance sheet
schedules as of December 31, 2000 and 1999 and our condensed consolidating
statements of income schedules and condensed consolidating statements of cash
flows schedules for the years ended December 31, 1998, 1999 and 2000. In the
following schedules, "Parent Company" refers to the balances of Penton Media,
Inc., "Guarantor Subsidiaries" refers to Penton's wholly owned domestic
subsidiaries, and "Non-guarantor Subsidiaries" refers to Penton's foreign
subsidiaries. "Eliminations" represent the adjustments necessary to (a)
eliminate intercompany transactions and (b) eliminate the investments in our
subsidiaries.
F-29
130
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2000
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................... $ -- $ 8,678 $ 3,970 $ (1,043) $ 11,605
Accounts and notes receivable, net............. 40,592 96,850 12,617 (80,000) 70,059
Inventories.................................... 495 282 21 -- 798
Deferred tax asset............................. 3,600 1,962 -- -- 5,562
Prepayments, deposits and other................ 5,282 4,710 1,771 -- 11,763
-------- -------- ------- --------- --------
49,969 112,482 18,379 (81,043) 99,787
-------- -------- ------- --------- --------
Property, plant and equipment, net............. 28,951 5,462 1,084 -- 35,497
Goodwill, net.................................. 139,023 405,987 29,616 -- 574,626
Other intangibles, net......................... 26,548 25,562 2,012 -- 54,122
Deferred tax asset............................. 2,472 -- 6 (2,478) --
Investments in subsidiaries.................... 238,788 144,235 -- (383,023) --
Investments.................................... -- 17,725 -- -- 17,725
-------- -------- ------- --------- --------
435,782 598,971 32,718 (385,501) 681,970
-------- -------- ------- --------- --------
$485,751 $711,453 $51,097 $(466,544) $781,757
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility........................... $ 11,250 $ -- $ -- $ -- $ 11,250
Accounts payable and accrued expenses.......... 32,273 7,412 6,400 (1,043) 45,042
Accrued compensation and benefits.............. 15,200 2,985 300 -- 18,485
Unearned income................................ 17,253 28,860 9,659 -- 55,772
-------- -------- ------- --------- --------
75,976 39,257 16,359 (1,043) 130,549
-------- -------- ------- --------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Revolving credit facility...................... 91,000 -- -- -- 91,000
Senior debt facility........................... 199,875 -- -- -- 199,875
Notes payable.................................. 80,000 -- -- (80,000) --
Net deferred pension credits................... 15,395 -- -- -- 15,395
Deferred tax liability......................... -- 8,456 -- (2,478) 5,978
Intercompany advances.......................... (273,733) 257,298 16,435 -- --
Other.......................................... 2,395 25 (29) -- 2,391
-------- -------- ------- --------- --------
114,932 265,779 16,406 (82,478) 314,639
-------- -------- ------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock................................... 226,764 349,428 16,614 (366,042) 226,764
Retained earnings.............................. 78,372 48,982 2,372 (16,981) 112,745
Notes receivable officers/directors............ (10,207) -- -- -- (10,207)
Accumulated other comprehensive income......... (86) 8,007 (654) -- 7,267
-------- -------- ------- --------- --------
294,843 406,417 18,332 (383,023) 336,569
-------- -------- ------- --------- --------
$485,751 $711,453 $51,097 $(466,544) $781,757
======== ======== ======= ========= ========
</Table>
F-30
131
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 1999
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 24,664 $ 2,918 $ 2,788 $ -- $ 30,370
Accounts and notes receivable, net...... 32,950 4,185 3,064 -- 40,199
Inventories............................. 818 -- -- -- 818
Prepayments, deposits and other......... 4,638 1,480 1,465 -- 7,583
Deferred tax asset...................... -- 2,238 -- (2,238) --
Net current assets of discontinued
operations........................... 4,228 -- -- -- 4,228
-------- -------- ------- -------- --------
67,298 10,821 7,317 (2,238) 83,198
-------- -------- ------- -------- --------
Property, plant and equipment, net...... 12,576 1,960 550 -- 15,086
Goodwill, net........................... 117,697 264,912 28,564 -- 411,173
Other intangibles, net.................. 11,444 26,480 2,139 -- 40,063
Investments in subsidiaries............. 89,502 -- -- (89,502) --
Investments............................. 259,859 -- -- -- 259,859
-------- -------- ------- -------- --------
491,078 293,352 31,253 (89,502) 726,181
-------- -------- ------- -------- --------
$558,376 $304,173 $38,570 $(91,740) $809,379
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility.................... $ 3,875 $ -- $ -- $ -- $ 3,875
Accounts payable and accrued expenses... 20,509 9,290 3,990 1,653 35,442
Accrued compensation and benefits....... 8,813 1,439 -- (1,653) 8,599
Deferred taxes.......................... 39,634 -- -- -- 39,634
Unearned income......................... 10,083 16,857 3,274 -- 30,214
-------- -------- ------- -------- --------
82,914 27,586 7,264 -- 117,764
-------- -------- ------- -------- --------
LONG-TERM LIABILITIES AND DEFERRED
CREDITS:
Senior debt facility.................... 211,125 -- -- -- 211,125
Net deferred pension credits............ 16,269 -- -- -- 16,269
Deferred tax liability.................. 63,113 12 -- (2,238) 60,887
Intercompany advances................... (216,934) 197,552 19,382 -- --
Other................................... 659 74 -- -- 733
-------- -------- ------- -------- --------
74,232 197,638 19,382 (2,238) 289,014
-------- -------- ------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock............................ 214,864 62,139 16,566 (78,705) 214,864
Retained earnings....................... 34,834 16,875 (3,942) (10,797) 36,970
Accumulated other comprehensive
income............................... 151,532 (65) (700) -- 150,767
-------- -------- ------- -------- --------
401,230 78,949 11,924 (89,502) 402,601
-------- -------- ------- -------- --------
$558,376 $304,173 $38,570 $(91,740) $809,379
======== ======== ======= ======== ========
</Table>
F-31
132
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES.................................. $219,933 $156,240 $ 28,398 $ -- $404,571
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation... 94,730 43,176 9,106 -- 147,012
Selling, general and administrative..... 101,394 51,935 12,942 -- 166,271
Depreciation and amortization........... 28,947 4,152 332 -- 33,431
Impairment of other assets.............. -- 1,051 -- -- 1,051
Impairment of Internet assets........... 2,095 -- -- -- 2,095
-------- -------- -------- -------- --------
227,166 100,314 22,380 -- 349,860
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS)................... (7,233) 55,926 6,018 -- 54,711
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net of interest
earned............................... (16,016) 2,340 (457) -- (14,133)
Writedown of Internet investments....... (9,490) -- -- -- (9,490)
Gain on sale of investments............. 110,210 -- -- -- 110,210
Miscellaneous, net...................... (950) 377 509 -- (64)
-------- -------- -------- -------- --------
83,754 2,717 52 -- 86,523
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................ 76,521 58,643 6,070 -- 141,234
PROVISION FOR INCOME TAXES................ 29,083 30,418 2,058 -- 61,559
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS......... 47,438 28,225 4,012 -- 79,675
LOSS ON SALE OF DISCONTINUED OPERATIONS... (85) -- -- -- (85)
-------- -------- -------- -------- --------
NET INCOME................................ $ 47,353 $ 28,225 $ 4,012 $ -- $ 79,590
======== ======== ======== ======== ========
</Table>
F-32
133
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES.................................. $198,137 $ 85,081 $ 17,606 $ -- $300,824
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation... 86,910 23,634 6,380 -- 116,924
Selling, general and administrative..... 87,553 21,781 7,258 -- 116,592
Depreciation and amortization........... 7,491 18,575 1,852 -- 27,918
-------- -------- -------- -------- --------
181,954 63,990 15,490 -- 261,434
-------- -------- -------- -------- --------
OPERATING INCOME.......................... 16,183 21,091 2,116 -- 39,390
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net of interest
earned............................... (20,559) 36 (608) -- (21,131)
Gain on sale of investments............. 5,906 -- -- -- 5,906
Miscellaneous, net...................... 197 (89) (278) -- (170)
-------- -------- -------- -------- --------
(14,456) (53) (886) -- (15,395)
-------- -------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................ 1,727 21,038 1,230 -- 23,995
PROVISION FOR INCOME TAXES................ 2,304 12,966 795 -- 16,065
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS.............................. (577) 8,072 435 -- 7,930
GAIN ON SALE OF DISCONTINUED OPERATIONS... 8,693 -- -- -- 8,693
-------- -------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM.......... 8,116 8,072 435 -- 16,623
EXTRAORDINARY ITEM, -- EARLY
EXTINGUISHMENT OF DEBT.................. (8,413) -- -- -- (8,413)
-------- -------- -------- -------- --------
NET INCOME (LOSS)......................... $ (297) $ 8,072 $ 435 $ -- $ 8,210
======== ======== ======== ======== ========
</Table>
F-33
134
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES.................................. $190,460 $ 5,194 $ 12,028 $ -- $207,682
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation... 81,178 1,567 3,346 -- 86,091
Selling, general and administrative..... 79,696 2,976 4,910 -- 87,582
Depreciation and amortization........... 5,113 1,493 1,185 -- 7,791
-------- -------- -------- -------- --------
165,987 6,036 9,441 -- 181,464
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS)................... 24,473 (842) 2,587 -- 26,218
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net of interest
earned............................... (3,142) (131) (2,272) -- (5,545)
Miscellaneous, net...................... (45) -- -- -- (45)
-------- -------- -------- -------- --------
(3,187) (131) (2,272) -- (5,590)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES..................... 21,286 (973) 315 -- 20,628
PROVISION (BENEFIT) FOR INCOME TAXES...... 9,448 (810) 804 -- 9,442
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS.............................. 11,838 (163) (489) -- 11,186
LOSS ON SALE OF DISCONTINUED OPERATIONS... (296) -- -- -- (296)
-------- -------- -------- -------- --------
NET INCOME (LOSS)......................... $ 11,542 $ (163) $ (489) $ -- $ 10,890
======== ======== ======== ======== ========
</Table>
F-34
135
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2000
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES.................................. $ (13,600) $ 15,809 $ 8,074 $ (1,043) $ 9,240
--------- -------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (19,208) (7,416) (648) -- (27,272)
Acquisitions and investments, net of cash
acquired................................. (192,119) (2,633) (6,244) -- (200,996)
Proceeds from sale of internet.com
Corporation stock........................ 113,100 -- -- -- 113,100
Net proceeds from sale of discontinued
operations............................... 4,000 -- -- -- 4,000
--------- -------- ------- -------- ---------
Net cash used for investing
activities.......................... (94,227) (10,049) (6,892) -- (111,168)
--------- -------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior debt facility....... 91,000 -- -- -- 91,000
Payment of financing costs............... (283) -- -- -- (283)
Employee stock purchase plan payments.... (3,875) -- -- -- (3,875)
Employee stock purchase plan............. (209) -- -- -- (209)
Proceeds from deferred shares and options
exercised.............................. 473 -- -- -- 473
Dividends paid........................... (3,800) -- -- -- (3,800)
--------- -------- ------- -------- ---------
Net cash provided by financing
activities.......................... 83,306 -- -- -- 83,306
--------- -------- ------- -------- ---------
Effect of exchange rate....................... (143) -- -- -- (143)
--------- -------- ------- -------- ---------
Net increase in cash and equivalents... (24,664) 5,760 1,182 (1,043) (18,765)
Cash and equivalents at beginning of period... 24,664 2,918 2,788 -- 30,370
--------- -------- ------- -------- ---------
Cash and equivalents at end of period......... $ -- $ 8,678 $ 3,970 $ (1,043) $ 11,605
========= ======== ======= ======== =========
</Table>
F-35
136
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES... $ 28,317 $ 3,160 $ 2,880 $ -- $ 34,357
--------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (4,602) (890) (392) -- (5,884)
Acquisitions and investments, net of cash
acquired................................. (54,432) (2,983) -- -- (57,415)
Proceeds from sale of internet.com
Corporation stock........................ 6,640 -- -- -- 6,640
Net proceeds from sale of discontinued
operations............................... 28,889 -- -- -- 28,889
--------- -------- -------- -------- ---------
Net cash used for investing
activities.......................... (23,505) (3,873) (392) -- (27,770)
--------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior debt facility....... 259,500 -- -- -- 259,500
Repayment of senior debt facility........ (350,500) -- -- -- (350,500)
Payment of notes payable................. (1,000) -- -- -- (1,000)
Payment of financing costs............... (3,461) -- -- -- (3,461)
Proceeds from equity offering, net....... 118,416 -- -- -- 118,416
Proceeds from deferred shares and options
exercised.............................. 170 -- -- -- 170
Dividends paid........................... (3,246) -- -- -- (3,246)
--------- -------- -------- -------- ---------
Net cash provided by (used for)
financing activities................ 19,879 -- -- -- 19,879
--------- -------- -------- -------- ---------
Effect of exchange rate....................... (49) -- -- -- (49)
--------- -------- -------- -------- ---------
Net increase in cash and equivalents... 24,642 (713) 2,488 -- 26,417
Cash and equivalents at beginning of period... 22 3,631 300 -- 3,953
--------- -------- -------- -------- ---------
Cash and equivalents at end of period......... $ 24,664 $ 2,918 $ 2,788 $ -- $ 30,370
========= ======== ======== ======== =========
</Table>
F-36
137
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING
ACTIVITIES.................................. $(263,444) $288,925 $ 268 $ -- $ 25,749
--------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (3,745) (1,912) (118) -- (5,775)
Acquisitions and investments, net of cash
acquired................................. -- (283,382) -- -- (283,382)
Proceeds from sale of internet.com
Corporation stock........................ 18,000 -- -- -- 18,000
--------- -------- -------- -------- --------
Net cash provided by (used for)
investing activities................ 14,255 (285,294) (118) -- (271,157)
--------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior debt facility....... 306,000 -- -- -- 306,000
Proceeds from (payment of) notes
payable................................ (38,066) -- -- -- (38,066)
Payment of financing costs............... (14,754) -- -- -- (14,754)
Advances to parent company............... (4,820) -- -- -- (4,820)
Dividends paid........................... (1,367) -- -- -- (1,367)
--------- -------- -------- -------- --------
Net cash provided by financing
activities.......................... 246,993 -- -- -- 246,993
--------- -------- -------- -------- --------
Effect of exchange rate....................... (51) -- -- -- (51)
--------- -------- -------- -------- --------
Net increase in cash and equivalents... (2,247) 3,631 150 -- 1,534
Cash and equivalents at beginning of period... 2,269 -- 150 -- 2,419
--------- -------- -------- -------- --------
Cash and equivalents at end of period......... $ 22 $ 3,631 $ 300 $ -- $ 3,953
========= ======== ======== ======== ========
</Table>
F-37
138
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 2001 2000 2001
----------- ----------- ----------- -----------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE
DATA)
REVENUES.......................................... $109,058 $106,777 $184,883 $219,470
-------- -------- -------- --------
OPERATING EXPENSES
Editorial, production and circulation........... 34,895 43,171 65,204 84,012
Selling, general and administrative............. 41,162 47,692 75,641 99,636
Impairment of assets............................ 1,051 -- 1,051 --
Restructuring charge............................ -- -- -- 5,567
Depreciation and amortization................... 7,376 11,135 15,029 22,714
-------- -------- -------- --------
84,484 101,998 156,925 211,929
-------- -------- -------- --------
OPERATING INCOME.................................. 24,574 4,779 27,958 7,541
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net of interest earned........ (2,441) (6,249) (5,176) (12,250)
Gain on sale of investments..................... -- -- 110,210 --
Miscellaneous, net.............................. (424) (1,501) (444) (1,450)
-------- -------- -------- --------
(2,865) (7,750) 104,590 (13,700)
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES.................................... 21,709 (2,971) 132,548 (6,159)
PROVISION FOR INCOME TAXES........................ 13,014 2,512 57,430 602
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS.......... 8,695 (5,483) 75,118 (6,761)
LOSS FROM OPERATIONS OF DISCONTINUED BUSINESS,
NET............................................. -- -- (85) --
-------- -------- -------- --------
NET INCOME (LOSS)................................. $ 8,695 $ (5,483) $ 75,033 $ (6,761)
======== ======== ======== ========
EARNINGS PER SHARE -- BASIC
Income (loss) from continuing operations........ $ 0.27 $ (0.17) $ 2.36 $ (0.21)
Discontinued operations......................... -- -- -- --
-------- -------- -------- --------
Net income (loss)............................... $ 0.27 $ (0.17) $ 2.36 $ (0.21)
======== ======== ======== ========
EARNINGS PER SHARE -- DILUTED
Income (loss) from continuing operations........ $ 0.27 $ (0.17) $ 2.35 $ (0.21)
Discontinued operations......................... -- -- (0.01) --
-------- -------- -------- --------
Net income (loss)............................... $ 0.27 $ (0.17) $ 2.34 $ (0.21)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic...................................... 31,814 31,930 31,769 31,904
======== ======== ======== ========
Diluted.................................... 32,051 31,930 32,006 31,904
======== ======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
139
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
-------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 55,669 $ 11,605
Accounts and notes receivable, less allowance for doubtful
accounts of $7,559 and $3,863 in 2001 and 2000,
respectively............................................ 71,463 70,059
Inventories............................................... 1,795 798
Deferred tax assets....................................... 5,562 5,562
Prepayments, deposits and other........................... 21,709 11,763
-------- --------
156,198 99,787
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements.......................... 8,808 8,205
Machinery and equipment................................... 69,403 63,998
-------- --------
78,211 72,203
Less: Accumulated depreciation............................ (41,868) (36,706)
-------- --------
36,343 35,497
-------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of $63,082 and
$49,142 in 2001 and 2000, respectively.................. 573,856 574,626
Other intangibles, less accumulated amortization of
$18,269 and $14,901 in 2001 and 2000, respectively...... 52,758 54,122
Investments............................................... 11,894 17,725
-------- --------
638,508 646,473
-------- --------
$831,049 $781,757
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility...................................... $ 14,750 $ 11,250
Accounts payable.......................................... 8,722 12,054
Income taxes payable...................................... -- 3,260
Accrued earnouts.......................................... 2,868 14,704
Accrued compensation and benefits......................... 12,036 18,485
Other accrued expenses.................................... 23,564 15,024
Unearned income, principally trade show and conference
deposits................................................ 47,392 55,772
-------- --------
109,332 130,549
-------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Revolving credit facility................................. -- 91,000
Senior debt facility...................................... 192,500 199,875
Senior subordinated notes, net of discount................ 180,836 --
Notes payable............................................. 3,526 --
Net deferred pension credits.............................. 15,640 15,395
Deferred tax liability.................................... 3,674 5,978
Other..................................................... 3,395 2,391
-------- --------
399,571 314,639
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, none issued.............................. -- --
Common stock.............................................. 319 318
Capital in excess of par value............................ 228,105 226,446
Retained earnings......................................... 104,069 112,745
Notes receivable officers/directors....................... (11,289) (10,207)
Accumulated other comprehensive income.................... 942 7,267
-------- --------
322,146 336,569
-------- --------
$831,049 $781,757
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
140
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------
2000 2001
--------- ---------
(DOLLARS IN THOUSANDS)
Net cash used for operating activities...................... $(10,534) $(15,016)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (5,833) (5,448)
Acquisitions and investments, net of cash acquired........ (12,592) (8,285)
Earnouts paid............................................. (4,780) (11,975)
Proceeds from sale of INT Media Group, Inc. stock......... 113,100 --
Net proceeds from sale of discontinued operations......... 4,000 --
-------- --------
Net cash provided by (used for) investing
activities.......................................... 93,895 (25,708)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated notes................... -- 180,836
Proceeds from $340 million senior debt facility........... -- 45,000
Repayment of $340 million senior debt facility............ -- (139,875)
Employee stock purchase plan payments..................... -- (139)
Proceeds from deferred shares and options exercised....... 688 1,049
Payment of financing costs................................ -- (85)
Dividends paid............................................ (1,906) (1,912)
-------- --------
Net cash provided by (used for) financing
activities.......................................... (1,218) 84,874
-------- --------
Effect of exchange rate changes on cash..................... (99) (86)
-------- --------
Net increase in cash and equivalents................. 82,044 44,064
Cash and equivalents at beginning of period................. 30,370 11,605
-------- --------
Cash and equivalents at end of period....................... $112,414 $ 55,669
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
141
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION
These financial statements have been prepared by management in accordance
with generally accepted accounting principles for interim financial information
and the applicable rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, the interim financial
statements reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results of the periods
presented. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
The accompanying unaudited interim consolidated financial statements should
be read together with the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 financial statements
to conform to the 2001 presentation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
NOTE 2 -- ACQUISITIONS
2001 ACQUISITIONS
In 2001, Penton acquired nine companies for an aggregate purchase price of
approximately $9.7 million in cash and $3.5 million in promissory notes, with
potential contingent consideration of up to $4.8 million based on the
achievement of specified business targets through 2003. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $11.5 million is being amortized over a period ranging from 5 to
40 years.
2000 ACQUISITIONS
In September 2000, Penton acquired the assets of Duke Communications
International ("Duke") for $100.0 million in cash plus contingent consideration
of up to $50.0 million based on the achievement of specified business targets
through 2002. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $103.3 million is being amortized
over periods ranging from 15 to 40 years. Duke is a leading integrated media
company serving the AS/400 and Windows 2000 operating systems markets and other
technology operating platform markets.
In September 2000, Penton acquired the stock of Streaming Media, Inc., for
$65.0 million in cash plus contingent consideration of up to $35.0 million based
on the achievement of specified business targets in 2001. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $62.9 million is being amortized over periods ranging from 15 to
20 years. Streaming Media, Inc. is a leading integrated media company serving
the streaming media market.
In September 2000, Penton acquired the assets of Professional Trade Shows
("PTS") for $17.0 million in cash. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $16.1 million
is being amortized over 20 years. PTS produces 50 regional trade shows for the
F-41
142
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
plant engineering and maintenance, material handling, buildings and facilities
maintenance, design engineering, and machine tool industries.
In addition, Penton acquired five companies in 2000 for an aggregate
purchase price of approximately $3.8 million in cash with potential contingent
consideration based on the achievement of specified business targets through
2001. The excess of the aggregate purchase price over the fair market value of
net assets acquired of approximately $3.7 million is being amortized over a
period ranging from 5 to 20 years.
NOTE 3 -- DISCONTINUED OPERATIONS
During the first quarter of 2000, Penton completed the sale of the net
assets of its Direct Mail segment for $4.0 million in cash. An additional
operating loss for the six months ended June 30, 2000 of $0.08 million, net of a
tax benefit of $0.06 million, was recorded and classified as discontinued
operations in the accompanying financial statements. This loss was in addition
to the $0.06 million that was accrued in 1999.
NOTE 4 -- INVESTMENTS
In February 2000, Penton sold 2.0 million shares of INT Media Group, Inc.
(formerly known as internet.com Corporation) stock as part of a 3.75
million-share secondary offering. Penton received cash of $113.1 million and
recognized a pre-tax gain of approximately $110.2 million. As of June 30, 2000
Penton maintains an 11.8% ownership interest in INT Media Group, Inc., or
approximately 3.0 million shares. Penton intends for its investment to be
temporary; accordingly, Penton marks to market its investment in INT Media
Group, Inc. At June 30, 2001, Penton's investment totaled $11.9 million,
including a cumulative mark to market adjustment of $7.6 million and related
adjustment in long-term deferred tax liability of $3.0 million and other
comprehensive income of $4.6 million.
NOTE 5 -- PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information for the six months
ended June 30, 2000 assumes that the 2000 acquisitions occurred as of the
beginning of the period, after giving effect to certain adjustments, including
the amortization of intangible assets, interest expense on acquisition debt and
related income tax effects. The pro forma information excludes the effects of
synergies and cost reduction initiatives directly related to all acquisitions.
These actions have already commenced and are expected to continue in the year
2001. Pro forma results for the six months ended June 30, 2001 have not been
presented because the impact of the 2001 acquisitions was immaterial.
F-42
143
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The pro forma information is presented for information purposes only and is
not necessarily indicative of the results of operations that actually would have
been achieved had these transactions been consummated at the beginning of the
period presented (in thousands, except per share data):
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30, 2000
----------------
Pro forma revenues.......................................... $217,726
========
Pro forma income from continuing operations................. $ 72,174
========
Pro forma net income applicable to common stockholders...... $ 72,089
========
Per share data:
Earnings per common share -- basic:
Income from continuing operations...................... $ 2.29
========
Net income............................................. $ 2.28
========
Earnings per common share -- diluted:
Income from continuing operations...................... $ 2.27
========
Net income............................................. $ 2.27
========
</Table>
The pro forma information above does not reflect the 2001 acquisitions or
the operations of certain 2000 acquisitions, as the historical information is
immaterial.
NOTE 6 -- DEBT
SENIOR SUBORDINATED NOTES
In June 2001, Penton issued $185.0 million of 10 3/8% Senior Subordinated
Notes ("the Notes") due 2011 to qualified institutional buyers pursuant to Rule
144A of the Securities Act of 1933, as amended. Interest is payable on the Notes
semiannually on June 15 and December 15 of each year. The Notes are guaranteed,
on a senior subordinated basis, by the Company's domestic subsidiaries and may
be redeemed on or after June 15, 2006. In addition, the Company may redeem up to
35% of the aggregate principal amount of the Notes before June 15, 2004 with the
proceeds of certain equity offerings. The Notes were offered at a discount of
$4.2 million to be amortized over the term of the Notes. Amortization of the
discount was not material for the six month period ended June 30, 2001. Costs
representing underwriting fees and other expenses of $0.6 million will be
amortized over the term of the Notes. Net proceeds of $180.2 million were used
to pay down $136.0 million outstanding under the Revolving Credit Facility. In
addition, a portion of the Company's Term Loan A and B will be paid down on a
pro rata basis (see Note 15 Subsequent Events). The Notes are unsecured senior
subordinated obligations of the Company, subordinated in right of payment to all
existing and future senior indebtedness of the Company, including the credit
facility. The Notes contain covenants that will, among other things, restrict
the Company's ability to borrow money, pay dividends on or repurchase capital
stock, make investments, sell assets or enter into mergers or consolidations.
SENIOR CREDIT FACILITY
Penton maintains a credit agreement with several banks under which it may
borrow up to $340.0 million. The agreement provides for a revolving credit
facility of up to $125.0 million, a long-term loan of $140.0 million ("Term Loan
A") and a long-term loan of $75.0 million ("Term Loan B"). In October 2000,
Penton amended its Credit Agreement to give the Company the option to increase,
in the aggregate, its Term Loan A, Term Loan B and/or its Revolver by $100.0
million. The Term Loans and the Revolver cannot be increased on more than three
separate occasions, and any increase must take place by September 30, 2001.
Concurrent with the
F-43
144
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
closing of the amendment, the Company obtained committed financing in the amount
of $60.0 million of the $100.0 million under the Revolver, thereby increasing
the total available under the Revolver to $185.0 million.
The credit facility is collateralized by all tangible and intangible assets
of Penton, including the equity interests in all of its U.S. subsidiaries and
not less than 65% of the equity interests of any of its foreign subsidiaries.
Under the terms of the agreement, Penton is required to meet certain covenants.
The agreement also prohibits Penton from incurring certain additional
indebtedness; limits certain investments, advances or loans; and restricts
substantial asset sales and cash dividends. At June 30, 2001, Penton was in
compliance with all covenants.
The revolving credit facility bears interest, at Penton's option, at either
the Alternative Base Rate ("ABR"), defined as the higher of the Administrative
Agent's Prime Rate or the Federal Funds Rate plus 0.50%, or at LIBOR, plus a
rate margin ranging from 0.25% to 2.125% based on Penton's consolidated leverage
ratio, as defined. Up to the full amount of the revolving credit facility may be
borrowed, repaid and reborrowed until maturity on August 31, 2006; however, the
revolving credit facility commitment shall be reduced as of September 30, 2003,
by 7.5% per quarter until September 30, 2005, at which time it will be reduced
by 10% per quarter until maturity. At June 30, 2001, no amounts were outstanding
under the revolving credit facility. Penton has agreed to pay a commitment fee
ranging from 0.375% to 0.50%, based on Penton's consolidated leverage ratio, on
the average unused portion of the revolving credit facility commitment. At June
30, 2001, $185.0 million was available under the facility.
Term Loan A bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.25% to 2.125%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At June 30, 2001, the
rate in effect was 6.00%. The loan, which requires quarterly principal payments,
will mature on June 30, 2006. At June 30, 2001, $133.0 million was outstanding
under Term Loan A.
Term Loan B bears interest, at Penton's option, at either the ABR rate or
at LIBOR, plus a rate margin ranging from 0.5% to 2.50%, based on Penton's
consolidated leverage ratio. Interest on ABR loans is payable quarterly in
arrears, while interest on LIBOR loans is payable in arrears at the end of each
applicable interest period not to exceed three months. At June 30, 2001, the
rate in effect was 6.50%. The loan requires quarterly principal payments of
approximately $0.2 million, and four balloon payments of $17.6 million beginning
in September 2006, and will mature on June 30, 2007. At June 30, 2001, $74.3
million was outstanding under Term Loan B.
Cash paid for interest for the six months ended June 30, 2001 and 2000, was
$9.0 million and $8.6 million, respectively. Included in interest expense in the
Consolidated Statements of Income are $0.8 million and $3.5 million of interest
income for the six months ended June 30, 2001 and 2000, respectively.
NOTES PAYABLE
The Company's long-term notes payable at June 30, 2001 of $3.5 million
represents indebtedness resulting from the acquisition of Hillgate in February
2001. The notes are denominated in British pounds, bear interest at 1% and
mature in April 2002 ($2.9 million) and April 2004 ($0.6 million).
F-44
145
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 7 -- NET INCOME PER COMMON SHARE
The following table sets forth the reconciliation of basic and diluted
weighted average shares (in thousands) for the three months and six months ended
June 30, 2001 and 2000:
<Table>
<Caption>
THREE MONTH PERIOD SIX MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------- ------------------
2000 2001 2000 2001
------- -------- ------- -------
Numerator:
Income (loss) applicable to common
shareholders............................ $8,695 $(5,483) $75,033 $(6,761)
====== ======= ======= =======
Denominator (Number of shares):
Basic -- weighted average shares
outstanding............................. 31,814 31,930 31,769 31,904
Effect of dilutive securities:
Stock options........................... 197 -- 199 --
Restricted stock units.................. 26 -- 26 --
Deferred shares......................... 14 -- 12 --
------ ------- ------- -------
Diluted -- weighted average shares
outstanding............................. 32,051 31,930 32,006 31,904
====== ======= ======= =======
</Table>
Due to the net loss from operations for the three and six months ended June
30, 2001, stock options, restricted stock units or deferred shares were excluded
from the calculation of diluted earnings per share as the result would have been
antidilutive.
NOTE 8 -- COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
STOCK OFFERINGS
In September 2000, Penton arranged a secondary offering in which existing
stockholders, other than management, offered 3,638,320 shares of common stock at
a price of $30.00 per share. The Company did not receive any proceeds from this
offering.
STOCKHOLDERS RIGHTS AGREEMENT
In June 2000, the Company adopted a Stockholders Rights Agreement (the
"Rights Agreement"). Under the plan, the rights will initially trade together
with the Company's common stock and will not be exercisable. In the absence of
further board action, the rights generally will become exercisable and allow the
holder to acquire the Company's common stock at a discounted price if any person
or group acquires 20 percent or more of the outstanding shares of the Company's
common stock. Rights held by the persons who exceed the applicable threshold
will be void.
Under certain circumstances, the rights will entitle the holder to buy
shares in an acquiring entity at a discounted price. The plan also includes an
exchange option. In general, after the rights become exercisable, the Penton
Board may, at its option, effect an exchange of part or all of the rights, other
than rights that have become void, for shares of Penton Media, Inc. common
stock. Under this option, Penton Media, Inc. would issue one share of common
stock for each right, subject to adjustment in certain circumstances.
The Penton Board may, at its option, redeem all rights for $0.01 per right,
generally at any time prior to the rights becoming exercisable. The rights will
expire June 27, 2010, unless earlier redeemed, exchanged or amended by the
Penton Board. The Rights Agreement has no impact on the consolidated financial
statements or earnings per share.
F-45
146
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
EMPLOYEE STOCK PURCHASE PLAN
Effective January 2000, the Company established an Employee Stock Purchase
Plan, with the intent of aligning the interests of Penton's employees and its
stockholders by allowing employees the opportunity to purchase shares of Penton
at a discount. The plan, which was effective January 1, 2000, allows employees
to purchase common stock at 85% of the lower of the market price at the
beginning or end of each quarter. This plan was deemed to be non-compensatory
pursuant to the appropriate sections of the Internal Revenue Service Codes.
MANAGEMENT STOCK PURCHASE PLAN
Effective January 2000, the Company established a Management Stock Purchase
Plan for designated officers and other key employees. Participants in the plan
may elect to receive restricted stock units ("RSUs") in lieu of a designated
portion of up to 100% of their annual incentive bonus. Each RSU represents the
right to receive one share of Penton common stock. RSUs are granted at a 20%
discount from fair market value on the date awarded. RSUs vest two years after
the date of grant and are settled in shares of common stock after a period of
deferral (of no less than two years) selected by the participant, or upon
termination of employment. In February 2001 and 2000, 31,942 and 25,507 RSUs
were granted at a fair market value of $25.10 and $25.94 per share,
respectively. At June 30, 2001, 57,449 RSUs were outstanding. The discount is
recorded as compensation expense over the minimum vesting period. For the six
months ended June 30, 2001 and 2000, approximately $0.07 million and $0.02
million, respectively, was charged to expense for the RSUs.
EXECUTIVE LOAN PROGRAM
In January 2000, the Company established the Executive Loan Program, which
allowed Penton to issue an aggregate of up to 400,000 shares of Penton common
stock at fair market value to six key executives, in exchange for full recourse
notes. In addition, on October 27, 2000, the Board of Directors authorized one
additional executive to borrow up to $1.0 million under the Executive Loan
Program for the purchase of Penton stock at fair value in exchange for full
recourse notes. All notes bear interest compounded semiannually at a rate equal
to the applicable interest rate as published by the Internal Revenue Service and
mature on or before the fifth anniversary of the first loan date. No principal
or interest payments are required until maturity, at which time all outstanding
amounts are due.
At June 30, 2001, 449,430 shares had been issued under the Executive Loan
Program and the outstanding loan balance was approximately $11.3 million
(including $0.9 million of accrued interest), which is classified in the
Stockholders' Equity section of the balance sheet as notes receivable from
officers/directors.
EQUITY AND PERFORMANCE INCENTIVE PLAN
In May 2001, the Stockholders approved an amendment to increase the number
of shares of common stock reserved for issuance under the 1998 Equity and
Performance Incentive Plan from 2.5 million shares to 5.5 million shares.
Stock Options
In May 2001, the Stockholders approved an amendment to increase the number
of shares of common stock reserved for issuance under the 1998 Director Stock
Option Plan from 100,000 shares to 250,000 shares.
In February 2001 and 2000, 539,500 options and 512,600 options,
respectively, were granted under the Company's Performance Incentive Plan.
Options granted under the plan generally vest equally over three years from the
date of grant. However, most options granted are not exercisable until the third
anniversary. All options granted pursuant to the plan will expire no later than
10 years from the date the option was granted. Option grants do not have any
associated compensation charge as all grants are issued at fair market value.
F-46
147
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Deferred Shares
At June 30, 2001 and 2000, 63,029 deferred shares, which were granted in
1998 and 1999, were outstanding. Of these shares, 54,333 shares vest on the
third anniversary of the grant date, while the remaining 8,696 shares vest at
the rate of 20% per year over a five-year period from date of grant.
Compensation expense is being recognized over the related vesting period based
on the fair value of the shares at the date of grant. For the six months ended
June 30, 2001 and 2000, approximately $0.2 million, respectively, were charged
to expense for these shares.
Performance Shares
In February 2001, the Board of Directors approved a grant of 139,985
performance shares to certain key executives, subject to the attainment of
certain performance goals over a three-year period from January 1, 2001 through
December 31, 2003. Each grantee is eligible to receive between 50% and 150% of
the granted shares.
In June 2000, the Board of Directors approved a grant of 20,000 performance
shares to two key executives, subject to the attainment of certain performance
goals over a three-year period from January 1, 2000 through December 31, 2002.
Each grantee is eligible to receive between 10% and 150% of the granted shares.
In February 2000, the Board of Directors approved a grant of 136,054
performance shares to certain key executives, subject to the attainment of
certain performance goals over a three-year period from January 1, 2000 through
December 31, 2002. For 99,000 of the shares, each grantee is eligible to receive
between 50% and 150% of the granted shares.
Performance shares are not issuable until earned. Compensation expense
related to these shares is recorded over the performance period. For the six
months ended June 30, 2001 and 2000, approximately $1.2 million and $1.0
million, respectively, were charged to expense for these shares.
NOTE 9 -- COMPREHENSIVE INCOME
Total comprehensive loss for the six months ended June 30, 2001 and 2000
was $13.1 million and $44.2 million, respectively.
F-47
148
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
NOTES ACCUMULATED
COMMON CAPITAL IN RECEIVABLE OTHER
STOCK EXCESS OF RETAINED OFFICERS/ COMPREHENSIVE
PAR VALUE PAR VALUE EARNINGS DIRECTORS INCOME TOTAL
--------- ---------- -------- ----------- ------------- --------
(DOLLARS IN THOUSANDS)
Balance at December 31, 2000.... $318 $226,446 $112,745 $(10,207) $7,267 $336,569
Comprehensive loss:
Net loss...................... -- -- (6,761) -- -- (6,761)
Unrealized loss on securities
reported at fair value..... -- -- -- -- (3,457) (3,457)
Net loss on cash flow
hedges..................... -- -- -- -- (1,965) (1,965)
Foreign currency translation
adjustment................. -- -- -- -- (903) (903)
--------
Total comprehensive loss...... (13,086)
--------
Dividends....................... -- -- (1,915) -- -- (1,915)
Issuance of common stock:
Executive loan shares
issued..................... -- 750 -- -- -- 750
Exercise of stock options..... 1 1,048 -- -- -- 1,049
Employee Stock Purchase
Plan....................... -- (139) -- -- -- (139)
Receivable from
officers/directors............ -- -- -- (1,082) -- (1,082)
---- -------- -------- -------- ------ --------
Balance at June 30, 2001........ $319 $228,105 $104,069 $(11,289) $ 942 $322,146
==== ======== ======== ======== ====== ========
</Table>
NOTE 10 -- HEDGING ACTIVITIES
ADOPTION OF FAS 133
The Company adopted Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133, and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (collectively referred to hereafter as "FAS 133"), on January 1, 2001.
The Company recorded a $1.4 million, net-of-tax, cumulative-effect
adjustment in other comprehensive income as of January 1, 2001. The transition
adjustment recorded in other comprehensive income will be reclassified to
earnings on a quarterly basis as interest payments occur. The Company expects
that within the twelve months following the date of initial application it will
reclassify to earnings $0.9 million of the transition adjustment that was
recorded in accumulated other comprehensive income.
The Company had the following activity in other comprehensive income
related to derivatives:
<Table>
Total cumulative effect of adoption on other comprehensive
income, net of tax, at January 1, 2001.................... $1,351
Net change related to current period hedging transactions... 941
Net amount reclassified to earnings......................... (115)
------
Net deferred loss on cash flow hedges at March 31, 2001..... 2,177
Net change related to current period hedging transactions... (30)
Net amount reclassified to earnings......................... (182)
------
Net deferred loss on cash flow hedges at June 30, 2001...... $1,965
======
</Table>
F-48
149
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
ACCOUNTING POLICY FOR DERIVATIVES AND HEDGING ACTIVITIES
All derivatives are recognized on the balance sheet at their fair value. On
the date that the Company enters into a derivative contract, it designates the
derivative as (1) a hedge of (a) the fair value of a recognized asset or
liability or (b) an unrecognized firm commitment (a "fair value" hedge); (2) a
hedge of (a) a forecasted transaction or (b) the variability of cash flows that
are to be received or paid in connection with a recognized asset or liability (a
"cash flow" hedge); (3) a foreign-currency fair-value or cash flow hedge (a
"foreign currency" hedge); (4) a hedge of a net investment in a foreign
operation; or (5) an instrument that is held for trading or non-hedging purposes
(a "trading" or "non-hedging" instrument).
Changes in the fair value of a derivative that is highly effective as, and
that is designated and qualifies as, a fair-value hedge, along with changes in
the fair value of the hedged asset or liability that are attributable to the
hedged risk (including changes that reflect losses or gains on firm
commitments), are recorded in current period earnings. The Company did not have
any fair value hedges during the six months ended June 30, 2001.
Changes in the fair value of a derivative that is highly effective as, and
that is designated and qualifies as, a cash flow hedge, to the extent that the
hedge is effective, are recorded in other comprehensive income, until earnings
are affected by the variability of cash flows of the hedged transaction (e.g.,
until periodic settlements of a variable-rate asset or liability are recorded in
earnings). Any hedge ineffectiveness (which represents the amount by which the
changes in the fair value of the derivative exceed the variability in the cash
flows of the forecasted transaction) is recorded in current period earnings. The
Company had interest rate swaps and caps which were designated as cash flow
hedges for the six months ended June 30, 2001.
Changes in the fair value of a derivative that is highly effective as, and
that is designated and qualifies as, a foreign-currency hedge is recorded in
either current period earnings or other comprehensive income, depending on
whether the hedging relationship satisfies the criteria for a fair-value or
cash-flow hedge. If, however, a derivative is used as a hedge of a net
investment in a foreign operation, the changes in the derivative's fair value,
to the extent that the derivative is effective as a hedge, are recorded in the
cumulative translation adjustment account within other comprehensive income.
Changes in the fair value of derivative trading and non-hedging instruments are
reported in current period earnings. For the six months ended June 30, 2001, the
Company did not have any foreign-currency or net investment hedges.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives that are designated as fair-value, cash flow, or
foreign-currency hedges to (1) specific assets and liabilities on the balance
sheet or (2) specific firm commitments or forecasted transactions. The Company
also formally assesses (both at the hedge's inception and on an ongoing basis)
whether the derivatives that are used in hedging transactions have been highly
effective in offsetting changes in the fair value or cash flows of hedged items
and whether those derivatives may be expected to remain highly effective in
future periods. When it is determined that a derivative is not (or has ceased to
be) highly effective as a hedge, the Company discontinues hedge accounting
prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of a hedged item (including hedged items such as
firm commitments or forecasted transactions); (2) the derivative expires or is
sold, terminated, or exercised; (3) it is no longer probable that the forecasted
transaction will occur; (4) a hedged firm commitment no longer meets the
definition of a firm commitment; or (5) management determines that designating
the derivative as a hedging instrument is no longer appropriate. In all
situations in which hedge accounting is discontinued and the derivative remains
outstanding, the Company will carry the derivative at its fair value on the
balance sheet, recognizing changes in the fair value in current period earnings.
F-49
150
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
At June 30, 2001, Penton had the following interest rate instruments in
effect (in thousands):
<Table>
<Caption>
NOTIONAL
AMOUNT RATE PERIOD
-------- ---- -----------
Interest rate swap............................ $26,875 6.22% 1/00-10/02
Interest rate swap............................ $35,832 6.77% 5/00-11/02
Interest rate swap............................ $25,000 7.09% 6/00-12/01
Interest rate swap............................ $17,916 5.95% 9/99-10/02
Interest rate cap............................. $26,875 8.50% 10/99-10/02
</Table>
At June 30, 2001, the interest rate instruments had a negative fair value
of $3.1 million recorded as a liability in Other Accrued Expenses on the balance
sheet. The Company is exposed to credit loss in the event of non-performance by
the other parties to the interest rate swap agreements. However, the Company
does not anticipate non-performance by the other counter-parties as they are
major financial institutions. The Company controls the credit risk of its
interest rate swap agreements through credit approvals, limits and monitoring
procedures. The Company also maintains a policy of requiring that all swap
derivative contracts be pursuant to the International Swaps and Derivatives
Association Master Agreement.
RISK MANAGEMENT
In the ordinary course of business, Penton is exposed to fluctuations in
interest rates and foreign currency rates. Penton maintains assets and
operations in Europe and Asia, and as a result, may be exposed to cost increases
relative to the markets in which it sells; however, Penton does not manage this
risk using derivative instruments. The Company is exposed to interest rate risk
due to the variable interest rate of the Credit Agreement. The Company maintains
an overall interest rate risk-management strategy that incorporates the use of
derivative instruments to minimize significant unplanned fluctuations in
earnings that are caused by interest rate volatility. Derivative instruments
that are used as part of the Company's interest rate risk-management strategy
include primarily interest rate swaps and interest rate caps.
CASH FLOW HEDGES
The Company uses interest rate swaps to convert a portion of its
variable-rate debt to fixed-rate debt. The specific terms and notional amounts
of the swaps are determined based on management's assessment of future interest
rates, the requirements under the Credit Agreement (see Note 6), and other
factors. The Company purchases interest rate caps and swaps to minimize its
exposure to volatility in LIBOR. The level of fixed rate debt, after the effects
of interest rate swaps and caps have been considered, is maintained at a level
that is greater than 50% of the total Company debt.
For the six months ended June 30, 2001, the Company recognized a net loss
of $0.5 million (reported as interest expense in the Consolidated Statements of
Income), which represents the total ineffectiveness of all cash flow hedges,
including the time value of option contracts. All components of each
derivative's gain or loss were included in the assessment of hedge effectiveness
except for the time value of interest rate caps (option contracts).
During the six months ended June 30, 2001, the Company reclassified $0.3
million from accumulated other comprehensive income to current period earnings
(reported as interest expense in the Consolidated Statements of Income). The net
deferred loss recorded in accumulated other comprehensive income will be
reclassified to earnings on a quarterly basis as interest payments occur. As of
June 30, 2001, $0.3 million of deferred losses on derivative instruments
accumulated in other comprehensive income is expected to be reclassified as
earnings during the next twelve months. As of June 30, 2001, the maximum term
over which the Company is hedging its exposure to the variability of future cash
flows is sixteen months.
F-50
151
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 11 -- RESTRUCTURING CHARGES
Penton announced a restructuring program in February 2001 with the intent
of discontinuing certain internet operations that have not demonstrated revenue
growth, customer acceptance and near-term opportunity for profit. Penton
incurred a pre-tax charge of $5.6 million for this restructuring program in the
first quarter of 2001. The charge was reported as a component of operating
expenses.
An analysis of restructuring charges recorded in the Consolidated
Statements of Income as of June 30, 2001, and the amount accrued in the
Consolidated Balance Sheets at June 30, 2001 are as follows:
<Table>
<Caption>
ENDING
RESTRUCTURING CASH OTHER ACCRUAL
DESCRIPTION CHARGE PAYMENTS ADJUSTMENTS BALANCE
----------- ------------- -------- ----------- -------
Severance, outplacement and
other personnel costs........ $1,913 $1,674 $ -- $ 239
Impaired assets................ 2,054 567 1,487 --
Other exit costs............... 1,600 255 -- 1,345
------ ------ ------ ------
Total........................ $5,567 $2,496 $1,487 $1,584
====== ====== ====== ======
</Table>
Asset impairment costs primarily included the write-off of capitalized
software development costs associated with the discontinuance of the industry
exchange component of New Hope Natural Media's Healthwell.com. Personnel costs
include the reduction of approximately 60 employees at Healthwell.com as well as
a reduction of workforce in a number of other internet initiatives throughout
Penton. Such personnel costs include payments for severance, earned vacation,
outplacement services and provision for continued benefits to personnel. Costs
to exit activities reflect the costs associated with existing office spaces
under lease and other contractual obligations. During the second quarter, $0.6
million was charged against the restructuring reserve. Other adjustments reflect
the write-off of impaired assets that did not involve the use of cash during the
six months ended June 30, 2001.
NOTE 12 -- SEGMENT INFORMATION
Penton adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," in 1998.
As previously reported, Penton's business units had been aggregated into three
reportable segments: Media Services, Printing, and Direct Mail. The sale of the
Printing and Direct Mail segments has eliminated all segments except for the
Media Services segment. Accordingly, the Company now operates in only one
segment.
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidating balance sheets as
of June 30, 2001 and December 31, 2000 and our condensed consolidating
statements of income and condensed consolidating statements of cash flows for
the six months ended June 30, 2001 and 2000. In the following schedules, "Parent
Company" refers to the balances of Penton Media, Inc., "Guarantor Subsidiaries"
refer to Penton's wholly owned domestic subsidiaries, and "Non-guarantor
Subsidiaries" refer to Penton's foreign subsidiaries. "Eliminations" represent
the adjustments necessary to (a) eliminate intercompany transactions and (b)
eliminate the investments in our subsidiaries.
F-51
152
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF JUNE 30, 2001
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 43,197 $ 5,857 $ 6,615 $ -- $ 55,669
Accounts and notes receivable, net.... 41,480 96,225 13,758 (80,000) 71,463
Inventories........................... 1,367 397 31 -- 1,795
Deferred tax asset.................... 3,600 1,962 -- -- 5,562
Prepayments, deposits and other....... 12,898 6,570 2,309 (68) 21,709
--------- -------- ------- --------- --------
102,542 111,011 22,713 (80,068) 156,198
--------- -------- ------- --------- --------
Property, plant and equipment, net.... 27,473 6,334 2,536 -- 36,343
Goodwill, net......................... 139,701 397,823 36,332 -- 573,856
Other intangibles, net................ 12,239 38,286 2,233 -- 52,758
Deferred tax asset.................... 4,187 1,045 -- (5,232) --
Investment in subsidiaries............ 238,720 144,235 -- (382,955) --
Investments........................... -- 11,894 -- -- 11,894
--------- -------- ------- --------- --------
422,320 599,617 41,101 (388,187) 674,851
--------- -------- ------- --------- --------
$ 524,862 $710,628 $63,814 $(468,255) $831,049
========= ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility.................. $ 14,750 $ -- $ -- $ -- $ 14,750
Accounts payable and accrued
expenses............................ 23,270 (4,012) 15,896 -- 35,154
Accrued compensation and benefits..... 12,738 1,213 (1,914) -- 12,037
Unearned income....................... 19,332 23,963 4,096 -- 47,391
--------- -------- ------- --------- --------
70,090 21,164 18,078 -- 109,332
--------- -------- ------- --------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior debt facility.................. 192,500 -- -- -- 192,500
Senior subordinated notes............. 180,836 -- -- -- 180,836
Notes payable......................... 80,000 -- 3,526 (80,000) 3,526
Net deferred pension credits.......... 15,640 -- -- -- 15,640
Deferred tax liability................ (3,631) 12,537 -- (5,232) 3,674
Intercompany advances................. (276,639) 256,772 19,867 -- --
Other................................. 2,105 145 1,145 -- 3,395
--------- -------- ------- --------- --------
190,811 269,454 24,538 (85,232) 399,571
--------- -------- ------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock.......................... 228,424 349,428 16,614 (366,042) 228,424
Retained earnings..................... 48,752 66,028 6,270 (16,981) 104,069
Notes receivable officers/directors... (11,289) -- -- -- (11,289)
Accumulated other comprehensive
income.............................. (1,926) 4,554 (1,686) -- 942
--------- -------- ------- --------- --------
263,961 420,010 21,198 (383,023) 322,146
--------- -------- ------- --------- --------
$ 524,862 $710,628 $63,814 $(468,255) $831,049
========= ======== ======= ========= ========
</Table>
F-52
153
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2000
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........ $ -- $ 8,678 $ 3,970 $ (1,043) $ 11,605
Accounts and notes receivable,
net............................ 40,592 96,850 12,617 (80,000) 70,059
Inventories...................... 495 282 21 -- 798
Deferred tax asset............... 3,600 1,962 -- -- 5,562
Prepayments, deposits and
other.......................... 5,282 4,710 1,771 -- 11,763
-------- -------- ------- --------- --------
49,969 112,482 18,379 (81,043) 99,787
-------- -------- ------- --------- --------
Property, plant and equipment,
net............................ 28,951 5,462 1,084 -- 35,497
Goodwill, net.................... 139,023 405,987 29,616 -- 574,626
Other intangibles, net........... 26,548 25,562 2,012 -- 54,122
Deferred tax asset............... 2,472 -- 6 (2,478) --
Investment in subsidiaries....... 238,788 144,235 -- (383,023) --
Investments...................... -- 17,725 -- -- 17,725
-------- -------- ------- --------- --------
435,782 598,971 32,718 (385,501) 681,970
-------- -------- ------- --------- --------
$485,751 $711,453 $51,097 $(466,544) $781,757
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Senior debt facility............. $ 11,250 $ -- $ -- $ -- $ 11,250
Accounts payable and accrued
expenses....................... 32,273 7,412 6,400 (1,043) 45,042
Accrued compensation and
benefits....................... 15,200 2,985 300 -- 18,485
Unearned income.................. 17,253 28,860 9,659 -- 55,772
-------- -------- ------- --------- --------
75,976 39,257 16,359 (1,043) 130,549
-------- -------- ------- --------- --------
LONG-TERM LIABILITIES AND DEFERRED
CREDITS:
Revolving credit facility........ 91,000 -- -- -- 91,000
Senior debt facility............. 199,875 -- -- -- 199,875
Notes payable.................... 80,000 -- -- (80,000) --
Net deferred pension credits..... 15,395 -- -- -- 15,395
Deferred tax liability........... -- 8,456 -- (2,478) 5,978
Intercompany advances............ (273,733) 257,298 16,435 -- --
Other............................ 2,395 25 (29) -- 2,391
-------- -------- ------- --------- --------
114,932 265,779 16,406 (82,478) 314,639
-------- -------- ------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock..................... 226,764 349,428 16,614 (366,042) 226,764
Retained earnings................ 78,372 48,982 2,372 (16,981) 112,745
Notes receivable
officers/directors............. (10,207) -- -- -- (10,207)
Accumulated other comprehensive
income......................... (86) 8,007 (654) -- 7,267
-------- -------- ------- --------- --------
294,843 406,417 18,332 (383,023) 336,569
-------- -------- ------- --------- --------
$485,751 $711,453 $51,097 $(466,544) $781,757
======== ======== ======= ========= ========
</Table>
F-53
154
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2001
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES...................... $112,931 $ 77,899 $ 28,640 $ -- $219,470
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and
circulation.............. 47,698 26,791 9,523 -- 84,012
Selling, general and
administrative........... 56,233 31,668 11,735 -- 99,636
Depreciation and
amortization............. 19,356 3,055 303 -- 22,714
Restructuring charges....... 5,567 -- -- -- 5,567
-------- -------- -------- -------- --------
128,854 61,514 21,561 -- 211,929
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS)....... (15,923) 16,385 7,079 -- 7,541
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net of
income earned............ (14,628) 2,571 (193) -- (12,250)
Gain on sale of
investments.............. -- -- -- -- --
Miscellaneous, net.......... (216) -- (1,234) -- (1,450)
-------- -------- -------- -------- --------
(14,844) 2,571 (1,427) -- (13,700)
-------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES....................... (30,767) 18,956 5,652 -- (6,159)
PROVISION (BENEFIT) FOR INCOME
TAXES....................... (3,062) 1,910 1,754 -- 602
-------- -------- -------- -------- --------
NET INCOME (LOSS)............. $(27,705) $ 17,046 $ 3,898 $ -- $ (6,761)
======== ======== ======== ======== ========
</Table>
F-54
155
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES...................... $112,801 $ 61,717 $ 10,365 $ -- $184,883
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and
circulation.............. 46,016 15,779 3,409 -- 65,204
Selling, general and
administrative........... 53,216 17,934 4,491 -- 75,641
Depreciation and
amortization............. 12,944 1,934 151 -- 15,029
Impairment of other
assets................... 1,051 -- -- -- 1,051
-------- -------- -------- -------- --------
113,227 35,647 8,051 -- 156,925
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS)....... (426) 26,070 2,314 -- 27,958
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net of
income earned............ (4,904) 18 (290) -- (5,176)
Gain on sale of
investments.............. 110,210 -- -- -- 110,210
Miscellaneous, net.......... (436) (8) -- -- (444)
-------- -------- -------- -------- --------
104,870 10 (290) -- 104,590
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES.... 104,444 26,080 2,024 -- 132,548
PROVISION FOR INCOME TAXES.... 45,356 11,388 686 -- 57,430
-------- -------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS.................. 59,088 14,692 1,338 -- 75,118
DISCONTINUED OPERATIONS:
Loss from discontinued
operations, net.......... (85) -- -- -- (85)
-------- -------- -------- -------- --------
NET INCOME.................... $ 59,003 $ 14,692 $ 1,338 $ -- $ 75,033
======== ======== ======== ======== ========
</Table>
F-55
156
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2001
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED
FOR) OPERATING ACTIVITIES... $(24,565) $ 1,348 $ 7,158 $ 1,043 $(15,016)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........ (2,187) (1,727) (1,534) -- (5,448)
Acquisitions and
investments, net of cash
acquired................. (4,631) (675) (2,979) -- (8,285)
Earnouts paid............... (10,208) (1,767) -- -- (11,975)
-------- -------- -------- -------- --------
Net cash used for
investing
activities.......... (17,026) (4,169) (4,513) -- (25,708)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from senior
subordinated notes....... 180,836 -- -- -- 180,836
Proceeds from senior debt
facility................. 45,000 -- -- -- 45,000
Repayment of senior debt
facility................. (139,875) -- -- -- (139,875)
Employee stock purchase plan
payments................. (139) -- -- -- (139)
Proceeds from deferred
shares and options
exercised................ 1,049 -- -- -- 1,049
Payment of financing
costs.................... (85) -- -- -- (85)
Dividends paid.............. (1,912) -- -- -- (1,912)
-------- -------- -------- -------- --------
Net cash provided by
financing
activities.......... 84,874 -- -- -- 84,874
-------- -------- -------- -------- --------
Effect of exchange rate....... (86) -- -- -- (86)
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and
equivalents......... 43,197 (2,821) 2,645 1,043 44,064
Cash and equivalents at
beginning of period......... -- 8,678 3,970 (1,043) 11,605
-------- -------- -------- -------- --------
Cash and equivalents at end of
period...................... $ 43,197 $ 5,857 $ 6,615 $ -- $ 55,669
======== ======== ======== ======== ========
</Table>
F-56
157
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES -- (CONTINUED)
PENTON MEDIA, INC
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED
FOR) OPERATING ACTIVITIES... $(22,971) $ 8,490 $ 3,947 $ -- $(10,534)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........ (3,422) (2,339) (72) -- (5,833)
Acquisitions and
investments, net of cash
acquired................. (7,352) (3,823) (1,417) -- (12,592)
Earnouts paid............... (3,205) (980) (595) -- (4,780)
Proceeds from sale of INT
Media Group Inc. stock... 113,100 -- -- -- 113,100
Net proceeds from sale of
discontinued
operations............... 4,000 -- -- -- 4,000
-------- -------- -------- -------- --------
Net cash provided by
investing
activities.......... 103,121 (7,142) (2,084) -- 93,895
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from deferred
shares and options
exercised................ 688 -- -- -- 688
Dividends paid.............. (1,906) -- -- -- (1,906)
-------- -------- -------- -------- --------
Net cash used for
financing
activities.......... (1,218) -- -- -- (1,218)
-------- -------- -------- -------- --------
Effect of exchange rate....... (99) -- -- -- (99)
Net increase in cash
and equivalents..... 78,833 1,348 1,863 -- 82,044
Cash and equivalents at
beginning of period......... 24,664 2,918 2,788 -- 30,370
-------- -------- -------- -------- --------
Cash and equivalents at end of
period...................... $103,497 $ 4,266 $ 4,651 $ -- $112,414
======== ======== ======== ======== ========
</Table>
F-57
158
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 14 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
For the six months ended June 30, 2001, Penton issued 39,430 shares to an
officer under the executive loan program, marked to market its investment in INT
Media Group, Inc. stock by approximately $7.6 million and declared dividends of
$1.0 million which were accrued but not paid at quarter end. In addition, Penton
acquired Hillgate for approximately $4.1 million, of which $3.5 million was in
the form of notes payable.
For the six months ended June 30, 2000, Penton issued 52,920 common shares
valued at approximately $1.4 million in connection with New Hope's earnout;
issued 400,000 shares to officers and directors; and marked to market its
investment in INT Media Group, Inc. stock by approximately $54.2 million.
The foregoing transactions did not provide for or require the use of cash
and, accordingly, are not reflected in the Consolidated Statements of Cash
Flows.
NOTE 15 -- SUBSEQUENT EVENTS
In July 2001, Penton used $20.0 million of the net proceeds from the Senior
Subordinated Notes to pay down Term Loan A by $12.8 million and B by $7.2
million. The remaining net proceeds of $24.2 million will be used for general
corporate purposes.
F-58
159
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$185,000,000
[PENTON LOGO]
10 3/8% SENIOR SUBORDINATED NOTES DUE 2011
----------
PROSPECTUS
----------
OCTOBER 12, 2001
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