AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 2002
REGISTRATION NO. 333-91280
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PENTON MEDIA, INC.
(AND ITS SUBSIDIARIES IDENTIFIED ON THE FOLLOWING PAGE)
(Exact Name of Registrant as Specified in Its Charter)
<Table>
DELAWARE 2721 36-2875386
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</Table>
---------------------
1300 EAST NINTH STREET
CLEVELAND, OHIO 44114
(216) 696-7000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
PRESTON L. VICE
INTERIM CHIEF FINANCIAL OFFICER
1300 EAST NINTH STREET
CLEVELAND, OHIO 44114
(216) 696-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
CHRISTOPHER M. KELLY, ESQ.
JONES, DAY, REAVIS & POGUE
NORTH POINT
901 LAKESIDE AVENUE
CLEVELAND, OHIO 44114-1190
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANTS
<Table>
<Caption>
PRIMARY
STANDARD ADDRESS, INCLUDING ZIP CODE,
EXACT NAME OF STATE OR OTHER INDUSTRIAL IRS AND TELEPHONE NUMBER,
REGISTRANT AS JURISDICTION OF CLASSIFICATION EMPLOYER INCLUDING AREA CODE, OF
SPECIFIED IN ITS INCORPORATION OR CODE IDENTIFICATION REGISTRANT'S PRINCIPAL
CHARTER ORGANIZATION NUMBER NUMBER EXECUTIVE OFFICES
---------------- ---------------- -------------- -------------- ----------------------------
Stardust.com California 2721 77-0414434 1300 East Ninth Street
Cleveland, Ohio 44114
(216) 696-7000
PTS Delaware, Inc. Delaware 2721 34-1959399 1300 East Ninth Street
Cleveland, Ohio 44114
(216) 696-7000
Internet World Delaware 2721 06-1385519 1300 East Ninth Street
Media, Inc. Cleveland, Ohio 44114
(216) 696-7000
Streaming Media, California 2721 94-3296121 1300 East Ninth Street
Inc. Cleveland, Ohio 44114
(216) 696-7000
Tech Conferences, Connecticut 2721 06-1400484 1300 East Ninth Street
Inc. Cleveland, Ohio 44114
(216) 696-7000
Healthwell.com, Inc. Delaware 2721 34-1917641 1300 East Ninth Street
Cleveland, Ohio 44114
(216) 696-7000
Donohue Meehan Illinois 2721 36-4240655 1300 East Ninth Street
Publishing Company Cleveland, Ohio 44114
(216) 696-7000
Duke Investments, Colorado 2721 84-0922160 1300 East Ninth Street
Inc. Cleveland, Ohio 44114
(216) 696-7000
Duke Colorado 2721 84-1357904 1300 East Ninth Street
Communications Cleveland, Ohio 44114
International, Inc. (216) 696-7000
One, Inc. Colorado 2721 84-1182803 1300 East Ninth Street
Cleveland, Ohio 44114
(216) 696-7000
Boardwatch, Colorado 2721 84-1208477 1300 East Ninth Street
Incorporated Cleveland, Ohio 44114
(216) 696-7000
Penton Internet, Inc. Delaware 2721 34-1927675 1300 East Ninth Street
Cleveland, Ohio 44114
(216) 696-7000
</Table>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE. PENTON MAY NOT SELL OR OFFER
THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND PENTON IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 30, 2002
PROSPECTUS
$157,500,000
OFFER TO EXCHANGE
ALL OUTSTANDING 11 7/8% SENIOR SECURED NOTES DUE 2007
FOR
11 7/8% SENIOR SECURED NOTES DUE 2007
OF
PENTON MEDIA, INC.
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 2002.
---------------------
THE EXCHANGE NOTES
- The terms of the notes to be issued are substantially identical to the
outstanding notes that Penton issued on March 28, 2002, 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 notes accrues at the rate of 11 7/8% per year, payable in
cash every six months on April 1 and October 1, with the first payment on
October 1, 2002.
- The exchange notes are secured by a lien on substantially all of our
assets and those of the subsidiary guarantors, other than specified
excluded assets.
- There is no existing market for the 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 , 2002, unless
extended.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged for an equal principal amount of notes which 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. See "Plan of Distribution."
---------------------
PLEASE CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 14 OF THIS
PROSPECTUS.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE DISTRIBUTED IN THE EXCHANGE OFFER,
NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this prospectus is , 2002.
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 SEC and incorporated by reference
in this prospectus by requesting the documents, in writing or by telephone, from
the SEC or:
Penton Media, Inc.
1300 East Ninth Street
Cleveland, Ohio 44114
Attention: Mary Abood, Vice President, Investor Relations
Telephone: (216) 696-7000
If you would like to request copies of these documents, please do so by
, 2002 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
----
Forward-Looking Statements.................................. ii
Industry and Market Data.................................... ii
Prospectus Summary.......................................... 1
Risk Factors................................................ 14
Use of Proceeds............................................. 24
Capitalization.............................................. 25
Selected Historical Financial Information................... 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 57
Management.................................................. 67
Description of Certain Indebtedness......................... 70
The Exchange Offer.......................................... 72
Description of Our Preferred Stock and Warrants............. 81
Description of Notes........................................ 87
Federal Income Tax Consequences to Non-U.S. Holders......... 123
Federal Income Tax Consequences of the Exchange Offer....... 125
Plan of Distribution........................................ 126
Legal Matters............................................... 126
Experts..................................................... 126
Where You Can Find More Information......................... 126
Index to Financial Statements............................... F-1
</Table>
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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.
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , 2002, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
i
FORWARD-LOOKING STATEMENTS
A number of statements made in or incorporated by reference into 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:
- economic uncertainty, exacerbated by terrorist attacks on the United
States;
- the performance of our Internet/Broadband industry sector;
- fluctuations in advertising revenue with general economic cycles;
- the effectiveness of our cost saving efforts;
- the seasonality of revenue from trade shows and conferences;
- our ability to penetrate new markets internationally;
- our ability to launch new products that fit strategically with and add
value to our businesses;
- the infringement or invalidation of our intellectual property rights; and
- increases in paper and postage costs.
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.
ii
PROSPECTUS SUMMARY
The following summary contains information about Penton and this offering.
It may 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 carefully read this entire
prospectus and the documents incorporated by reference, including the "Risk
Factors" section and our consolidated financial statements and the notes to
those statements.
PENTON MEDIA
OUR BUSINESS
We are a leading, global 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 as part of their sales and marketing efforts. We produce 61
specialized trade magazines, 125 trade shows and conferences, and online media
products. We benefit from 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 over 20 years in the media industry.
We believe we have leading media products in each of the 12 industry
sectors we serve. According to Advertising Age's June 2001 annual ranking of
magazines in the United States, we publish four of the 50 largest trade
magazines, based on advertising revenues. We also own two of the largest trade
shows in the United States based on net exhibit space, including the Internet
World Spring show and the Natural Products Expo West show, according to the 2002
Tradeshow Week 200 directory. In addition, we produce online media products that
provide unique, high-value content and that serve as an important information
source 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, technology, and retail 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, 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 benefited our company by:
- strengthening our presence in our existing markets;
- providing us with strong market positions in new markets;
- diversifying our business into higher-margin trade shows and conferences;
and
- increasing our international product offerings.
For the year ended December 31, 2001, our revenues were $371.6 million, our
net loss was $104.1 million and our adjusted EBITDA was $40.3 million. For the
six months ended June 30, 2002, our revenues were $129.2 million, our net loss
applicable to common stockholders was $61.2 million and our adjusted EBITDA was
$10.2 million. Adjusted EBITDA is defined as net income (loss) before interest,
taxes, depreciation and amortization, and unusual items, as more fully described
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations." In 2001, 56.6% of our revenue was from publications, 40.1% was from
trade shows and conferences, and 3.3% was from online media products.
OUR PRODUCTS AND SERVICES
Publications. We are one of the ten largest publishers of specialized trade
magazines in the United States, according to American Business Media. In 2001,
our publications represented $210.2 million of our revenues and $26.3 million of
our adjusted EBITDA, before general and administrative costs. For the six
1
months ended June 30, 2002, our publications represented $84.9 million of our
revenues and $12.8 million of our adjusted EBITDA, before general and
administrative costs.
- We publish 61 specialized trade magazines with a total circulation of
over 3.6 million. We also publish nine industry directories as well as
buyers' guides for most of the industries we serve.
- Advertising in 34 of our magazines is measured by audit services; of our
measured titles, 27, or about 79%, are ranked either #1 or #2 in their
target markets based on number of advertising pages.
- We control the circulation of our publications so that they reach key
decision makers in each of the industries we serve, providing our
advertisers with a high-quality target audience.
Trade Shows and Conferences. We have expanded our trade shows and
conferences business since we became an independent company in August 1998. In
2001, our trade shows and conferences represented $149.2 million of our revenues
and $52.5 million of our adjusted EBITDA, before general and administrative
costs. For the six months ended June 30, 2002, our trade shows and conferences
represented $38.1 million of our revenues and $8.7 million of our adjusted
EBITDA, before general and administrative costs.
- We currently produce 125 trade shows and conferences worldwide.
- In 2001, our 15 largest trade shows generated revenues per rented square
foot of exhibitor space at levels more than double that of industry
averages.
- We continuously evaluate the launch of new trade shows and conferences
within the industry sectors we serve. In 2001, we launched two domestic
Internet World Wireless shows, Streaming Media events in Germany and
Japan, and the m-Commerce World Show in the United Kingdom.
Online Media Products. We maintain a variety of market-specific online
media offerings that enable buyers and sellers to access product information and
news about their industry and to interact with each other through the Internet.
Our products, including Web sites and electronic newsletters, offer proprietary
content, targeted advertising, publication subscriber services, and trade show
and conference information and registration. Online media products represented
approximately 3.3% of our revenue in 2001, as compared to 1.5% of our revenue in
2000, and represented 4.8% of our revenue in the first six months of 2002.
OUR INDUSTRY
The business-to-business communications industry is an important segment of
the media industry. Veronis Suhler Stevenson estimated in July 2002 that the
business-to-business communications industry will experience a 3.1% compound
annual growth rate between 2001 and 2006 and will surpass $24 billion in revenue
in 2006. Veronis Suhler also forecasted that, over the same period, spending on
business-to-business magazines will grow at a compound annual growth rate of
2.0% and trade show spending will grow at a compound annual growth rate of 4.6%.
In an October 2001 study by Yankelovich Partners and Harris Interactive,
executives ranked business-to-business magazines and trade shows as the two most
valuable media channels for both obtaining information and influencing and
supporting their business purchasing decisions.
The domestic business-to-business communications industry is highly
fragmented. In June 2001, there were about 1,500 publishing companies, according
to American Business Media; 5,200 trade magazine titles, according to Standard
Rate & Data Service; and 3,000 trade shows in the United States and Canada
produced by 1,500 independent companies and industry associations, according to
Tradeshow Week Research Services.
The business-to-business media industry experienced severe declines since
2001 as companies reduced their overall marketing expenditures in response to
the global economic slowdown. While most publishers began to experience declines
in the third quarter of 2001, technology-focused publishers realized declines
starting in the beginning of 2001 with advertising pages down nearly 34% over
2000, according to Technology Advertising & Branding Report. The September 11th
terrorist attacks exacerbated the downturn in the business-to-business media
industry, causing greater business declines in the latter part of 2001. In 2001,
business-to-business magazines serving the industry sectors analyzed in the
Business Information Network experienced a year-over-year decline in advertising
spending of over 20%. In addition, trade show and
2
conference producers experienced significant declines in exhibition sales and
attendance as travel fears and economic and political uncertainty adversely
affected customers' marketing, education, and travel spending. According to
Tradeshow Week, trade shows held in the fourth quarter of 2001 experienced the
most severe decline ever recorded in the 29-year history of the publication's
quarterly analysis, as attendance was down 20.4% over fourth quarter 2000 levels
and the number of exhibitors was down 6.8% over the same period. Through the
first quarter of 2002, trade shows continued to show declines as compared to the
first quarter of 2001, according to Tradeshow Week.
OUR COMPETITIVE STRENGTHS
We believe we have the following competitive strengths:
- market leadership and strong reputation in industries served;
- ability to capitalize on our established industry positions;
- diversity of products, target industries, and customers; and
- highly experienced management team, with deep industry relationships.
OUR BUSINESS STRATEGY
Due to the difficult business environment, we have shifted the emphasis of
our business strategy from accelerating growth to improving our profitability.
In 2001 and the first six months of 2002, we experienced declines in our
revenues and adjusted EBITDA due to the negative factors affecting our industry
generally. The 2001 declines were most significant in the third and fourth
quarters.
Reduce Fixed Costs. In an effort to align our cost structure with the
current business environment, we implemented a number of cost reduction
initiatives. These efforts included eliminating over 550 positions from our
workforce, freezing salaries and hiring, shutting down and consolidating more
than 25 facilities worldwide, reducing capital spending, centralizing all
information technology services, and other cost reductions.
Restructure Product Portfolio. In an effort to improve the profitability of
our publications, trade shows and conferences, and online media products, we
aggressively restructured our product portfolio in the second half of 2001. This
restructuring effort involved eliminating certain unprofitable products,
including seven magazines, more than 20 trade shows and conferences and nearly
20 Web sites, reducing the production costs of certain of our trade magazines
and co-locating certain of our events. We reduced magazine production costs
through process improvements, automation of pre-press work, new printing and
paper supply contracts, and selective reductions in frequency and circulation
levels. In 2002, we are continuing to evaluate each of our products to determine
whether additional properties should be eliminated or restructured. We believe
these restructuring efforts will enable us to improve the adjusted EBITDA of our
individual products without reducing their usefulness to our customers.
Low-Risk, High-Return Growth Strategy. Due to the uncertain business
environment, we intend to grow our business by launching new products that
require minimal capital investment and by exporting our successful domestic
products to other global markets. We launch new products by capitalizing on our
existing knowledge base to identify growth segments within the market sectors we
currently serve, using our proprietary databases to identify buyers and sellers
within those markets, and leveraging our existing sales and marketing
infrastructure to generate revenue without investing significant incremental
capital.
3
OUR MARKETS AND SEGMENTS
Our products serve 12 industry sectors, which we group into four segments:
Industry Media, Technology Media, Lifestyle Media, and Other Media.
1. INDUSTRY MEDIA
<Table>
<Caption>
KEY TRADE SHOWS KEY ONLINE % OF 2001
INDUSTRY SECTORS KEY PUBLICATIONS AND CONFERENCES MEDIA PRODUCTS REVENUE
- ------------------------- ----------------------- ------------------------------ ----------------------- ---------
Manufacturing IndustryWeek Computers in newequipment.com 14
New Equipment Digest Manufacturing industryweek.com
American Machinist
Design/Engineering Machine Design Total Design Solutions machinedesign.com 8
Hydraulics & Pneumatics Shows
Mechanical Systems/ Contracting Business A/E/C SYSTEMS Computers for contractingbusiness.com 4
Construction HPAC Engineering Construction
HVAC Comfortech
Show
Supply Chain Material Handling Supply Chain & totalsupplychain.com 3
Management Logistics Conference
Supply Chain Technology & Exhibition
News
Government/Compliance Government Product News govgroup.com 2
Occupational Hazards occupationalhazards.com
Aviation Air Transport World ATW Awards & atwonline.com 1
Conference
</Table>
2. TECHNOLOGY MEDIA
<Table>
<Caption>
KEY TRADE SHOWS KEY ONLINE % OF 2001
INDUSTRY SECTORS KEY PUBLICATIONS AND CONFERENCES MEDIA PRODUCTS REVENUE
- ------------------------- ----------------------- ------------------------------ ----------------------- ---------
Internet/Broadband Internet World Internet World internetworld.com 29
Boardwatch Service Networks streamingmedia.com
Information Technology Windows & .NET .NET Developer iseriesnetwork.com 14
iSeries NEWS Conferences winnetmag.com
SQL Server Service Management
Europe
Electronics Electronic Design Wireless Systems Design PlanetEE.com 10
EE Product News Conference &
Microwaves & RF Expo
</Table>
3. LIFESTYLE MEDIA
<Table>
<Caption>
KEY TRADE SHOW KEY ONLINE % OF 2001
INDUSTRY SECTOR KEY PUBLICATIONS AND CONFERENCE MEDIA PRODUCT REVENUE
- ------------------------- ----------------------- ------------------------------ ----------------------- ---------
Natural Products The Natural Foods Natural Products Expos healthwell.com 8
Merchandiser
Delicious Living
</Table>
4. OTHER MEDIA
<Table>
<Caption>
KEY TRADE SHOWS KEY ONLINE % OF 2001
INDUSTRY SECTORS KEY PUBLICATIONS AND CONFERENCES MEDIA PRODUCTS REVENUE
- ------------------------- ----------------------- ------------------------------ ----------------------- ---------
Food/Retail Food Management National Convenience bakery-net.com 5
Modern Baking Store Advisory foodservicesearch.com
Group Shows
Kids Marketing
Conference
Leisure/Hospitality Lodging Hospitality International Leisure LHOnline.com 2
Industry Week
</Table>
4
RECENT DEVELOPMENTS
On August 20, 2002, we were notified by the New York Stock Exchange (NYSE)
that our common stock is "below criteria" for continued listing because the
average closing price of our common stock for a consecutive 30-day period prior
to notification was below $1.00. Under NYSE guidelines, we must return our share
price and average share price back above $1.00 by six months following receipt
of the NYSE's notification. In the event that we fail to return to compliance
during this time period, the NYSE has notified us that it will commence
suspension and delisting procedures for our common stock.
The NYSE notified us that it may make an appraisal of, and determine on an
individual basis, the suitability for continued listing of our common stock
based on other factors such as an abnormally low share price. The NYSE noted
that our common stock has recently traded as low as $.33, which is often viewed
by the New York Stock Exchange as abnormally low. The NYSE informed us that
continued trading at this price level may require the NYSE to make more
immediate qualitative continued listing determinations.
In accordance with NYSE rules, we have acknowledged to the NYSE receipt of
this notification and our intention to cure this deficiency. There can be no
assurance, however, that we will be able to do so.
In April 2002, we reached an agreement with the convertible preferred
stockholders to eliminate the scheduled ten year redemption date of the
convertible preferred stock and on May 31, 2002, our stockholders approved an
amendment to the Series B Preferred Stock Certificate of Designation to remove
the scheduled redemption feature. In exchange for removing the scheduled
redemption date we agreed to grant the holders of any outstanding convertible
preferred stock on March 18, 2008, the right to require us to seek a buyer for
substantially all of our assets or issued and outstanding capital stock. We
sought the amendment to eliminate the requirement to accrete the convertible
preferred stock to the maximum possible redemption amount by such date. However,
we did not seek to eliminate the convertible preferred stockholders' right to
require us to redeem the security upon the occurrence of certain contingent
events. To the extent that redemption of the convertible preferred stock becomes
probable in the future pursuant to a contingent redemption provision of the
convertible preferred stock, accretion to the maximum redemption amount will be
required at such time. Prior to the stockholder approval on May 31, 2002, we had
to accrete, using the interest method, a portion of the maximum liquidation
preference at maturity. In addition, certain features of the convertible
preferred stock had to be accounted for as embedded derivatives, which required
mark to market accounting that could have potentially resulted in significant
swings in our net income and our earnings per share.
As a result of the stockholder approval on May 31, 2002, accretion is no
longer required and approximately $42.1 million of unamortized beneficial
conversion feature was recognized immediately as a charge to capital in excess
of par and credit to mandatorily redeemable convertible preferred stock on the
Balance Sheet, and as a reduction of income or loss available to common
stockholders in the Statement of Operations. In addition, mark to market
accounting for the embedded derivatives is no longer required subsequent to May
31, 2002.
The elimination of the mandatory redemption date does not alter the
mezzanine classification of the convertible preferred stock in the balance
sheet, because of the existence of other redemption provisions in the
convertible preferred stock agreement, such as the optional redemption in the
event of a change in control by the holder of the convertible preferred stock.
Even without the scheduled redemption feature, however, any accrued
dividends on the convertible preferred stock will still be reflected as a
reduction in earnings per share available to common stockholders.
In addition to approving the removal of the redemption feature of the
convertible preferred stock, as noted above, stockholders at the annual meeting
held on May 31, 2002 approved the issuance of common stock upon conversion of
the convertible preferred stock and exercise of the warrants and a related
proposal to increase the number of authorized shares of our common stock to
155.0 million.
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."
5
THE EXCHANGE OFFER
THE EXCHANGE OFFER............ We are offering to exchange $157.5 million in
principal amount of our 11 7/8% senior secured
notes due 2007, which have been registered
under the federal securities laws, for $157.5
million in principal amount of our outstanding
unregistered 11 7/8% senior secured notes due
2007, which we issued on March 28, 2002 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 March 28,
2002 to an initial purchaser. At that time, we
signed a registration rights agreement with the
initial purchaser, 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 , 2002, unless
we decide to extend the expiration date.
CONDITIONS TO THE EXCHANGE
OFFER......................... We will complete this exchange offer only if:
- there is no change in the laws and
regulations that would impair our ability to
proceed with this exchange offer;
- there is no change in the current
interpretation of the staff of the SEC that
permits resales of the exchange notes; and
- there is no stop order issued by the SEC that
would suspend the effectiveness of the
registration statement that includes this
prospectus or the qualification of the
exchange notes under the Trust Indenture Act
of 1939.
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
6
- 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 should 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 SEC, 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-action letter, and we
cannot assure you that that the staff would
make a similar determination with respect to
this exchange offer.
7
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
U.S. Bank National Association. 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
ISSUER........................ Penton Media, Inc.
EXCHANGE NOTES................ $157.5 million aggregate principal amount of
11 7/8% senior secured notes due 2007.
MATURITY DATE................. October 1, 2007.
INTEREST PAYMENTS............. The exchange notes will bear interest at the
rate of 11 7/8% per year, payable
semi-annually, in arrears, on April 1 and
October 1 of each year, commencing on October
1, 2002.
OPTIONAL REDEMPTION........... We may redeem the exchange notes, in whole or
in part, on or after October 1, 2005 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 October 1, 2005, 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 notes will be fully and
unconditionally guaranteed on a senior basis by
all of our domestic subsidiaries. For the
twelve months ended June 30, 2002, our domestic
subsidiaries generated approximately 21.7% of
our adjusted EBITDA and Penton Media, Inc.
generated approximately 79.3% of our adjusted
EBITDA. At June 30, 2002, our domestic
subsidiaries represented approximately 43.1% of
our total assets.
RANKING AND SECURITY.......... The exchange notes will be our senior secured
obligations and will rank senior in right of
payment to all of our subordinated
indebtedness, including our 10 3/8% senior
subordinated notes due 2011, and equal in right
of payment with all of our senior indebtedness.
The guarantees will be senior secured
obligations of each of the subsidiary
guarantors and will rank senior in right of
8
payment to all subordinated indebtedness of the
subsidiary guarantors, including the guarantees
of our 10 3/8% senior subordinated notes, and
equal in right of payment with all of their
senior indebtedness. The exchange notes and
guarantees will be secured by a lien on
substantially all of our assets and those of
the subsidiary guarantors, other than specified
excluded assets. The collateral includes, among
other things, accounts receivable, certain
deposit accounts, equipment, general
intangibles (including, but not limited to,
contract rights and certain intellectual
property), intercompany loans, inventory,
securities accounts, the capital stock of
certain subsidiaries including Donohue Meehan
Publishing Company, and proceeds of the
foregoing, in each case subject to certain
customary exceptions and to the extent not
included in the excluded assets. The excluded
assets consist of, among other things, the
capital stock of Duke Communications
International, Inc. and Internet World Media,
Inc., the capital stock of the foreign
subsidiaries directly owned by us or the
subsidiary guarantors which exceed 65% of the
outstanding capital stock or equity interests
of such foreign subsidiaries, and all of the
capital stock of our other foreign
subsidiaries. For the twelve months ended June
30, 2002, Duke Communications and Internet
World Media generated approximately 14.9% of
our adjusted EBITDA, before general and
administrative costs. The assets securing the
notes and the guarantees, as well as some of
the excluded assets, also secure our
obligations under our credit facility. The lien
on the assets securing our obligations under
the exchange notes and the guarantees is junior
to the lien on these assets securing our
obligations under the credit facility.
Accordingly, the exchange notes and the
guarantees will be effectively junior to
indebtedness outstanding under the credit
facility to the extent of the assets subject to
the senior lien. The exchange notes and the
guarantees also will be effectively junior to
indebtedness of our subsidiaries that will not
guarantee the exchange notes. As of June 30,
2002, the exchange notes were effectively
subordinated to $0.4 million of outstanding
debt, excluding intercompany debt, of our
non-guarantor subsidiaries.
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."
RESTRICTIVE COVENANTS......... The indenture governing the exchange notes
contains covenants that 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 disqualified
capital 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;
9
- 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."
RISK FACTORS.................. You should consider the matters set forth in
this prospectus under the heading "Risk
Factors" before exchanging any outstanding
notes.
10
SUMMARY HISTORICAL FINANCIAL DATA
The following tables present our summary historical financial data. The
summary historical statement of operations data for each of the three years in
the period ended December 31, 2001 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, 2001 and 2002 and the summary balance sheet data as of
June 30, 2002 have been derived from our unaudited interim 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 proceeds from the
offering of the outstanding notes together with the proceeds of the 10 3/8%
senior subordinated notes and convertible preferred stock issued in March 2002,
net of finance fees, had been used to repay all of the outstanding indebtedness
under our credit facility.
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 in 1999.
- Adjusted EBITDA is defined as net income (loss) before interest, taxes,
depreciation and amortization, non-cash compensation and unusual items.
Unusual items include such things as restructuring charges and gain on
sale of investments.
- Adjusted EBITDA margin equals adjusted EBITDA divided by total revenues.
- Net debt equals total debt less cash and cash equivalents.
- 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 less preferred
stock dividend requirements. Fixed charges consist of interest expense,
amortized finance fees, preferred stock dividends, and one-third of
rental expense, which is considered representative of the interest
component of rental expense. On both a historical and pro forma basis,
earnings were insufficient to cover fixed charges by $122.9 million and
$125.9 million, respectively, for the twelve months ended December 31,
2001. In addition, on a historical and pro forma basis, earnings were
insufficient to cover fixed charges by $70.9 million and $78.8 million,
respectively, for the six months ended June 30, 2002.
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, as adjusted EBITDA has no basis under
generally accepted accounting principles.
11
<Table>
<Caption>
TWELVE
SIX MONTHS ENDED MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, ENDED
------------------------------- ------------------- JUNE 30,
1999 2000 2001 2001 2002 2002
-------- -------- --------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Publishing..................... $202,472 $230,120 $ 210,208 $115,565 $ 84,877 $ 179,520
Trade shows and conferences.... 97,444 168,436 149,202 97,367 38,053 89,888
Online media................... 908 6,015 12,142 6,538 6,254 11,858
-------- -------- --------- -------- -------- ---------
Total revenues.............. 300,824 404,571 371,552 219,470 129,184 281,266
Operating expenses............... 261,434 349,860 465,130 211,929 138,345 391,546
-------- -------- --------- -------- -------- ---------
Operating income (loss).......... 39,390 54,711 (93,578) 7,541 (9,161) (110,280)
Interest expense................. (21,563) (19,485) (30,487) (13,069) (18,920) (36,338)
Interest income.................. 432 5,352 1,766 819 460 1,407
Gain on sale of investments...... 5,906 110,210 -- -- 1,491 1,491
Writedown of Internet
investments.................... -- (9,490) 824 -- -- 824
Miscellaneous, net............... (170) (64) (2,839) (1,450) (341) (1,730)
Benefit (provision) for income
taxes.......................... (16,065) (61,559) 20,207 (602) 10,014 30,823
Income (loss) from discontinued
operations..................... 33 -- -- -- -- --
Gain (loss) on sale of
discontinued operations........ 8,660 (85) -- -- -- --
Extraordinary item............... (8,413) -- -- -- 166 166
-------- -------- --------- -------- -------- ---------
Net income (loss)................ 8,210 79,590 (104,107) (6,761) (16,291) (113,637)
Amortization of deemed dividend
and accretion of preferred
stock.......................... -- -- -- -- (44,861) (44,861)
-------- -------- --------- -------- -------- ---------
Net income (loss) applicable to
common stockholders............ $ 8,210 $ 79,590 $(104,107) $ (6,761) $(61,152) $(158,498)
======== ======== ========= ======== ======== =========
OTHER DATA:
Adjusted EBITDA:
Operating income (loss)........ $ 39,390 $ 54,711 $ (93,578) $ 7,541 $ (9,161) $(110,280)
Depreciation and
amortization................ 27,918 33,431 45,492 22,714 10,140 32,918
Impairment of other assets..... -- 1,051 69,565 -- 136 69,701
Impairment of Internet
assets...................... -- 2,095 -- -- -- --
Non-cash compensation.......... -- 2,164 652 1,445 1,544 751
Restructuring charges.......... -- -- 18,790 5,567 7,506 20,729
-------- -------- --------- -------- -------- ---------
Adjusted EBITDA............. $ 67,308 $ 93,452 $ 40,921 $ 37,267 $ 10,165 $ 13,819
Adjusted EBITDA margin........... 22.4% 23.1% 11.0% 17.0% 7.9% 4.9%
Capital expenditures, excluding
businesses acquired............ $ 5,884 $ 27,272 $ 7,602 $ 5,448 $ 1,773 $ 3,927
Pro forma interest expense, net......................................................... 44,986
Ratio of adjusted EBITDA to pro forma interest expense, net............................. 0.3x
Ratio of earnings to fixed
charges........................ 1.9x 7.2x n/m n/m n/m n/m
</Table>
12
<Table>
<Caption>
AS OF JUNE 30, 2002
----------------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 22,589
Working capital (deficit)................................... (12,306)
Goodwill and other intangibles.............................. 552,620
Total assets................................................ 684,223
Senior debt................................................. 328,039
Total debt.................................................. 328,456
Mandatorily redeemable preferred stock...................... 44,861
Other stockholders' equity.................................. 206,679
</Table>
13
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 before exchanging any
outstanding notes.
RISKS RELATING TO OUR DEBT, INCLUDING THE EXCHANGE NOTES
OUR SIGNIFICANT AMOUNT OF DEBT MAY LIMIT OUR OPERATIONS AND FLEXIBILITY.
At June 30, 2002, we had total indebtedness of approximately $328.5
million, excluding approximately $3.8 million of original issue discount on our
10 3/8% senior subordinated notes and approximately $0.8 million of original
issue discount on our 11 7/8% senior secured notes, and our ratio of total debt
to adjusted EBITDA for the twelve months ended June 30, 2002 was 23.8x. Subject
to restrictions in our debt instruments, including a borrowing base formula in
our credit facility, we had the ability to incur additional indebtedness,
including up to approximately $23.0 million under our credit facility at June
30, 2002.
The level of our indebtedness could have important consequences, including:
- limiting cash flow available for general corporate purposes, including
capital expenditures, 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;
- making us more vulnerable in the event of a further downturn in general
economic conditions or in our business;
- limiting our flexibility in reacting to competitive and other changes in
our industry; and
- making it more difficult to satisfy our obligations under the exchange
notes.
Our current debt levels have subjected us to the risks described above. If
new debt is added to our current debt levels, the impact of these substantial
risks would intensify.
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 cannot assure you that our business will generate sufficient cash flow
from operations, that currently anticipated revenues and cost-saving efforts
will be realized on schedule or at all, or that future borrowings will be
available to us under our credit facility or otherwise in amounts sufficient to
enable us to service our debt obligations, to pay our indebtedness, including
the exchange notes, at maturity or otherwise, or to fund our other liquidity
needs. As of June 30, 2002, our ratio of adjusted EBITDA to pro forma interest
expense, net was 0.3x. If we are unable to meet our debt obligations or fund our
other liquidity needs, we may need to further 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, which could cause us to default on our obligations and impair our
liquidity. Our ability to restructure or refinance will depend on the capital
markets and our financial condition at such time. Any refinancing of our debt
could be at higher interest rates and may require us to comply with more onerous
covenants, which could further restrict our business operations. In addition,
the terms of the convertible preferred stock and warrants to purchase common
stock, including the conversion price, dividend, and liquidation preference
adjustment provisions that could result in substantial dilution to stockholders,
the redemption price premiums, and board representation rights, could negatively
impact our ability to access the equity markets in the future.
14
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 subsidiaries that 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. For the
twelve months ended June 30, 2002, our subsidiaries that will not guarantee the
exchange notes generated negative adjusted EBITDA of approximately $1.0 million,
before general and administrative costs, and at June 30, 2002, they represented
approximately 4.9% of our total assets and had $0.4 million of total debt, in
each case before intercompany items.
THE TERMS OF OUR DEBT INSTRUMENTS AND PREFERRED STOCK IMPOSE FINANCIAL AND
OPERATING RESTRICTIONS.
The indenture governing our 10 3/8% senior subordinated notes, our credit
facility, our new convertible preferred stock, and the indenture governing the
exchange notes contain restrictive covenants that limit our ability to engage in
a variety of transactions, including incurring or guaranteeing additional
indebtedness, making investments, creating liens on our assets, transferring or
selling our assets, paying dividends, or engaging in mergers, acquisitions, or
consolidations. The terms of our credit facility prohibit us from voluntarily
prepaying certain indebtedness, including the exchange notes.
A breach of any of the covenants or other provisions in our debt
instruments could result in a default thereunder. 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. An acceleration of the amounts due under our
credit facility would cause us to be in default under the indenture governing
our 10 3/8% senior subordinated notes and the indenture governing the exchange
notes, enabling acceleration of amounts outstanding under each indenture. The
exchange notes and the guarantees will be secured by a second priority lien on
substantially all of our and the guarantors' assets, other than specified
excluded assets. These assets, as well as some of the excluded assets, also
secure our obligations under our credit facility. If we are unable to repay any
accelerated amounts under the credit facility or the exchange notes, the
respective lenders could proceed against the collateral granted to them to
secure that indebtedness. If the lenders under our credit facility accelerate
the repayment of borrowings, we cannot assure you that we will have sufficient
assets to repay all of our indebtedness. See "--The value of the collateral
securing the exchange notes may not be sufficient to satisfy all amounts we owe
under our credit facility and the indenture."
THE VALUE OF THE COLLATERAL SECURING THE EXCHANGE NOTES MAY NOT BE SUFFICIENT TO
SATISFY ALL AMOUNTS WE OWE UNDER OUR CREDIT FACILITY AND THE INDENTURE.
We will secure our obligations under the exchange notes by granting a
security interest in and/or pledging substantially all of our assets other than
specified excluded assets, and each guarantor will secure its obligations under
its guarantee by granting a security interest in and/or pledging substantially
all of its assets other than specified excluded assets. These assets, as well as
some of the excluded assets, also secure our obligations under the credit
facility. The excluded assets consist of, among other things, the capital stock
of Duke Communications International, Inc. and Internet World Media, Inc., the
capital stock of the foreign subsidiaries directly owned by us or the subsidiary
guarantors which exceed 65% of the outstanding capital stock or equity interests
of such foreign subsidiaries, and all of the capital stock of our other foreign
subsidiaries. Steps to perfect liens on capital stock of our foreign
subsidiaries included in the collateral have not been taken in the jurisdictions
of organization of such foreign subsidiaries, which may limit our rights in such
collateral. For the twelve months ended June 30, 2002, Duke Communications and
Internet World Media generated approximately 14.9% of our adjusted EBITDA,
before general and administrative costs. Further, the
15
lien on our and the guarantors' assets securing the exchange notes and the
guarantees will be junior to the lien on these assets securing obligations under
our credit facility. The fact that the lenders under the credit facility will
have a first priority lien on the security means that in any liquidation of the
collateral, the proceeds would be applied first to amounts due under the credit
facility. The collateral's value may not suffice to pay all amounts due under
both the credit facility and the exchange notes. See "Description of
Notes--Security."
We did not prepare any appraisals of the collateral in connection with this
offering. The value of the collateral in the event of a liquidation will depend
upon market and economic conditions, including the availability of buyers, and
other factors. By its nature, some or all of the collateral will be illiquid and
may have no readily ascertainable market value. A substantial portion of our
asset value is goodwill. Likewise, the collateral may not be saleable, or, if
saleable, there could be substantial delays in its liquidation. Accordingly, the
proceeds of any sale of the collateral pursuant to the indenture governing the
exchange notes and the related collateral agreements following an event of
default may be substantially less than amounts due under the exchange notes. If
the proceeds from the sale of any of the collateral were not sufficient to repay
all amounts due on the exchange notes, the holders of the exchange notes (to the
extent not repaid from the proceeds of the sale of the collateral) would only
have an unsecured claim against the remaining assets.
The trustee under the indenture and lenders under our credit facility have
entered into an intercreditor agreement to govern the relationship among them,
including their obligations and rights regarding the shared collateral.
Financing by multiple lenders with security interests in common collateral may
result in increased complexity and lack of flexibility in a debt restructuring
or other workout relating to us. Furthermore, under the intercreditor agreement,
the trustee's remedies in the event of a default will be limited. Under the
intercreditor agreement, if the exchange notes become due and payable prior to
the stated maturity or are not paid in full at the stated maturity at a time
during which we have obligations outstanding under our credit facility, the
trustee will not have the right to foreclose upon the collateral unless and
until the lenders under the credit facility fail to take steps to exercise
remedies with respect to or in connection with the collateral within 180 days
following notice to such lenders of the occurrence of an event of default under
the indenture. In addition, the intercreditor agreement will prevent the trustee
and the holders of the exchange notes from pursuing remedies with respect to the
collateral in an insolvency proceeding. The intercreditor agreement also
provides that the net proceeds from the sale of collateral will first be applied
to obligations outstanding under the credit facility and thereafter to the
holders of the exchange notes.
The right of the trustee to repossess and dispose of the collateral
securing the exchange notes upon the occurrence of an event of default under the
indenture is likely to be significantly impaired by bankruptcy law if a
bankruptcy case were to be commenced by or against us or any of the guarantors
before the trustee is able to repossess and dispose of the collateral. See
"--Bankruptcy may delay payment on the exchange notes and execution on the
collateral."
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 at 101% of their
principal amount, plus accrued interest and liquidated damages, if any. In some
circumstances, a change of control could result from circumstances beyond our
control. 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, our
credit facility provides that any event constituting a change of control under
the indenture will constitute an event of default under the credit facility and
could result in the acceleration of our obligations under that facility. Future
credit agreements or other agreements relating to our debt may contain similar
provisions. 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 exchange notes.
In addition, the terms of our new convertible preferred stock require us to pay
the liquidation value of the convertible preferred stock to the holders thereof
upon the occurrence of specified change of control events. If at that time we
are prohibited by the terms of the indenture governing the exchange notes from
making such payments, we will be in default under the terms of the convertible
16
preferred stock. For more details, see "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 AND
PLEDGES.
All of our domestic subsidiaries will guarantee the exchange notes and will
grant a security interest in and/or pledge certain of their assets to the
trustee to secure their obligations under their guarantees. In the event of the
bankruptcy or financial difficulty of a subsidiary, such subsidiary's
obligations under its guarantee and any security interest granted to secure such
guarantee may be subject to review and avoidance under state and federal
fraudulent transfer laws. Among other things, a court might avoid (that is,
cancel) those obligations and security interests if it concluded that such
obligations were incurred and such security interests were granted for less than
reasonably equivalent value or fair consideration, at a time when the subsidiary
was or was rendered insolvent, was left with inadequate capital to conduct its
business, or believed or reasonably should have believed that it would incur
debts beyond its ability to pay. The court might also avoid a subsidiary's
guarantee and its grant of a security interest to the trustee, without regard to
those factors, if it found that the subsidiary entered into its guarantee or
granted the security interest with actual intent to hinder, delay, or defraud
its creditors.
A court would likely conclude that a subsidiary 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
this offering. If a court avoided a subsidiary's guarantee, you would no longer
have a claim against that subsidiary. In addition, the court might direct you to
repay any amounts already received from the subsidiary. If the court were to
avoid a 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 if either (a) the sum of its existing debts exceeds the fair
value of all of its property or (b) 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 obligations of each subsidiary on its
guarantee will be limited in a manner intended to cause it not to be subject to
avoidance as a fraudulent transfer under applicable law. 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.
BANKRUPTCY MAY DELAY PAYMENT ON THE EXCHANGE NOTES AND EXECUTION ON THE
COLLATERAL.
The Bankruptcy Code generally prohibits the payment of pre-bankruptcy debt
by a company that commences a bankruptcy case. If we and all of our subsidiaries
became debtors in bankruptcy cases, so long as the cases were pending you would
likely not receive any payment of principal or interest due under the exchange
notes. In addition, under the Bankruptcy Code, a claim is a secured claim only
to the extent of the value of the creditor's interest in the collateral securing
the claim. Because your lien in the collateral is junior to the lien in such
collateral under the credit facility, you would be deemed to be secured only to
the extent, if any, that the value of the collateral securing the exchange notes
exceeds our obligations under the credit facility.
The Bankruptcy Code prohibits a debtor's secured creditor from exercising
its rights with respect to the secured creditor's collateral without bankruptcy
court authorization. Thus, if we and our subsidiaries became debtors in
bankruptcy cases, the trustee could not exercise its rights under the indenture
to repossess and dispose of the collateral without first seeking court approval.
It is uncertain whether or when the court would grant that approval. The
Bankruptcy Code permits a debtor, in some circumstances, to retain and to use
collateral (and the proceeds thereof), so long as the secured creditor receives
"adequate protection" of its interest in the collateral. Due to the junior
nature of your lien, as discussed above, you may not be entitled to "adequate
protection." Moreover, because the term "adequate protection" lacks a precise
definition, and because the bankruptcy court has broad discretionary powers, it
is impossible to predict if and to what extent
17
holders of exchange notes would be compensated for any delay in payment or
depreciation in the collateral's value.
In most instances, the Bankruptcy Code prohibits the accrual of interest
after a case's commencement, except with respect to claims that are oversecured.
Accordingly, unless the bankruptcy court concluded that the collateral securing
the exchange notes exceeded (a) the amount outstanding under the credit facility
and (b) the principal amount outstanding under the exchange notes, the amount of
your claims, based on the exchange notes, would not accrue interest and would be
fixed as of the time of bankruptcy, regardless of the length of the bankruptcy
case and the delay in payment.
The Bankruptcy Code generally provides for the payment of secured claims
(in the amount determined as of the date of bankruptcy) in full. As discussed
above, however, your claims will be secured only to the extent, if any, that the
value of the collateral exceeds amounts outstanding under the credit facility.
The remaining portion of your claims will constitute unsecured claims. In most
bankruptcy cases, holders of unsecured claims receive significantly less than
the face amount of their claims.
WE MAY LOSE CONTROL OF OUR BOARD.
The terms of the convertible preferred stock entitle the holders thereof
initially to three board seats. However, at such time as the holders of
convertible preferred stock cease to hold shares of convertible preferred stock
having an aggregate liquidation preference of at least $25.0 million, they will
lose the right to appoint the director for one of these three board seats.
Upon the occurrence of the following events, the holders of a majority of
the convertible preferred stock may nominate two additional members to our board
of directors and, if such triggering events have not been cured or waived prior
to the end of the next succeeding quarter, may appoint one less than a minimum
majority of our board of directors:
- Failure to comply with the other covenants and obligations contained in
the convertible preferred stock certificate of designations or purchase
agreement and such failure is not cured within 90 days;
- Any representation or warranty in the convertible preferred stock
purchase agreement is proven to be false or incorrect in any material
respect; and
- Any default that results in the acceleration of indebtedness, where the
principal amount of such indebtedness, when added to the principal amount
of all other indebtedness then in default, exceeds $5.0 million or final
judgments for the payment of money aggregating more than $1.0 million
(net of insurance proceeds) are entered against us and are not
discharged, dismissed, or stayed pending appeal within 90 days after
entry.
Upon the occurrence of the following events, the holders of a majority of
the convertible preferred stock may appoint one less than a minimum majority of
our board of directors:
- Failure to pay the liquidation preference or any cash dividends, to the
extent declared, when due; and
- Failure to comply with specified covenants and obligations contained in
the convertible preferred stock certificate of designations or purchase
agreement.
Upon the occurrence of the following event, the holders of a majority of
the convertible preferred stock may appoint a minimum majority of our board of
directors:
- We initiate or consent to proceedings under any applicable bankruptcy,
insolvency, composition, or other similar laws or make a conveyance or
assignment for the benefit of our creditors generally or any holders of
any lien takes possession of, or a receiver, administrator, or other
similar officer is appointed for, all or substantially all of our
properties, assets or revenues and is not discharged within 90 days.
18
On March 19, 2008, the holders of a majority of the convertible preferred
stock then outstanding, if any, will be entitled to appoint one less than a
minimum majority of our board of directors, subject to the right to appoint a
minimum majority of our board of directors as described in the immediately
preceding paragraph.
At such time as the holders of convertible preferred stock cease to hold
shares of convertible preferred stock having an aggregate liquidation preference
of at least $10.0 million and such holders' beneficial ownership of our
convertible preferred stock and common stock constitutes less than 5% of the
aggregate voting power of our voting securities, the holders of convertible
preferred stock will no longer have the right to any directors.
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 must comply with
the registration and prospectus delivery requirements of the Securities Act for
any resale transaction. 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.
RISKS RELATING TO OUR BUSINESS
TRADE SHOW AND CONFERENCE ATTENDANCE DECLINED SIGNIFICANTLY IN 2001 AND FIRST
HALF OF 2002 AS A RESULT OF THE SLOWDOWN OF ECONOMIES IN THE UNITED STATES,
EUROPE, AND ASIA AND THE SEPTEMBER 11, 2001 TERRORIST ATTACKS, AND A CONTINUED
DECLINE WOULD HAVE A FURTHER MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF
OPERATIONS, AND FINANCIAL CONDITION.
Prior to the attacks on the United States on September 11, 2001, bookings
for most of our events scheduled for the fourth quarter of 2001 were running
well behind 2000 bookings primarily due to the slowdown of economies in the
United States, Europe, and Asia. For 2001, our trade shows and conferences
revenues decreased $19.2 million and trade shows and conferences adjusted
EBITDA, before general and administrative costs, decreased $26.3 million from
prior year levels. Advance bookings for our trade shows and conferences continue
to be at levels lower than in prior periods. Trade show and conference revenues
declined $59.3 million, or 60.9%, to $38.1 million for the six months ended June
30, 2002. Adjusted EBITDA for the same period declined $32.6 million, or 79.0%,
to $8.7 million. Because our trade shows and conferences business typically
generates higher margins than our other businesses, decreases in trade shows and
conferences revenues cause a disproportionately greater decrease in our total
adjusted EBITDA than do revenue decreases in our other businesses. The decline
was due primarily to the significant drop in revenues in our Internet/broadband
market, with our Internet World Spring, Service Networks Spring, Internet World
UK and Streaming Media West shows being the most significantly impacted.
Since September 11, 2001, there has been a decline in air travel 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 these
effects are unknown, but our trade shows and conferences have been negatively
affected. We believe the September attacks caused as much as an additional 10%
to 15% reduction in revenues for the events completed in the fourth quarter of
2001. Continued negative market conditions due to the weakened U.S. economy, the
September 11, 2001 terrorist attacks, any future
19
occurrences of similar terrorist activities, or threats of such activities and
actions by the United States and other countries that perpetuate a climate of
war could cause more disruption of our trade shows and conferences. If
attendance decreases further, our business, results of operations, and financial
condition would be materially adversely affected.
OUR INTERNET/BROADBAND BUSINESS HAS SIGNIFICANTLY DECLINED, AND A CONTINUED
DECLINE WOULD HAVE A FURTHER MATERIAL ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF
OPERATIONS, AND FINANCIAL CONDITION.
In 2001, our Internet/Broadband industry sector produced 29% of our
revenue, compared to 36% in 2000. Prior to the events of September 11, 2001, we
were experiencing a general decline in this sector as a result of both the
failure of many Internet products and services companies and the general U.S.
economic decline. Some of our customers went out of business or chose not to
participate in our trade shows and conferences as part of a general trend toward
decreased information technology spending. For example, we saw a significant
decrease in revenues from our high-margin Internet World Spring trade show, and
we saw a general decline in revenues from our technology magazines, especially
Internet World magazine. These trends were exacerbated by the events of
September 11, 2001, causing more substantial declines in the latter part of the
year. Following these events, we were forced to reschedule our Internet World
Fall trade show, and we experienced further reduced attendance levels. Declines
in this sector have continued through the first six months of 2002, and are
expected only to represent about 12.0% of total 2002 revenues. Because this
industry sector has typically represented a significant portion of our business
and generated high margins, declines in the Internet/Broadband industry sector
cause a disproportionately greater decrease in our total adjusted EBITDA than do
declines in our other industry sectors. A continued decline in the performance
of these product offerings or a decline in our other product offerings in this
sector, or our inability to regain customers lost to date, would materially
adversely affect our business, results of operations, and financial condition.
WE DEPEND ON ADVERTISING REVENUES, WHICH DECREASE DURING ECONOMIC DOWNTURNS AND
FLUCTUATE FROM PERIOD TO PERIOD.
For the year ended December 31, 2001, we had revenues of $177.0 million
from advertising, which was about 47.6% of our revenue. Approximately 56.0% of
our revenues during the first six months of 2002 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. We are experiencing some of these effects. Our
advertising revenues decreased by 13.5% from 2000 to 2001. For the first six
months of 2002, advertising revenues declined $25.5 million, or 26.0%, to $72.3
million compared with $97.8 million for the same period in 2001.
IF THE U.S. ECONOMY WORSENS, THE COST SAVING EFFORTS WE IMPLEMENTED MAY NOT BE
SUFFICIENT TO ACHIEVE THE BENEFITS WE EXPECT.
In 2001, we experienced a significant decline in revenues and adjusted
EBITDA primarily due to weak economic conditions, which were exacerbated by the
terrorist attacks of September 11, 2001. This decline was more severe in the
second half of the year and continued into the first half of 2002. We cannot
predict if or when the economy or our revenues and adjusted EBITDA will improve.
We have taken a number of steps designed to improve our profits and margins
despite decreased revenues. We have restructured a number of our businesses and
support departments and reduced overhead infrastructure by consolidating and
closing several facilities, centralizing information technology services and
outsourcing certain corporate functions. As a result, we recorded special
charges to our income of $87.5 million in 2001 and $7.6 million in the first six
months of 2002. If the U.S. economy worsens or additional terrorist attacks
occur, our revenues will likely continue to decline. Decreases in our revenues
cause disproportionately greater decreases in our adjusted EBITDA. Accordingly,
if revenues decline beyond our expectations, the cost saving efforts we
implemented
20
in the second half of 2001 and first six months of 2002 will likely not achieve
the benefits we expect. We may be forced to take additional cost saving steps
that could result in additional charges and otherwise materially adversely
affect our business.
THE PROFITABILITY AND SUCCESS OF OUR TRADE SHOWS AND CONFERENCES COULD BE
ADVERSELY AFFECTED IF WE ARE UNABLE TO OBTAIN DESIRABLE DATES AND LOCATIONS OR
ARE UNABLE TO INCREASE THE SIZE OF OUR EVENTS.
In 2001, about 40.1% of our revenue came from trade shows and conferences.
For the first six months of 2002, about 29.5% of our revenue came from trade
shows and conferences. We increasingly compete for desirable dates and venues
for our trade shows and conferences. As this competition intensifies, we may be
unable to schedule important engagements. If we are unable to obtain desirable
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.
OUR TRADE SHOWS AND CONFERENCES AND PUBLISHING REVENUES VARY DUE TO THE MOVEMENT
OF ANNUAL EVENT OR PUBLICATION MAILING DATES AND TIMING OF OUR CUSTOMERS'
PRODUCT LAUNCHES.
Our trade shows and conferences and publishing revenues are seasonal,
primarily due to the timing of our large trade shows and conferences and
publication of our large industry directories. 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 2001, about 30.3% of our total
revenue was generated during the first quarter, about 28.7% during the second,
about 16.6% during the third, and about 24.4% of our revenue was generated
during the fourth. We believe revenues for the first six months of 2002 will
represent about 48.5% of total expected revenues for 2002.
Our trade shows and conferences revenues may fluctuate from period to
period based on the spending patterns of our customers. Many of our large
customers concentrate their trade show participation around major product
launches. Because we cannot always know or predict when our large customers
intend to launch new products, it is difficult to anticipate any related
fluctuations in our trade shows and conferences revenues.
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. We do not maintain "key person" life
insurance with respect to our senior management team.
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 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 we do, may enter these markets and intensify competition.
21
OUR OVERALL OPERATIONS MAY BE ADVERSELY AFFECTED BY RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS.
We have operations outside the United States and we intend to expand
further into international markets. 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.
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.
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.
22
RELIANCE ON PRINCIPAL VENDORS COULD ADVERSELY AFFECT OUR BUSINESS.
We rely on our principal vendors and their ability or willingness to sell
products to us on favorable price and other terms. Many factors outside our
control may harm these relationships and the ability or willingness of these
vendors to sell these products to us on such terms. 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.
INCREASES IN PAPER OR POSTAGE COSTS COULD CAUSE OUR EXPENSES TO INCREASE AND MAY
ADVERSELY AFFECT OUR BUSINESS.
Paper and postage are necessary expenses relating to our print products,
magazine distribution, and direct mail solicitations. In 2001, these expenses
accounted for approximately 3.5% and 5.0%, respectively, of our total operating
expenses, excluding unusual items. In the first six months of 2002, these
expenses accounted for approximately 5.7% and 7.8% of our total operating
expenses, excluding unusual items. Significant increases in paper prices, which
have been volatile in recent years, or in postage prices 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. We use the United States Postal Service
for domestic distribution of substantially all of our magazines and marketing
materials.
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, as determined under a facts and circumstances test, 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. Because of the open-ended nature of the facts and
circumstances test, we believe, but we cannot assure you, that the Internal
Revenue 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.
23
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.
24
CAPITALIZATION
The following table presents our cash and cash equivalents and
capitalization as of June 30, 2002. The information set forth in the table below
should be read together with the information contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the more detailed consolidated financial statements and related notes appearing
elsewhere in this prospectus.
<Table>
<Caption>
AS OF JUNE 30, 2002
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
Cash and cash equivalents................................... $ 22,589
========
Debt:
Senior secured credit facility............................ --
11 7/8 Senior secured notes(1)............................ $156,743
10 3/8 Senior subordinated notes(2)....................... 171,296
Notes payable............................................. 417
--------
Total debt............................................. 328,456
Mandatorily redeemable convertible preferred stock; par
value $0.01 per share; 50,000 shares authorized and
outstanding; redeemable at $1,000 per share(3)............ 44,861
Preferred stock, par value $0.01 per share; 1,950,000 shares
authorized; none issued and outstanding................... --
Common stock, par value $0.01 per share; 155,000,000 shares
authorized; 31,867,825 shares issued and outstanding (net
of 52,332 treasury shares)................................ 318
Capital in excess of par value(4)........................... 228,263
Retained earnings (deficit)................................. (9,567)
Notes receivable officers................................... (9,703)
Accumulated other comprehensive loss........................ (2,632)
--------
Total capitalization................................... $579,996
========
</Table>
- ---------------
(1) Reflects approximately $0.8 million of original issue discount. Total
outstanding principal amount is $157.5 million.
(2) Reflects approximately $3.8 million of original issue discount. Total
outstanding principal amount is $175.0 million.
(3) In April 2002, we reached an agreement with the preferred stockholders
to eliminate the scheduled ten year redemption date of the preferred
stock and on May 31, 2002, the stockholders approved an amendment to
remove the scheduled redemption feature. Prior to the stockholders
approval to remove the scheduled redemption date, we were required to
accrete a portion of the maximum redemption amount. For the six months
ended June 30, 2002, approximately $2.2 million was accreted, using the
interest method. In addition, certain features of the preferred stock
had to be accounted for as embedded derivatives, which required mark to
market accounting that could have potentially resulted in significant
swings in net income and earnings per share. As a result of stockholder
approval on May 31, 2002, accretion is no longer required and the $42.1
million of unamortized beneficial conversion feature was recognized
immediately as a charge to capital in excess of par and as a reduction
of income available to common stockholders in the Consolidated
Statements of Operations. In addition, mark to market accounting for
the embedded derivatives is no longer required subsequent to May 31,
2002. See Note 6 to the Consolidated Financial Statements for the six
months ended June 30, 2002, appearing elsewhere in this prospectus for
a further discussion of the change in accounting treatment for the
mandatorily redeemable convertible preferred stock.
(4) Includes net proceeds of $46.1 million, net of issue costs of
approximately $3.8 million. Approximately $4.0 million of the net
proceeds was allocated to the warrants with the remainder of
approximately $42.1 million allocated to the convertible preferred
stock.
25
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables present our selected historical financial data. The
statement of operations data for each of the three years in the period ended
December 31, 2001 and the balance sheet data as of December 31, 2000 and 2001
have been derived from our audited consolidated financial statements and related
notes, which appear elsewhere in this prospectus. The statement of operations
data for each of the two years in the period ended December 31, 1998 and the
balance sheet data as of December 31, 1997, 1998 and 1999 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, 2001 and 2002 and balance sheet data as of June 30, 2002 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, 2001 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 "Capitalization,"
"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 in 1999.
- Adjusted EBITDA is defined as net income (loss) before interest, taxes,
depreciation and amortization, non-cash compensation and unusual items.
Unusual items include such things as restructuring charges and gain on
sale of investments.
- Adjusted EBITDA margin equals adjusted EBITDA divided by total revenues.
- 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, less preferred
stock dividend requirements. Fixed charges consist of interest expense,
amortized finance fees, preferred stock dividends, and one-third of
rental expense, which is considered representative of the interest
component of rental expense. On both a historical and pro forma basis,
earnings were insufficient to cover fixed charges by $122.9 million and
$125.9 million, respectively, for the twelve months ended December 31,
2001. In addition, on a historical and pro forma basis, earnings were
insufficient to cover fixed charges by $70.9 million and $78.8 million,
respectively, for the six months ended June 30, 2002.
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, as adjusted EBITDA has no basis under
generally accepted accounting principles.
26
<Table>
<Caption>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $181,109 $207,682 $300,824 $404,571 $ 371,552 $219,470 $129,184
Operating expenses................ 156,255 181,464 261,434 349,860 465,130 211,929 138,345
-------- -------- -------- -------- --------- -------- --------
Operating income (loss)........... 24,854 26,218 39,390 54,711 (93,578) 7,541 (9,161)
Interest expense.................. (823) (5,545) (21,563) (19,485) (30,487) (13,069) (18,920)
Interest income................... -- -- 432 5,352 1,766 819 460
Gain on sale of investments....... 1,040 -- 5,906 110,210 -- -- 1,491
Writedown of Internet
investments..................... -- -- -- (9,490) 824 -- --
Miscellaneous, net................ (2) (45) (170) (64) (2,839) (1,450) (341)
Benefit (provision) for income
taxes........................... (10,457) (9,442) (16,065) (61,559) 20,207 (602) 10,014
Income (loss) from discontinued
operations...................... 262 (296) 33 -- -- -- --
Gain (loss) on sale of
discontinued operations......... -- -- 8,660 (85) -- -- --
Extraordinary item................ -- -- (8,413) -- -- -- 166
-------- -------- -------- -------- --------- -------- --------
Net income (loss)................. 14,874 10,890 8,210 79,590 (104,107) (6,761) (16,291)
Amortization of deemed dividend
and accretion of preferred
stock........................... -- -- -- -- -- -- (44,861)
-------- -------- -------- -------- --------- -------- --------
Net income (loss) applicable to
common stockholders............. $ 14,874 $ 10,890 $ 8,210 $ 79,590 $(104,107) $ (6,761) $(61,152)
======== ======== ======== ======== ========= ======== ========
Basic earnings (loss) per share... $ 0.70 $ 0.50 $ 0.29 $ 2.51 $ (3.26) $ (0.21) $ (1.91)
Diluted earnings (loss) per
share........................... $ 0.70 $ 0.50 $ 0.29 $ 2.49 $ (3.26) $ (0.21) $ (1.91)
Basic average shares
outstanding..................... 21,240 21,882 28,108 31,730 31,917 31,904 32,018
Diluted average shares
outstanding..................... 21,240 21,882 28,209 32,010 31,917 31,904 32,018
CASH FLOW DATA:
Operating......................... $ 23,186 $ 25,749 $ 34,357 $ 9,240 $ (20,343) $(15,016) $ (2,408)
Investing, includes capital
expenditures.................... (53,192) (271,157) (27,770) (111,168) (27,455) (25,708) 2,542
Financing......................... 30,854 246,993 19,879 83,306 56,326 84,874 2,200
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents......... $ 2,419 $ 3,953 $ 30,370 $ 11,605 $ 20,191 $ 55,669 $ 22,589
Working capital (deficit)......... (27,735) (24,662) (64,936) (42,367) (28,636) (8,803) (12,306)
Goodwill and other intangibles.... 71,822 387,612 451,236 628,748 549,941 626,614 552,620
Total assets...................... 156,426 479,301 809,379 781,757 700,477 831,049 684,223
Total debt........................ 34,170 307,000 215,000 302,125 364,765 391,612 328,456
Stockholders' equity.............. 69,613 87,489 402,601 336,569 220,530 322,146 206,679
OTHER DATA:
Adjusted EBITDA................... $ 28,757 $ 34,009 $ 67,308 $ 93,452 $ 40,921 $ 37,267 $ 10,165
Adjusted EBITDA margin............ 15.9% 16.4% 22.4% 23.1% 11.0% 17.0% 7.9%
Capital expenditures, excluding
businesses acquired............. $ 5,450 $ 5,775 $ 5,884 $ 27,272 $ 7,602 $ 5,448 1,773
Depreciation and amortization..... 3,903 7,791 27,918 33,431 45,492 22,714 10,140
Ratio of earnings to fixed
charges......................... 11.0x 3.7x 1.9x 7.2x n/m n/m n/m
</Table>
27
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. If 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.
EXPENSE REDUCTION AND RESTRUCTURING INITIATIVES
We have implemented a number of expense reduction and restructuring
initiatives to more closely align our cost structure with the current business
environment. The cost reduction initiatives included workforce reductions,
elimination of unprofitable properties, and the shutdown and consolidation of
certain facilities. Specific actions taken are as follows:
- We reduced staffing through terminations.
- We imposed a company-wide hiring freeze, as well as a salary freeze for
higher-paid employees.
- We shut down or consolidated over 25 offices worldwide.
- We reduced benefit costs by increasing employee contributions for health
care, temporarily suspending the company match for our defined
contribution plan, and eliminating year-end discretionary bonuses.
28
- We eliminated unprofitable properties, including various magazines, over
20 events, and nearly 20 Web sites.
- We reduced the production cost of various under-performing magazines
through process improvements, automation of pre-press work, new printing
and paper supply contracts, and selective reduction in frequency and
circulation levels.
- We restructured various under-performing events by either eliminating
these events or by co-locating with other events and realigning
management structures.
- We commenced a plan to centralize all information technology and
accounting services.
- We effectively outsourced various corporate and division functions.
As part of the expense reduction and restructuring initiatives, we recorded
a non-recurring restructuring charge in 2001 of approximately $18.8 million. The
majority of the charge relates to office closing costs such as future lease
obligations and employee severance costs.
In the first quarter of 2002, we recorded a restructuring credit of $0.3
million ($0.2 million after tax, or $0.1 per diluted share) comprised of
approximately $1.3 million of additional employee termination benefits, offset
by the reversal of approximately $1.6 million related to lease reserves
established in the third quarter of 2001 for our New York, NY, and Burlingame,
CA, offices, for long-term leases which we were able to sublease. The personnel
costs of $1.3 million are associated with the elimination of approximately 50
positions in the U.S. The personnel costs include payments for severance, costs
of outplacement services and a provision for continued benefits to personnel.
The New York and Burlingame office closure costs totaling $3.4 million were
charged in the second half of 2001. At that time, we had made no assumptions for
subleases, due to the inherent limitations in estimating the future trends of
the real estate marketplace, the economic conditions present in New York City at
the time, and the remote probability of a successful sublease. However, in March
2002, due to our continuing efforts, we finalized a contract to sublease our New
York office space for the remainder of the lease term, or approximately 7.25
years. In addition, in April 2002, we subleased our Burlingame office for the
remainder of the lease term, or approximately 3.8 years. We remain ultimately
responsible for the payment of both of these leases.
In the second quarter of 2002, we recorded a restructuring charge of $7.8
million ($4.7 million after tax, or $0.15 per diluted share). The charge
included $4.4 million of employee termination benefits related to a reduction of
128 positions, including 112 U.S. employees, with the remainder primarily in the
U.K. Employee termination benefits include payments for severance, costs of
outplacement services and continued benefits. In addition to termination
benefits, the second quarter charge included $2.7 million related to exit costs
associated with the closing of five existing office locations under long term
leases expiring through 2010 and $0.6 million related to other contractual
obligations. Charges for other contractual obligations include costs associated
with the cancellation of a trade show venue.
IMPAIRMENT OF ASSETS
In connection with an ongoing review of our portfolio of businesses and in
conjunction with our policy to continually monitor events or changes in
circumstances that would indicate that the carrying amount of our long-lived
assets, including goodwill and intangible assets, may not be recoverable, we
recorded asset and goodwill impairment charges of $68.7 million in 2001. This
charge primarily consists of the following:
- Goodwill and other intangibles of approximately $66.4 million were
written-down to estimated fair value.
- We recognized asset impairments of approximately $1.7 million on various
Web sites that were shut down during the year.
- Circulation software costs of $0.9 million were written off at one of our
business units due to a management decision to discontinue the
development of the software and to outsource that function.
29
SEGMENTS
During 2001, we began to view and manage our business differently than we
had in the past. Our new approach involves dividing our business into four media
segments; Technology, Industry, Lifestyle, and Other, and grouping our industry
sectors within each segment. During 2001, we put a senior manager in charge of
each segment. These senior managers report directly to the Chief Executive
Officer and President and Chief Operating Officer. We have included segment
information in our discussion of our financial condition and results of
operations for 2000 on the same basis as 2001. It was not practicable to obtain
similar segment information for 1999 as a result of refinements made to our
accounting systems and procedures beginning in 2000. See Note 16 -- Segment
Information in the Notes to Consolidated Financial Statements for the year ended
December 31, 2001, appearing elsewhere in this prospectus.
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,
--------------------- ------------- -------------
1999 2000 2001 2001 2002 2001 2002
----- ----- ----- ----- ----- ----- -----
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Editorial, production and
circulation...................... 38.9 36.3 41.3 40.4 43.6 38.3 42.3
Selling, general and
administrative................... 38.8 41.1 47.9 44.7 50.4 45.5 51.1
Impairment of Internet assets....... -- 0.5 -- -- -- -- --
Impairment of other assets.......... -- 0.3 18.7 -- 0.2 -- 0.1
Restructuring charges............... -- -- 5.1 -- 11.8 2.5 5.8
Depreciation and amortization....... 9.2 8.3 12.2 10.4 8.6 10.3 7.8
----- ----- ----- ----- ----- ----- -----
86.9 86.5 125.2 95.5 114.6 96.6 107.1
----- ----- ----- ----- ----- ----- -----
Operating income (loss)............... 13.1 13.5 (25.2) 4.5 (14.6) 3.4 (7.1)
----- ----- ----- ----- ----- ----- -----
Other income (expenses):
Interest expense.................... (7.2) (4.8) (8.2) (6.2) (14.6) (6.0) (14.6)
Interest income..................... 0.2 1.3 0.5 0.3 0.4 0.4 0.3
Gain on sale of investments......... 2.0 27.2 -- -- -- -- 1.2
Writedown of Internet investments... -- (2.3) 0.2 -- -- -- --
Miscellaneous, net.................. (0.1) -- (0.7) (1.3) (0.4) (0.6) (0.3)
----- ----- ----- ----- ----- ----- -----
(5.1) 21.4 (8.2) (7.2) (14.6) (6.2) (13.4)
----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations before income taxes...... 8.0 34.9 (33.4) (2.7) (29.2) (2.8) (20.5)
Benefit (provision) for income
taxes............................... (5.4) (15.2) 5.4 (2.4) 10.9 (0.3) 7.8
----- ----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations.......................... 2.6 19.7 (28.0) (5.1) (18.3) (3.1) (12.7)
Discontinued operations............... 2.9 -- -- -- -- -- 0.1
----- ----- ----- ----- ----- ----- -----
Income before extraordinary item...... 5.5 19.7 (28.0) (5.1) (18.3) (3.1) (12.6)
Extraordinary item.................... (2.8) -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Net income (loss)..................... 2.7% 19.7% (28.0)% (5.1)% (18.3)% (3.1)% (12.6)%
===== ===== ===== ===== ===== ===== =====
</Table>
30
THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE THREE MONTHS ENDED JUNE 30,
2001
TOTAL COMPANY
Our revenues, net loss, net loss applicable to common stockholder, diluted
earnings per share, adjusted EBITDA, and adjusted EBITDA margins for the three
months ended June 30, 2001 and 2002 are as follows:
<Table>
<Caption>
2001 2002 VARIANCE
-------- -------- --------
Revenues.............................................. $106,777 $ 66,009 $(40,768)
Net loss.............................................. $ (5,483) $(12,058) $ (6,575)
Net loss applicable to common stockholders............ $ (5,483) $(56,556) $(51,073)
Net loss per common share - diluted................... $ (0.17) $ (1.77)
Adjusted EBITDA....................................... $ 16,594 $ 5,135 $(11,459)
Adjusted EBITDA margins............................... 15.5% 7.8%
</Table>
Operating results for the three months ended June 30, 2002 were impacted by
the downturn in the U.S. economy and, to a lesser extent, by the slowing of
economies throughout Europe and Asia. The weakness in the economy we experienced
in the fourth quarter of 2001 has carried over into the first half of 2002. Our
media properties serving the technology markets, including information
technology, Internet/broadband, and telecommunications, continued to show a
downward trend. Although some of our manufacturing media products also
experienced declines, products serving the natural products, food/retail,
government/compliance, and mechanical systems/construction markets performed
well.
Our revenues decreased $40.8 million, or 38.2%, from $106.8 million for the
three months ended June 30, 2001 to $66.0 million for the same period in 2002.
The decrease was due primarily to: (i) a decrease in publishing revenues of
$15.1 million, or 25.8%, from $58.4 million for the three months ended June 30,
2001 to $43.3 million for the same period in 2002; and (ii) a decrease in trade
show and conference revenues of $25.8 million, or 57.2%, from $45.1 million for
the three months ended June 30, 2001 to $19.3 million for the same period in
2002. Results for the second quarter of 2002 were impacted by the timing of our
Internet World Spring and CRM trade shows, which took place in the second
quarter of 2002 but were held in the first quarter of 2001. Adjusting for the
timing shift of these two events, revenues for the second quarter declined by
$60.7 million when compared with the same period in 2001. Weak performance in
our global portfolio of Internet/broadband trade shows held during the quarter
represented 51.1% of our total revenue decline.
We reported a net loss for the three months ended June 30, 2002 of $12.1
million. These results reflect the elimination of the amortization of goodwill
pursuant to our adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. If we had
adopted the accounting change at the beginning of 2001, we would have reported a
loss of $0.8 million, or $0.03 per diluted share, compared with a net loss of
$5.5 million, or $0.17 per diluted share. Unusual items in the net loss for the
second quarter of 2002 included: (i) a restructuring charge of $7.8 million (or
$0.15 per diluted share after tax) related to staff reductions and office
closings; and (ii) the impairment of assets of $0.1 million associated with the
abandonment of an investment in France. There were no unusual items in the
second quarter of 2001.
The net loss applicable to common stockholders of $56.6 million, or $1.77
per diluted share, for the three months ended June 30, 2002, includes a $44.5
million ($1.39 per diluted share) non-cash one-time charge, which was the result
of stockholder approval on May 31, 2002, to remove the 10-year mandatory
redemption date on the preferred stock. Subsequent to the approval, we ceased
accretion on the preferred stock and were required to recognize the unamortized
beneficial conversion feature of the stock immediately as a charge to capital in
excess of par value.
Total adjusted EBITDA decreased $11.5 million, or 69.1%, from $16.6 million
for the three months ended June 30, 2001 to $5.1 million for the same period in
2002. Adjusted EBITDA margins decreased from 15.5% for the second quarter of
2001 to 7.8% for the same period in 2002. The decrease in both our adjusted
EBITDA and adjusted EBITDA margins were primarily due to the decrease in our
trade show and conference
31
operations of $13.9 million, or 86.7%, from $16.0 million in the second quarter
of 2001 to $2.1 million for the same period in 2002. Margins for trade shows and
conferences decreased from 67.7% in the second quarter of 2001 to 20.4% for the
same period in 2002. Weak performance in our global portfolio of
Internet/broadband trade shows held during the quarter represented 107.3% of the
decrease in our adjusted EBITDA. These decreases were somewhat offset by a
decrease in general and administrative costs of $1.8 million, or 24.9%, from
$7.0 million in the second quarter of 2001 to $5.2 million for the same period
in 2002. As noted previously, results for the quarter were impacted by the shift
in the timing of the Internet World Spring and CRM trade shows. Adjusting for
this shift of trade show timing, total adjusted EBITDA declined by $26.7 million
for the three months ended June 30, 2002 compared to the same prior year period.
A reconciliation of our net loss to our total adjusted EBITDA for the three
months ended June 30, 2001 and 2002, is as follows (in thousands):
<Table>
<Caption>
2001 2002
-------- --------
Net loss.................................................... $ (5,483) $(12,058)
Interest expense............................................ 6,611 9,646
Interest income............................................. (362) (242)
Restructuring charge........................................ -- 7,769
Impairment of assets........................................ -- 136
Non-cash compensation....................................... 680 1,189
Provision (benefit) for income taxes........................ 2,512 (7,191)
Depreciation and amortization............................... 11,135 5,684
Miscellaneous, net.......................................... 1,501 202
-------- --------
Adjusted EBITDA........................................... $ 16,594 $ 5,135
======== ========
</Table>
OPERATING EXPENSES
Operating expenses decreased $26.3 million, or 25.8%, from $102.0 million
for the three months ended June 30, 2001 to $75.7 million for the same period in
2002. As a percentage of revenues, after excluding restructuring, impairment of
asset, and depreciation and amortization charges, operating costs increased from
85.1% in 2001 to 94.0% in 2002. The increase in operating expenses as a
percentage of revenues was primarily due to the $40.8 million decline in
revenues, which is attributed to the impact of the economy on our business,
offset partially by reduced costs of $28.8 million attributable to cost cutting
and restructuring activities implemented by the Company. Operating expenses for
the second quarter of 2002 included approximately $1.7 million associated with
the Internet World Spring and CRM shows which were held in March of 2001 and in
April of 2002.
Editorial, Production and Circulation. Editorial, production and
circulation expenses decreased to $28.8 million for the three months ended June
30, 2002, compared to $43.2 million for the same period in 2001, representing a
decrease of $14.4 million, or 33.3%. The decrease was due to our expense
reduction initiatives, including eliminating unprofitable properties, reducing
production costs through process improvements and selective reductions in
frequency and circulation levels, the outsourcing of various functions
throughout the organization, and the effects of staff reductions made in the
second half of 2001 and first half of 2002.
As a percentage of revenues, editorial, production and circulation expenses
increased from 40.4% in the second quarter of 2001 to 43.6% in the same period
of 2002. The increase was due to the general decrease in revenues across all of
our products.
Selling, General and Administrative. Selling, general and administrative
expenses declined $14.4 million, or 30.3%, from $47.7 million for the three
months ended June 30, 2001 to $33.3 million for the same period in 2002,
primarily due to cost savings associated with office closings and staff
reductions realized from the restructuring actions taken in 2001 and 2002. The
decrease was partially offset by costs of approximately
32
$1.2 million associated with the Internet World Spring and CRM shows which were
held in second quarter of 2002 and the first quarter of 2001.
As a percentage of revenues, selling, general and administrative expenses
increased from 44.7% in 2001 to 50.4% in 2002. The increase was primarily due to
lower revenues realized across all of our products.
Restructuring Charge. The restructuring charge of $7.8 million ($4.7
million after tax, or $0.15 per diluted share) was comprised of approximately
$4.4 million of employee termination benefits costs, as well as exit costs
associated with five office closings and $0.6 million related to other
contractual obligations. See Note 11 - Restructuring Charges in the Consolidated
Financial Statements for the six months ended June 30, 2002, included elsewhere
in this prospectus, for information on related cash payments. Additional details
concerning the principal components of the second quarter 2002 charge are as
follows:
- Personnel costs of $4.4 million are associated with the elimination of
approximately 128 positions, of which 112 are in the U.S., with the
remainder primarily in the U.K. Personnel costs include payments for
severance, costs of outplacement services and a provision for continued
health benefits.
- We downsized or closed an additional five offices with leases expiring
through 2010.
- Other contractual obligations include costs associated with the
cancellation of a trade show venue.
Depreciation and Amortization. Depreciation and amortization declined $5.4
million, or 49.0%, from $11.1 million for the three months ended June 30, 2001
to $5.7 million for the three months ended June 30, 2002. Lower amortization
expense was due to the adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets," on January 1, 2002.
OPERATING INCOME (LOSS)
Overall, Penton's operating income (loss) decreased $14.4 million, from
income of $4.8 million for the three months ended June 30, 2001, to a loss of
$9.6 million for the same period in 2002. Operating income (loss) as a
percentage of revenue decreased from 4.5% in 2001 to (14.6)% in 2002.
OTHER INCOME (EXPENSE)
Interest expense increased $3.0 million from $6.6 million for the three
months ended June 30, 2001, to $9.6 million for the three months ended June 30,
2002. The increase was primarily due to a higher average debt balance during the
second quarter of 2002 when compared with the same period in 2001 as well as an
increase in the average interest rates of our debt from approximately 8.0% in
2001 to 12.0% in 2002.
EFFECTIVE TAX RATES
The effective tax rates were (84.6)% and 37.4% for the three months ended
June 30, 2001 and 2002, respectively. The related decrease in the effective tax
rate year over year was primarily due to the effect of the accounting change for
goodwill amortization, effective January 1, 2002.
SEGMENTS
We manage our business based on four operating segments: Industry Media,
Technology Media, Lifestyle Media and Other Media. All four segments derive
their revenues from the production of publications, trade shows and conferences,
and online media products, and serve customers in 12 industry sectors. Adjusted
EBITDA for segments is calculated as previously defined except that segment
adjusted EBITDA also excludes corporate-level costs. Corporate-level costs
include costs for centralized functions, such as finance, accounting and
information systems, which are not allocated to each segment. See Note
12 -- Segment Information in the Consolidated Financial Statements for the six
months ended June 30, 2002, included elsewhere in this prospectus, for a
reconciliation of segment total adjusted EBITDA to consolidated net loss before
taxes and extraordinary item.
33
Financial information by segment for the three months ended June 30, 2001
and 2002 is summarized in the following table (in thousands):
<Table>
<Caption>
ADJUSTED EBITDA
REVENUE ADJUSTED EBITDA MARGINS
------------------ ---------------- ---------------
2001 2002 2001 2002 2001 2002
-------- ------- ------- ------ ----- -----
Industry Media........................ $ 37,240 $26,173 $ 7,635 $4,398 20.5% 16.8%
Technology Media...................... 61,522 31,190 13,880 4,098 22.6% 13.1%
Lifestyle Media....................... 3,711 4,285 (608) (767) (16.4)% (17.9)%
Other Media........................... 4,304 4,361 883 1,252 20.5% 28.7%
-------- ------- ------- ------
Total............................... $106,777 $66,009 $21,790 $8,981
======== ======= ======= ======
</Table>
Industry Media. Our Industry Media segment, which represented 39.7% of
total Company revenues in the second quarter of 2002, serves customers in the
manufacturing, design/engineering, mechanical systems/construction,
government/compliance, supply chain and aviation industries. Total revenues for
this segment for the three months ended June 30, 2002, decreased $11.0 million,
or 29.7%, from $37.2 million in 2001 to $26.2 million in 2002. The decrease was
primarily due to lower revenues from publications of $7.3 million and lower
revenues from trade shows and conferences of $3.5 million when comparing the
second quarter of 2002 to the same period in 2001. The decrease in publication
revenues was primarily due to revenue declines in products serving the
manufacturing, design/engineering and supply chain sectors, which were impacted
by the downturn in the U.S. economy. Most significantly affected were,
IndustryWeek, Machine Design, American Machinist, New Equipment Digest,
Transportation & Distribution, Computer Aided Engineering and Material Handling
Management magazines which accounted for approximately $4.6 million of the
decrease. The decrease in trade show and conference revenues was primarily due
to products serving the manufacturing, construction and supply chain sectors
which accounted for approximately $3.6 million of the decrease. The decrease of
approximately $1.0 million in the supply chain sector was due to the move of the
Supply Chain & Logistics Conference and Expo from the second quarter of 2001 to
the third quarter of 2002.
Total adjusted EBITDA for the Industry Media segment decreased $3.2
million, or 42.4%, from $7.6 million for the three months ended June 30, 2001,
to $4.4 million during the same period in 2002. Publications accounted for $2.5
million of the decrease while trade shows and conferences accounted for $1.6
million of the decrease. Adjusted EBITDA for the segment's online media
portfolio increased $0.1 million for the three months ended June 30, 2002, when
compared with the same period in 2001. General and administrative and facility
costs decreased by $0.7 million as a result of headcount reductions and office
closings. Adjusted EBITDA margins decreased from 20.5% in 2001 to 16.8% in 2002.
The decrease in adjusted EBITDA and adjusted EBITDA margins was primarily due to
declines in the aforementioned magazines and trade shows.
Technology Media. Our Technology Media segment, which represented 47.3% of
total company revenues in the second quarter of 2002, serves customers in the
electronics, information technology and Internet/broadband markets. Total
revenues for this segment decreased $30.3 million, or 49.3%, from $61.5 million
for the three months ended June 30, 2001 to $31.2 million for the same period in
2002. The decrease was primarily due to lower revenues from publications of $7.6
million and lower revenues from trade shows and conferences of $22.9 million.
Publications such as Electronic Design, EE Product News, Windows & .Net
Magazine, Internet World and Boardwatch magazines were the most significantly
impacted and accounted for approximately $5.0 million of the decrease. Trade
show revenues in our Internet/broadband sector accounted for $20.9 million of
the total decrease with our Service Networks Spring, Internet World UK and
Streaming Media West shows accounting for $15.8 million of the sector decrease.
Online revenues increased $0.3 million from $2.5 million for the three months
ended June 30, 2001 to $2.8 million in the same 2002 period.
Total adjusted EBITDA for the Technology Media segment decreased $9.8
million, or 70.5%, from $13.9 million for the three months ended June 30, 2001
to $4.1 million for the same period in 2002.
34
Publications accounted for approximately $0.3 million of the decrease while
trade shows and conferences accounted for $12.9 million of the decrease.
Adjusted EBITDA for the segment's online media portfolio increased $1.5 million
for the three months ended June 30, 2002, when compared with the same period in
2001. General and administrative and facility costs decreased by approximately
$2.0 million as a result of headcount reductions and office closings. Adjusted
EBITDA declines in our trade show and conference business mirrored declining
revenue trends.
Lifestyle Media. Our Lifestyle Media segment, which represented 6.5% of
total-company revenues in the second quarter of 2002, serves customers in the
natural products industry sector. Total revenues for this segment increased by
$0.6 million, or 15.5%, from $3.7 million for the three months ended June 30,
2001 to $4.3 million for the same period in 2002. An increase in trade show
revenues accounted for all of the increase in revenues for this segment as
publication and online media revenues were flat when compared with the same
prior-year period. The increase in trade show revenues was primarily due to the
successful launch of Natural Products Expo Asia, which was staged during May in
Hong Kong.
Total adjusted EBITDA for Lifestyle Media decreased $0.2 million, or 26.2%,
from a loss of $0.6 million for the three months ended June 30, 2001, to a loss
of $0.8 million for the same period in 2002 due primarily to the launch
previously noted. Adjusted EBITDA margin losses decreased from 16.4% in 2001 to
17.9% in 2002.
Other Media. Our Other Media segment, which represented 6.6% of
total-company revenues for the second quarter of 2002, serves customers in the
food/retail and leisure/hospitality sectors. Total revenues for this segment
increased $0.1 million, or 1.3%, from $4.3 million for the three months ended
June 30, 2001 to $4.4 million for the comparable period in 2002. No individual
properties increased or decreased significantly between comparable quarters.
Total adjusted EBITDA for Other Media increased $0.4 million, or 41.8%,
from $0.9 million for the three months ended June 30, 2001, to $1.3 million for
the same 2002 period due primarily to cost reduction efforts.
PRODUCTS
We publish specialized trade magazines, produce trade shows and
conferences, and maintain a variety of online media products, including Web
businesses and electronic newsletters. Adjusted EBITDA for products is
calculated as previously defined, except that product adjusted EBITDA also
excludes general and administrative costs. General and administrative costs
include corporate-level costs, as defined previously under Segments, and other
general and administrative costs related to product offerings, which are not
allocated. Our calculation of adjusted EBITDA by product for the three months
ended June 30, 2001 and 2002 is as follows (in thousands):
<Table>
<Caption>
2001 2002
------- ------
Publishing.................................................. $ 8,563 $7,217
Trade shows & conferences................................... 15,956 2,119
Online media................................................ (943) 1,045
------- ------
Subtotal.................................................. 23,576 10,381
General and administrative.................................. (6,982) (5,246)
------- ------
Adjusted EBITDA............................................. $16,594 $5,135
======= ======
</Table>
For the three months ended June 30, 2002, adjusted EBITDA for our
publishing operations decreased $1.3 million, or 15.7%, when compared with the
same prior-year period. Adjusted EBITDA for publications was primarily affected
by declines of approximately $2.5 million from our Windows & .Net, American
Machinist, Electronic Design, Machine Design, and EE Product Newsmagazines.
These declines were somewhat offset by approximately $1.2 million related to
adjusted EBITDA improvements from our Internet World magazine and the
discontinuation in 2001 of our Streaming Media magazine.
35
For the three months ended June 30, 2002, adjusted EBITDA for our trade
show and conference operations decreased $13.8 million, or 86.7%, when compared
with the same prior year period. Quarter-on-quarter comparisons were affected by
the change in the timing of the Internet World Spring and CRM trade shows.
Adjusting for the timing change, trade shows and conference adjusted EBITDA
decreased by $29.1 million. The decline was due primarily to the significant
drop in revenues in our Internet/broadband market, with our Service Networks
Spring, Internet World UK and Streaming Media West shows being the most
significantly impacted.
Adjusted EBITDA for our online media operations increased from a loss of
$1.0 million for the three months ended June 30, 2001, to income of $1.0 million
for the same period in 2002. The improvement was due primarily to the
elimination of unprofitable online media properties in 2001 and revenue growth.
For the three months ended June 30, 2002, general and administrative costs
decreased $1.7 million, when compared with the same prior-year period. The
decrease is primarily due to staff reductions and other cost cutting efforts
implemented in the second half of 2001 and in the first half of 2002.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 2001
TOTAL COMPANY
Our revenues, net loss, net loss applicable to common stockholders, diluted
earnings per share, adjusted EBITDA, and adjusted EBITDA margins for the six
months ended June 30, 2001 and 2002 are as follows:
<Table>
<Caption>
2001 2002 VARIANCE
-------- -------- --------
Revenues.............................................. $219,470 $129,184 $(90,286)
Net loss.............................................. $ (6,761) $(16,291) $ (9,530)
Net loss applicable to common stockholders............ $ (6,761) $(61,152) $(54,391)
Net loss per common share - diluted................... $ (0.21) $ (1.91)
Adjusted EBITDA....................................... $ 37,267 $ 10,165 $(27,102)
Adjusted EBITDA margins............................... 17.0% 7.9%
</Table>
Operating results for the six months ended June 30, 2002 were impacted by
the downturn in the U.S. economy and, to a lesser extent, by the slowing of
economies throughout Europe and Asia. The weakness in the economy we experienced
in the fourth quarter of 2001 carried over into the first half of 2002. Our
media properties serving the technology markets, including information
technology, Internet/broadband, and telecommunications, continued to show a
downward trend. Although some of our manufacturing media products also
experienced declines, products serving the natural products, food/retail,
government/compliance, and mechanical systems/construction markets performed
well.
Our revenues decreased $90.3 million, or 41.1%, from $219.5 million for the
six months ended June 30, 2001 to $129.2 million for the same period in 2002.
The decrease was due primarily to: (i) a decrease in publishing revenues of
$30.7 million, or 26.6%, from $115.6 million for the six months ended June 30,
2001 to $84.9 million for the same period in 2002; (ii) a decrease in trade show
and conference revenues of $59.3 million, or 60.9%, from $97.4 million for the
six months ended June 30, 2001 to $38.1 million for the same period in 2002; and
(iii) a decrease in online media revenues of $0.2 million, from $6.5 million for
the six months ended June 30, 2001 to $6.3 million for the same period in 2002.
Weak performance in our global portfolio of Internet/broadband trade shows held
during the year represented 58.3% of the total revenue decline. Significant
declines were also experienced in our electronics, information technology and
manufacturing markets, which accounted for approximately $22.9 million, or 25.4%
of the decline.
We reported a net loss for the six months ended June 30, 2002 of $16.3
million compared with a net loss of $6.8 million for the same period in 2001.
The 2002 results reflect the elimination of the amortization of goodwill
pursuant to our adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002. The
first-half 2001 net loss, adjusted as if we had adopted the accounting change at
the beginning of 2001, would have been income of $1.6 million. Unusual items in
the first half of 2002 included: (i) a restructuring charge of $7.5 million (or
$0.14 per
36
diluted share after tax) related to staff reductions and additional office
closings, which were partially offset by the sublease of two offices, for which
reserves were previously established; (ii) the impairment of assets of $0.1
million associated with the abandonment of an investment in France; (iii) a
pretax gain of $1.5 million ($0.03 per diluted share after tax) on our sale of
INT Media Group, Inc. common stock; and (iv) an extraordinary item of $0.2
million (less than $0.01 per diluted share after tax) related to a gain on the
repurchase of $10.0 million of senior subordinated notes, partially offset by
the write-off of unamortized finance fees associated with the refinancing of our
senior credit facility. Unusual items in the first half of 2001 included a
restructuring charge of $5.6 million (or $0.10 per diluted share after tax)
related to the discontinuation of certain online media properties.
The net loss applicable to common stockholders of $61.2 million, or $1.91
per diluted share, for the six months ended June 30, 2002, includes a $44.9
million ($1.40 per diluted share) non-cash one-time charge, which was the result
of stockholder approval on May 31, 2002, to remove the 10-year mandatory
redemption date on the preferred stock. Subsequent to this approval, we ceased
accretion on the preferred stock and were required to recognize the unamortized
beneficial conversion feature of the stock immediately as a charge to capital in
excess of par value.
Total adjusted EBITDA decreased $27.1 million, or 72.7%, from $37.3 million
for the six months ended June 30, 2001 to $10.2 million for the same period in
2002. Adjusted EBITDA margins decreased from 17.0% in the first half of 2001 to
7.9% for the same period in 2002. The decrease in both our adjusted EBITDA and
adjusted EBITDA margins was primarily due to the decrease in our trade show and
conference operations of $32.6 million, or 79.0%, from $41.3 million in the
first half of 2001 to $8.7 million for the same period in 2002. Margins for
trade shows and conferences decreased from 42.4% in the first half of 2001 to
22.8% for the same period in 2002. Weak performance in our global portfolio of
Internet/broadband trade shows held in 2002 represented 115.6% of the decrease
in our adjusted EBITDA. These decreases were somewhat offset by a decrease in
general and administrative costs of $4.9 million, or 27.5%, from $17.5 million
in the first half of 2001 to $12.6 million for the same period in 2002.
A reconciliation of our net loss to our adjusted EBITDA for the six months
ended June 30, 2001 and 2002 is as follows (in thousands):
<Table>
<Caption>
2001 2002
-------- ---------
Net loss.................................................... $ (6,761) $ (16,291)
Interest expense............................................ 13,069 18,920
Interest income............................................. (819) (460)
Gain on sale of investments................................. -- (1,491)
Restructuring charge........................................ 5,567 7,506
Impairment of assets........................................ -- 136
Non-cash compensation....................................... 1,445 1,544
Provision (benefit) for income taxes........................ 602 (10,014)
Depreciation and amortization............................... 22,714 10,140
Extraordinary item.......................................... -- (166)
Miscellaneous, net.......................................... 1,450 341
-------- ---------
Adjusted EBITDA........................................ $ 37,267 $ 10,165
======== =========
</Table>
OPERATING EXPENSES
Operating expenses decreased $73.6 million, or 34.7%, from $211.9 million
for the six months ended June 30, 2001 to $138.3 million for the same period in
2002. As a percentage of revenues, after excluding restructuring, impairment of
asset, and depreciation and amortization charges, operating costs increased from
83.7% in 2001 to 93.3% in 2002. The increase in operating expenses as a
percentage of revenues was primarily due to the $90.3 million decline in
revenues, which is attributable to the impact of the economy on
37
our business, partially offset by the effects from cost reduction initiatives
and restructuring activities through the first six months of 2002, of $63.1
million.
Editorial, Production and Circulation. Editorial, production and
circulation expenses decreased to $54.7 million for the six months ended June
30, 2002, compared to $84.0 million for the same period in 2001, representing a
decrease of $29.3 million, or 34.9%. The decrease was due to the effects of our
expense reduction initiatives, including eliminating unprofitable properties,
reducing production costs through process improvements and selective reduction
in frequency and circulation levels, the outsourcing of various functions
throughout the organization, and the effects of staff reductions made in the
second half of 2001 and first half of 2002.
As a percentage of revenues, editorial, production and circulation expenses
increased from 38.3% in the first half of 2001 to 42.3% in the same period of
2002. The increase was due to the general decrease in revenues across all of our
products, particularly our Internet/broadband trade shows.
Selling, General and Administrative. Selling, general and administrative
expenses declined $33.7 million, or 33.9%, from $99.6 million for the six months
ended June 30, 2001 to $65.9 million for the same period in 2002. The decrease
was primarily due to cost savings associated with office closings and staff
reductions realized from the restructuring actions taken in 2001 and 2002.
As a percentage of revenues, selling, general and administrative expenses
increased from 45.4% in 2001 to 51.0% in 2002. The increase was primarily due to
lower revenues realized across all of our products, particularly our
Internet/broadband trade shows.
Restructuring Charge. The restructuring charge of $7.5 million ($4.5
million after tax, or $0.14 per diluted share) for the six months ended June 30,
2002 was comprised of approximately $5.8 million of employee termination costs
and $1.1 million related to exit costs associated with office space under
long-term leases and $0.6 million related to other contractual obligations. See
Note 11 -- Restructuring Charges in the Consolidated Financial Statements for
the six months ended June 30, 2002, included elsewhere in this prospectus, for
information on related cash payments. Additional detail concerning the principal
components of the first-half 2002 charge is as follows:
- Personnel costs of $5.8 million are associated with the elimination of
approximately 177 positions, of which 161 are from U.S., with the
remainder primarily in the U.K. Personnel costs include payments for
severance, costs of outplacement services and a provision for continued
health benefits.
- In 2002, we closed or downsized an additional five offices representing
approximately $2.7 million in charges. These amounts were offset in part
by the reversal of approximately $1.6 million related to lease reserves
of $3.4 million recorded in the second half of 2001 for our New York, NY
and Burlingame, CA, offices for long-term leases we were able to
sublease. At that time, we made no assumptions for subleases due to the
inherent limitations in estimating the future trends of the real estate
marketplace, the economic conditions present in New York City at the
time, and the remote probability of a successful sublease. However, in
March 2002, due to our continuing efforts, we finalized a contract to
sublease our New York office space for the remainder of the lease term or
approximately 7.3 years. In addition, in April 2002, we subleased our
Burlingame office for the remainder of the lease term, or approximately
3.8 years. Penton remains ultimately responsible for both of these
leases.
Depreciation and Amortization. Depreciation and amortization declined
$12.6 million, or 55.4%, from $22.7 million for the six months ended June 30,
2001 to $10.1 million for the six months ended June 30, 2002. Lower amortization
expense was due to the adoption of SFAS No. 142, "Goodwill and Other Intangible
Assets," on January 1, 2002.
38
OPERATING INCOME (LOSS)
Overall, Penton's operating income (loss) decreased $16.7 million, from
income of $7.5 million for the six months ended June 30, 2001, to a loss of $9.2
million for the same period in 2002. Operating income (loss) as a percentage of
revenue decreased from 3.4% in 2001 to (7.1)% in 2002.
OTHER INCOME (EXPENSE)
Interest expense increased $5.8 million from $13.1 million for the six
months ended June 30, 2001, to $18.9 million for the six months ended June 30,
2002. The increase was primarily due to a higher average debt balance during the
first half of 2002 when compared with the same period in 2001 as well as an
increase in the average interest rates of our debt from approximately 8.0% in
2001 to 12.0% in 2002.
In January 2002, Penton sold its remaining 11.8% ownership interest in INT
Media for $5.8 million and recognized a $1.5 million gain from its sale.
EXTRAORDINARY ITEM, NET
The extraordinary item for the six months ended June 30, 2002, of $0.2
million consisted of two separate items, which net to a gain. In March 2002, we
purchased $10.0 million face value of our 10 3/8% senior subordinated notes at
prevailing market prices, resulting in a gain of $1.4 million ($0.8 million net
of taxes). This gain was offset by the write-off of unamortized deferred finance
costs of approximately $1.1 million ($0.7 million, net of taxes) associated with
the payoff of our term loan A and term loan B facilities, which also occurred in
March 2002.
EFFECTIVE TAX RATES
The effective tax rates were (9.8)% and 37.8% for the six months ended June
30, 2001 and 2002, respectively. The related decrease in the effective tax rate
year over year was primarily due to the effect of the accounting change for
goodwill amortization, effective January 1, 2002.
SEGMENTS
Financial information by segment for the six months ended June 30, 2001 and
2002 is summarized in the following table (in thousands):
<Table>
<Caption>
ADJUSTED
EBITDA
REVENUE ADJUSTED EBITDA MARGINS
------------------- ----------------- -------------
2001 2002 2001 2002 2001 2002
-------- -------- ------- ------- ---- ----
Industry Media........................ $ 68,622 $ 49,210 $12,676 $ 7,595 18.5% 15.4%
Technology Media...................... 123,361 52,273 28,655 2,040 23.2% 3.9%
Lifestyle Media....................... 18,140 18,755 7,776 7,927 42.9% 42.3%
Other Media........................... 9,347 8,946 1,998 2,278 21.4% 25.5%
-------- -------- ------- -------
Total............................... $219,470 $129,184 $51,105 $19,840
======== ======== ======= =======
</Table>
Industry Media. Our Industry Media segment, which represented 38.1% of
total company revenues in the first half of 2002, serves customers in the
manufacturing, design/engineering, mechanical systems/construction,
government/compliance, supply chain and aviation industries. Total revenues for
this segment for the six months ended June 30, 2002, decreased $19.4 million, or
28.3%, from $68.6 million in 2001 to $49.2 million in 2002. The decrease was
primarily due to lower revenues from publications of $14.7 million when
comparing the first half of 2001 to the same period in 2002, and lower revenues
from trade shows and conferences of $4.1 million when comparing the first half
of 2001 to the same period in 2002. The decrease in publication revenues was
primarily due to revenue declines in products serving the design/engineering,
supply chain and manufacturing sectors, which were impacted by the downturn in
the U.S. economy. Most significantly impacted were, IndustryWeek, Machine
Design, American Machinist, New
39
Equipment Digest, Transportation & Distribution, Computer Aided Engineering and
Material Handling Management magazines which accounted for approximately $9.3
million of the decrease. Of the decrease in trade show and conference revenues,
approximately $3.4 million of the decrease was due to revenue declines in
products serving our manufacturing and construction sectors.
Total adjusted EBITDA for the Industry Media segment decreased $5.1
million, or 40.1%, from $12.7 million for the six months ended June 30, 2001, to
$7.6 million during the same period in 2002. Publications accounted for $5.3
million of the decrease, while trade shows and conferences accounted for $1.8
million of the decrease. Adjusted EBITDA for the segment's online media
portfolio increased $0.2 million for the six months ended June 30, 2002, when
compared with the same period in 2001. Also, general and administrative and
facility costs decreased by $1.8 million as a result of headcount reductions and
office closures. Adjusted EBITDA margins decreased from 18.5% in 2001 to 15.4%
in 2002. The decrease in adjusted EBITDA and margins was primarily due to
declines in the aforementioned magazines and trade shows.
Technology Media. Our Technology Media segment, which represented 40.5% of
total company revenues in the first half of 2002, serves customers in the
electronics, information technology and Internet/broadband markets. Total
revenues for this segment decreased $71.1 million, or 57.6%, from $123.4 million
for the six months ended June 30, 2001 to $52.3 million for the same period in
2002. The decrease was primarily due to lower revenues from publications of
$15.5 million and lower revenues from trade shows and conferences of $55.8
million. Publications such as Electronic Design, EE Product News, Windows & .Net
Magazine, Internet World and Boardwatch magazines were the most significantly
impacted and accounted for approximately $11.7 million of the decrease. Trade
show revenues in our Internet/broadband sector accounted for $52.6 million of
the total decrease in trade show revenues with our Internet World Spring,
Service Networks Spring, Internet World Berlin, Internet World UK and Streaming
Media West shows accounting for $36.1 million of the sector decrease. Online
revenues increased $0.3 million from $4.9 million for the six months ended June
30, 2001 to $5.2 million in the same 2002 period.
Total adjusted EBITDA for the Technology Media segment decreased $26.7
million, or 92.9%, from $28.7 million for the six months ended June 30, 2001 to
$2.0 million for the same period in 2002. Publications accounted for
approximately $0.3 million of the decrease, while trade shows and conferences
accounted for $32.5 million of the decrease. Adjusted EBITDA for the segment's
online media portfolio increased $1.9 million for the six months ended June 30,
2002, when compared with the same period in 2001. General and administrative and
facility costs decreased by $4.2 million as a result of headcount reductions and
office closings. The adjusted EBITDA decline for trade shows and conferences
mirrored revenue declining trends.
Lifestyle Media. Our Lifestyle Media segment, which represented 14.5% of
total-company revenues in the first half of 2002, serves customers in our
natural products industry sector. Total revenues for this segment increased by
$0.7 million, or 3.4%, from $18.1 million for the six months ended June 30, 2001
to $18.8 million for the same period in 2002. Increase in trade show revenues
accounted for all of the increase in revenues for this segment as publication
and online media revenues were flat when compared with the same prior-year
period. The slight increase of $0.7 million in trade show revenues was primarily
due to the move of the Nutracon event from the third quarter in 2001 to the
first quarter in 2002, and the successful launch of Natural Products Expo Asia,
which was staged during May 2002 in Hong Kong.
Total adjusted EBITDA for Lifestyle Media increased $0.1 million, or 1.9%,
from $7.8 million for the six months ended June 30, 2001, to $7.9 million for
the same period in 2002. Adjusted EBITDA margins decreased from 42.9% in 2001 to
42.3% in 2002 due to the aforementioned factors.
Other Media. Our Other Media segment, which represented 6.9% of
total-company revenues for the first half of 2002, serves customers in the
food/retail and leisure/hospitality sectors. Total revenues for this segment
decreased $0.4 million, or 4.3%, from $9.3 million for the six months ended June
30, 2001 to $8.9 million for the comparable period in 2002. The decrease was due
primarily modest year-over-year revenue declines for Lodging Hospitality and
Convenience Store Decisions magazines and the discontinuation of our Leisure
Hospitality conference due to the economic slowdown.
40
Total adjusted EBITDA for Other Media increased $0.3 million, or 14.0%,
from $2.0 million for the six months ended June 30, 2001, to $2.3 million for
the same 2002 period primarily due to cost reduction efforts.
PRODUCTS
We publish specialized trade magazines, produce trade shows and
conferences, and maintain a variety of online media products, including Web
businesses and electronic newsletters. Adjusted EBITDA for products is
calculated as previously defined, except that product adjusted EBITDA also
excludes general and administrative costs. General and administrative costs
include corporate-level costs, as defined previously under Segments, and other
general and administrative costs related to product offerings, which are not
allocated. Our calculation of adjusted EBITDA by product for the six months
ended June 30, 2001 and 2002 is as follows (in thousands):
<Table>
<Caption>
2001 2002
-------- --------
Publishing.................................................. $ 15,332 $ 12,775
Trade shows & conferences................................... 41,316 8,669
Online media................................................ (1,930) 1,368
-------- --------
Subtotal.................................................. 54,718 22,812
General and administrative.................................. (17,451) (12,647)
-------- --------
Adjusted EBITDA............................................. $ 37,267 $ 10,165
======== ========
</Table>
For the six months ended June 30, 2002, adjusted EBITDA for our publishing
operations decreased $2.6 million, or 16.7%, when compared with the same
prior-year period. Adjusted EBITDA for publications was primarily affected by
declines of approximately $5.1 million from magazines such as Windows & .Net,
Machine Design, American Machinist, Electronic Design and EE Product News. These
declines were somewhat offset by approximately $2.5 million related to adjusted
EBITDA improvements from our Internet World magazine and the discontinuation of
our Streaming Media magazine and IW Asia magazine which both reported a loss in
2001.
For the six months ended June 30, 2002, adjusted EBITDA for our trade show
and conference operations decreased $32.6 million, or 79.0%, when compared with
the same prior-year period. The decline was due primarily to the significant
drop in revenues in our Internet/broadband market, with our Internet World
Spring, Service Networks Spring, Internet World UK and Streaming Media West
shows being the most significantly impacted.
Adjusted EBITDA for our online media operations increased from a loss of
$1.9 million for the six months ended June 30, 2001, to income of $1.4 million
for the same period in 2002. The improvement was due primarily to the
elimination of unprofitable online media properties in 2001 and revenue growth.
For the six months ended June 30, 2002, general and administrative costs
decreased $4.8 million, when compared with the same prior year-period. The
decrease is primarily due to staff reduction and other cost-cutting efforts
implemented in the second half of 2001 and in the first half of 2002.
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2000
TOTAL COMPANY
In the analysis that follows, we have used adjusted EBITDA, which we define
as net income before interest, taxes, depreciation and amortization, and unusual
items, as the primary measure of profitability in evaluating our operations. 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 a substitute for net income or net loss, or as an
indicator of our operating performance or cash flow, or as a measure of
liquidity. Adjusted EBITDA margin equals adjusted EBITDA divided by total
revenues.
41
Our definition of adjusted EBITDA is principally calculated in the same
manner as EBITDA under our credit facility, except that the loan covenant EBITDA
is on a rolling four-quarter basis and allows for the shift in timing of events
between quarters. Our revenues, net income (loss), adjusted EBITDA, diluted
earnings per share and adjusted EBITDA margins for the years ended December 31,
2000 and 2001 were as follows (in thousands, except per share data):
<Table>
<Caption>
2000 2001 CHANGE
-------- --------- ---------
Revenues........................................ $404,571 $ 371,552 $ (33,019)
Net income (loss)............................... 79,590 (104,107) (183,697)
Adjusted EBITDA................................. 91,288 40,269 (51,019)
Earnings per common share -- diluted............ 2.49 (3.26)
EBITDA margins.................................. 22.6% 10.8%
</Table>
Operating results for the year ended December 31, 2001 were severely
impacted by the downturn in the U.S. economy and, to a lesser extent, by the
slowing of economies throughout Europe and Asia. In particular, results for the
fourth quarter of 2001, during which four of our largest trade shows took place,
were also adversely impacted by reductions in customers' travel and marketing
spending following the terrorist attacks of September 11, 2001. Our technology
and manufacturing media portfolios, particularly trade shows and publishing
properties serving the Internet/Broadband sector, experienced the deepest
business decline throughout 2001, particularly in the second half of the year.
Our revenues decreased $33.0 million, or 8.2%, from $404.6 million in 2000
to $371.6 million in 2001. The decrease was due primarily to a decrease in
publishing revenues of $19.9 million, or 8.6%, from $230.1 million in 2000 to
$210.2 million in 2001, as well as a decrease in trade show and conference
revenues of $19.2 million, or 11.4%, from $168.4 million in 2000 to $149.2
million in 2001. These decreases were offset in part by an increase in online
media revenue of $6.1 million, from $6.0 million in 2000 to $12.1 million in
2001.
We reported a net loss for 2001 of $104.1 million, or $(3.26) per diluted
share, compared with income of $79.6 million, or $2.49 per diluted share, in
2000. Excluding unusual items, our net loss was $32.2 million, or $(1.01) per
diluted share, in 2001, compared with income of $21.2 million, or $0.66 per
diluted share, in 2000. Unusual items in 2001 included restructuring charges of
$18.8 million (or $0.35 per diluted share after tax) related to the
discontinuation of certain unprofitable media properties, staff reductions and
facility closings, and non-cash charges of $69.6 million (or $1.31 per diluted
share after tax) related primarily to goodwill writedowns. Unusual items in 2000
included a pre-tax gain of $110.2 million ($2.07 per diluted share after tax) on
our sale of INT Media Group Inc. common stock and investment writedowns and
asset impairments of $12.6 million ($0.24 per diluted share after tax).
Total adjusted EBITDA decreased $51.0 million, or 55.9%, from $91.3 million
in 2000 to $40.3 million in 2001. Adjusted EBITDA margins decreased from 22.6%
in 2000 to 10.8% in 2001. The decrease in both our adjusted EBITDA and adjusted
EBITDA margins was due primarily to a decrease in the adjusted EBITDA for our
publishing operations of $25.0 million, or 48.7%, from $51.3 million in 2000 to
$26.3 million in 2001; a decrease in the adjusted EBITDA for our trade show and
conference operations of $26.3 million, or 33.4%, from $78.8 million in 2000 to
$52.5 million in 2001; and an increase in our general and administrative costs
of $3.2 million, from $32.0 million in 2000 to $35.3 million in 2001. The
decreases in the adjusted EBITDA were somewhat offset by an increase in the
adjusted EBITDA for our online media operations of $3.5 million, from a loss of
$6.8 million in 2000 to a loss of $3.3 million in 2001.
42
A reconciliation of our net income (loss) to our total adjusted EBITDA is
as follows (in thousands):
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
---------------------
2000 2001
--------- ---------
Net income (loss)........................................... $ 79,590 $(104,107)
Interest expense, net of interest earned.................... 14,133 28,721
Gain on sale of investments................................. (110,210) --
Restructuring charge........................................ -- 18,790
Provision (benefit) for income taxes........................ 61,559 (20,207)
Impairment of Internet assets............................... 2,095 --
Depreciation and amortization............................... 33,431 45,492
Writedown of Internet investments........................... 9,490 (824)
Impairment of other assets.................................. 1,051 69,565
Discontinued operations, net of taxes....................... 85 --
Miscellaneous, net.......................................... 64 2,839
--------- ---------
Adjusted EBITDA........................................... $ 91,288 $ 40,269
========= =========
</Table>
OPERATING EXPENSES
Editorial, Production and Circulation. Total editorial, production and
circulation expenses grew to $153.4 million in 2001 compared with $147.0 million
in 2000, representing an increase of $6.4 million, or 4.3%. The increase was due
primarily to a full year of operations for the acquisitions completed in 2000,
including Professional Trade Shows, Streaming Media, Duke and ComMunic, as well
as the acquisitions completed in 2001, including Hillgate and DWR. These
increases were somewhat offset by the shutdown of our Healthwell.com exchange in
February 2002, and our decision not to hold Internet World Summer and Internet
World Canada shows in 2001.
Editorial, production and circulation expenses increased as a percentage of
revenues from 36.3% in 2000 to 41.3% in 2001. The increase was due largely to
lower revenues for both magazines and trade shows.
Selling, General and Administrative. Total selling, general and
administrative expenses grew $11.6 million, or 7.0%, from $166.3 million in 2000
to $177.9 million in 2001, primarily due to higher selling costs. During the
first half of 2001, our spending on marketing and selling increased at a higher
rate for trade shows than in the previous year. General and administrative costs
increased due to the impact of Professional Trade Shows, Duke and Streaming
Media acquisitions in September 2000 and higher health benefit costs.
Selling, general and administrative expenses increased as a percentage of
revenues from 41.1% in 2000 to 47.9% in 2001. The increase was due largely to
lower revenues for both magazines and trade shows.
Impairment of Assets. Triggered by the continued decline in the economy and
the negative impact of the September 11, 2001 events, which further weakened an
already deteriorating business climate, we recorded asset and goodwill
impairment charges of $69.6 million ($41.7 million after tax, or $1.31 per
diluted share) in the second half of 2001. In addition to goodwill writedowns of
$66.4 million, the remaining charge primarily represents assets of $1.7 million
related to various Web sites that were shut down and $0.9 million related to
discontinued circulation software.
Asset impairment charges of $9.7 million in the third quarter included the
writedown of goodwill by $7.1 million on five small acquisitions; $1.7 million
for various Web sites that were shut down; and $0.9 million of discontinued
circulation software. Asset impairment charges of $59.6 million in the fourth
quarter included primarily the writedown of goodwill related to eight
acquisitions.
In December 2000, we wrote off $2.1 million of impaired assets related to
certain internally funded Internet media initiatives. The impaired assets
related to certain discontinued projects. In addition, we
43
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.
Restructuring Charge. In the second half of 2001, we implemented a number
of expense-reduction and restructuring initiatives to more closely align our
cost structure with the current business environment. As a result, in the third
quarter, we recorded restructuring charges of $9.5 million ($5.7 million after
tax, or $0.18 per share on a diluted basis) and in the fourth quarter, we
recorded restructuring charges of $3.7 million ($2.3 million after tax, or $0.07
per share on a diluted basis).
The restructuring charge resulted primarily from strategic decisions to
restructure a number of businesses and support departments, including reducing
our overhead infrastructure by consolidating and closing several branch offices,
centralizing information technology and outsourcing certain corporate functions.
Of the total charges, $4.7 million related to employee termination benefits and
the remaining $8.5 million related to non-cancelable obligations under
continuing contracts. See Note 15 in the Notes to Consolidated Financial
Statements for the year ended December 31, 2001, appearing elsewhere in this
prospectus for additional information on related cash payments. The following
sets forth additional detail concerning the principal components of the charge:
- Personnel costs of $4.7 million are associated primarily with the
elimination of nearly 340 positions, of which 294 positions and payments
of $2.7 million were completed at year end. Approximately 84% of the
positions eliminated or to be eliminated are in the U.S., with the
remaining positions predominantly in the United Kingdom and Germany.
Personnel costs include payments for severance, outplacement services and
a provision for continued benefits to personnel.
- Office closure costs of $8.5 million relate to the closure of over 20
Penton facilities worldwide and include costs associated with existing
office spaces under lease.
In February 2001, we announced a restructuring program with the intent of
discontinuing online media operations that have not demonstrated revenue growth,
customer acceptance and near-term opportunity for profit. The charge of $5.6
million ($3.3 million after tax, or $0.10 per share on a basic and diluted
basis) 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, including the reduction in
workforce of approximately 60 employees at Healthwell.com, and a reduction in
workforce related to a number of other Internet initiatives throughout Penton;
and exit costs associated with existing office spaces under lease and other
contractual obligations. In the third quarter of 2001, we determined that some
first-quarter restructuring initiatives would not require the level of spending
that had been originally estimated and approximately $1.0 million was reversed.
The majority of the remaining costs incurred in connection with the
first-quarter restructuring plan have been paid.
Depreciation and Amortization. Depreciation and amortization increased
$12.1 million, or 36.1%, from $33.4 million in 2000 to $45.5 million in 2001.
The higher expense was primarily the result of a full year of amortization of
goodwill and other intangibles associated with PTS, Duke and Streaming Media,
which were all acquired in September of 2000, as well as increased depreciation
associated with capital expenditures related to the corporate headquarters
relocation in the fourth quarter of 2000.
Other Income (Expense). Interest expense increased $14.6 million to $28.7
million due to a higher average debt balance outstanding in 2001 compared with
2000, as well as a significant decrease in interest earned on available cash in
2001 compared with 2000. The increase was somewhat offset by lower overall
interest rates in 2001 compared with 2000.
In February 2000, we sold 2.0 million shares of INT Media Group Inc. common
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.
In July 1999, Penton sold approximately 0.5 million shares of INT Media Group
Inc. common stock and recognized a pre-tax gain of approximately $5.9 million.
44
In 2000, we invested $6.3 million in Cayenta Inc., a provider of e-commerce
systems, and $3.4 million in Leisurehub.com, an online business-to-business
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, the Company recognized
losses totaling $9.5 million, reducing its investment in Cayenta Inc. and
Leisurehub.com to zero. In 2001, we received partial liquidation proceeds from
Leisurehub.com of $0.8 million.
Miscellaneous net expense increased to $2.8 million in 2001, due primarily
to minority equity interests and various professional fees related to
unsuccessful potential acquisitions that were written off during the year.
Effective Tax Rates. The effective tax rates from continuing operations
were a benefit of 16.3% and provision of 43.6% for 2001 and 2000, respectively.
The decrease in our effective tax rate is due primarily to our writedown of
non-deductible goodwill in 2001.
SEGMENTS
We manage our business based on four operating segments: Technology Media,
Industry Media, Lifestyle Media and Other Media. All four segments derive their
revenues from the production of publications, trade shows and conferences, and
online media products, and serve customers in 12 industry sectors. Adjusted
EBITDA for segments is calculated as previously defined except that segment
adjusted EBITDA also excludes corporate level costs. Corporate-level costs
include costs for centralized functions, such as finance, accounting and
information systems, which cannot be reasonably allocated to each segment. See
Note 16 in the Notes to Consolidated Financial Statements for the year ended
December 31, 2001, appearing elsewhere in this prospectus, for a reconciliation
of segment total adjusted EBITDA to consolidated income (loss) before taxes.
Financial information by segment for 2000 and 2001 is summarized in the
following table (in thousands):
<Table>
<Caption>
REVENUE ADJUSTED EBITDA MARGINS
------------------- ------------------ -----------------
2000 2001 2000 2001 2000 2001
-------- -------- -------- ------- ------- -------
Industry Media................. $142,245 $124,331 $ 28,739 $17,443 20.2% 14.0%
Technology Media............... 205,380 196,928 69,652 34,513 33.9% 17.5%
Lifestyle Media................ 30,121 29,893 7,495 9,814 24.9% 32.8%
Other Media.................... 26,825 20,400 7,526 4,775 28.1% 23.4%
-------- -------- -------- -------
Total........................ $404,571 $371,552 $113,412 $66,545
======== ======== ======== =======
</Table>
Industry Media. Our Industry Media segment serves customers in the
manufacturing, design/engineering, mechanical systems/construction,
government/compliance, supply chain and aviation industries. Total revenues for
the Industry Media segment decreased $17.9 million, or 12.6%, from $142.2
million in 2000 to $124.3 million in 2001. The decrease was due primarily to
year-over-year declines across much of the segment's portfolio, which was
primarily affected by the slowing economy, with IndustryWeek, Machine Design,
American Machinist, New Equipment Digest, Contracting Business and Material
Handling Management magazines showing the largest revenue decreases. These
declines were somewhat offset by: (i) revenue generated by Medical Design News
magazine, which we launched during the year; (ii) added revenues from Contractor
magazine, which we acquired in the second quarter of the year; (iii) the first
full year of results of Professional Trade Shows, which was acquired in
September 2000, and (iv) year-on-year revenue growth in the segment's online
media business.
Total adjusted EBITDA for Industry Media decreased $11.3 million, or 39.3%,
from $28.7 million in 2000 to $17.4 million in 2001. Adjusted EBITDA margins
decreased from 20.2% in 2000 to 14.0% in 2001. The decrease in adjusted EBITDA
was due primarily to declines in the aforementioned magazines, and to declines
in the Computers in Manufacturing and A/E/C SYSTEMS trade shows. The Industry
Media segment's online media portfolio experienced a modest decline in 2001
compared with 2000.
45
Technology Media. Our Technology Media segment serves customers in the
electronics, information technology and Internet/Broadband industry sectors.
Total revenues for Technology Media decreased $8.5 million, or 4.1%, from $205.4
million in 2000 to $196.9 million in 2001. The decrease was due primarily to
declines in our Internet World Spring, ISPCON Spring, Streaming Media West and
Internet World Fall trade shows, which were caused by the slowdown in the U.S.
economy and the events of September 11, 2001. Revenue declines were offset in
part by: (i) added results of the Streaming Media and ComMunic trade show
properties, which were acquired in 2000; (ii) added results of Duke publications
and online media products, which were acquired in 2000; (iii) several events
launched in the year and (iv) added results of the Wireless Developer
Conference, which was acquired in 2001.
Total adjusted EBITDA for Technology Media decreased $35.1 million, or
50.4%, from $69.7 million in 2000 to $34.5 million in 2001. Adjusted EBITDA
margins decreased from 33.9% in 2000 to 17.5% in 2001. Adjusted EBITDA declines
mirrored revenue trends for Technology Media publishing, trade shows and
conferences and online media products. Overall, 2001 results were severely
impacted by the decline in the technology market and the events of September 11,
2001. The Internet World Fall show, originally scheduled for early October at
the Jacob K. Javits Convention Center in New York City, had to be rescheduled to
December, which impacted attendance. Other fourth-quarter shows were impacted by
the slowdown in travel and fear of additional attacks.
Lifestyle Media. Our Lifestyle Media segment serves customers in the
natural products industry sector. Total revenues for Lifestyle Media decreased
$0.2 million, or 0.8%, from $30.1 million in 2000 to $29.9 million in 2001.
Lifestyle Media incurred revenue declines in its publishing and online media
products, which were offset in part by increases from trade show events and
added properties. Revenues from The Natural Foods Merchandiser, New Product
Review and Nutrition Science News declined year-over-year. These declines were
offset in part by the added results from Nutrition Business Journal, which we
acquired in February 2001. Trade show and conference revenues grew compared with
2000 for Natural Products Expo West and Natural Products Expo Europe; however,
revenues for Natural Products Expo East, held in early October in Washington,
D.C., were impacted by travel slowdowns and fear of additional attacks after the
events of September 11, 2001.
Total adjusted EBITDA for Lifestyle Media increased $2.3 million, or 30.9%,
from $7.5 million in 2000 to $9.8 million in 2001. Adjusted EBITDA margins
increased from 24.9% in 2000 to 32.8% in 2001. The increase was due primarily to
the shutdown in 2001 of the Healthwell.com industry exchange.
Other Media. Our Other Media segment serves customers in the food/retail
and leisure/hospitality industry sectors. Total revenues for Other Media
decreased $6.4 million, or 24.0%, from $26.8 million in 2000 to $20.4 million in
2001. The decrease was due primarily to year-over-year declines for Convenience
Store Decisions, Restaurant Hospitality and Lodging Hospitality magazines and
for the International Leisure Industry Week show caused primarily by the slow
down in the global economy.
Total adjusted EBITDA for Other Media decreased $2.8 million, or 36.6%,
from $7.5 million in 2000 to $4.8 million in 2001. Adjusted EBITDA declines
followed revenue declines for the publications noted. Results of the
International Leisure Industry Week show held in October 2001 were impacted by
the economic slowdown in European markets and travel concerns caused by the
September 11 terrorist attacks.
PRODUCTS
We publish 61 specialized trade magazines, produce 125 trade shows and
conferences, and maintain a variety of online media products, including 30 Web
businesses and more than 80 electronic newsletters, which serve each of the
industries in our four business segments. Adjusted EBITDA for products is
calculated as previously defined except that product adjusted EBITDA also
excludes general and administrative costs. General and administrative costs
include corporate-level costs (as defined above) and other general and
46
administrative costs related to product offerings which cannot be reasonably
allocated. Our calculation of adjusted EBITDA by product is as follows (in
thousands):
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
-----------------
2000 2001
------- -------
Publishing................................................ $51,269 $26,280
Trade shows and conferences............................... 78,846 52,523
Online media.............................................. (6,790) (3,264)
General and administrative................................ (32,037) (35,270)
------- -------
Adjusted EBITDA........................................ $91,288 $40,269
======= =======
</Table>
Adjusted EBITDA for our publishing operations decreased $25.0 million, or
48.7%, from $51.3 million in 2000 to $26.3 million in 2001. Adjusted EBITDA
decreases for our publishing operations were due primarily to the general
slowdown in the U.S. economy, which most heavily impacted magazines in our
technology, electronics and manufacturing sectors. The largest decrease was in
our high-margin Internet World magazine. Declines were offset partially by the
addition of Windows 2000 Magazine, iSeries NEWS magazine and other Duke
Communications International, or Duke, titles, which were part of our
acquisition of Duke in September 2000.
Adjusted EBITDA for our trade show and conference operations decreased
$26.3 million, or 33.4%, from $78.8 million in 2000 to $52.5 million in 2001.
The decrease was due primarily to the decline in our technology sector in 2001
and the events of September 11, 2001, which exacerbated an already difficult
business environment. Our Internet World Fall show, which has historically been
our biggest show of the year, was originally scheduled to be held at the Jacob
K. Javits Convention Center in New York City in early October, but had to be
rescheduled to December because of the events of September 11, 2001. Other shows
held during the fourth quarter of 2001 were also impacted by the slowdown in
travel and fear of additional attacks. These declines were offset partially by:
(i) added results of acquired properties, including Streaming Media West and
Professional Trade Shows, Inc., or PTS, regional events; (ii) successful
launches, including Internet World Wireless East, ASPCON London, Streaming Media
events in Berlin, Hong Kong and Tokyo, and m-Commerce World; and (iii)
year-on-year growth of other events, including Internet World UK, Service
Management Europe, ISPCON London, Natural Products Expo West and Natural
Products Expo Europe.
Adjusted EBITDA for our online media operations increased $3.5 million,
from a loss of $6.8 million in 2000 to a loss of $3.3 million in 2001. These
increases were due primarily to the addition of the online media business of
Duke, which was acquired in September 2000.
Our general and administrative costs increased $3.2 million, from $32.0
million in 2000 to $35.3 million in 2001. The increases were due primarily to
higher compensation expense, a significant increase in health care costs and
acquisitions completed during 2000 and 2001.
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
47
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 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 product 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 Web 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 revenue 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
48
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.
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 common stock.
In February 2000, we sold 2.0 million shares of INT Media Group,
Incorporated common 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 common stock and recognized a pre-tax gain of
approximately $5.9 million.
In 2000, we invested $6.3 million in Cayenta Inc., a provider of 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 common
stock in 2000. The sale resulted in a pre-tax gain of $110.2 million ($66.1
million net of tax).
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 period.
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 facility,
proceeds from the issuance of senior notes, and proceeds from the sale of
investments and issuance of preferred shares.
49
Cash used by operating activities was $20.3 million for the year ended
December 31, 2001. Operating cash flows for 2001 reflect our net loss of $104.1
million and a net working capital decrease of approximately $36.6 million,
offset by non-cash charges (primarily depreciation and amortization, writedowns
and impairments) of approximately $120.4 million. For the years ended December
31, 2000 and 1999, cash provided by operating activities was $9.2 million and
$34.4 million, respectively.
The decrease in operating cash flows in 2001 compared with 2000 was due
primarily to the decrease in operating income by $51.0 million, after excluding
non-cash charges. The most significant working capital changes in 2001 were
attributable to accounts receivable, income taxes receivable, accounts payable,
accrued expenses, and unearned income. The accounts receivable decrease reflects
lower fourth-quarter sales in 2001 compared with 2000 and the timing of payments
received. The receivable for income taxes reflects the losses incurred in 2001
and our ability to carry these losses back to previous years to obtain a refund.
The decrease in accounts payable and accrued expenses was due primarily to the
timing of vendor and other payments, which can fluctuate based on when
particular shows are held, and the decrease in unearned income is due primarily
to the timing of vendor payments and related shows, and the decrease in the
volume of expected business in 2002.
The decrease in operating cash flows in 2000 compared with 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 attributable largely to the increase in operating
income and the $110.2 million gain realized in 2000 from the sale of INT Media
Group Inc. common stock. The most significant working capital changes in 2000
were attributable to accounts receivable, accounts payable and accrued expenses.
The accounts receivable increase reflected higher fourth-quarter sales in 2000
compared with 1999 and the timing of payments received. The increase in accounts
payable and accrued expenses was due primarily to timing of vendor and other
payments.
Cash used for operating activities was $2.4 million and $15.0 million for
the six months ended June 30, 2002 and 2001, respectively. Operating cash flows
for the six months ended June 30, 2002, reflected a net loss of $16.3 million,
offset by a net working capital decrease of approximately $3.4 million and
non-cash charges (primarily depreciation and amortization) of approximately
$17.2 million. Operating cash flows for the six months ended June 30, 2001
reflect a net loss of $6.8 million, offset by a net working capital decrease of
approximately $37.0 million and non-cash charges (primarily depreciation and
amortization and restructuring charges) of approximately $28.8 million.
The increase in operating cash flows for the six months ended June 30,
2002, compared with the same 2001 period was due primarily to decreases in
working capital items. The most significant working capital changes in 2002 were
attributable to accounts receivable, income taxes receivable, accounts payable
and accrued expenses. The accounts receivable decrease reflects lower first-half
sales in 2002 compared with 2001 and the timing of payments received. The change
in the receivable for income taxes reflects the receipt of an income tax refund
of $12.2 million in the first quarter of 2002. The decrease in accounts payable
and accrued expenses was due primarily to the timing of vendor and other
payments, which can fluctuate based on when particular trade shows are held.
Investing activities used $27.5 million of cash in 2001, primarily for
capital expenditures, several small acquisitions completed during the first half
of the year and required earnout payments. Investing activities used $111.2
million in 2000, primarily for acquisitions and investments (primarily for
Streaming Media, PTS, and Duke) and earnout payments during the year, as well as
capital expenditures. Capital expenditures in 2000 related primarily to the move
of our corporate headquarters and our investment in Internet-related
technologies. Uses in 2000 were partially offset from proceeds from the sale of
2.0 million shares of INT Media Group, Inc. common stock and proceeds from the
sale of our 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 our Printing segment and the sale
of approximately 0.5 million shares of INT Media Group, Inc. common stock.
Investing activities provided $2.5 million of cash for the six months ended
June 30, 2002, and included proceeds of $5.8 million from the sale of
approximately 3.0 million shares of INT Media Group, Inc.
50
common stock. These proceeds were partially offset by capital expenditures and
earnout payments. Investing activities used $25.7 million of cash for the six
months ended June 30, 2001, primarily due to nine acquisitions completed during
the period, earnout payments and capital expenditures.
Financing activities provided $56.3 million in 2001, primarily from the
issuance of our 10 3/8% senior subordinated notes and amounts drawn under our
revolving credit facility. These proceeds were partially offset by required
quarterly principal payments under our term loans, the pay-down of our revolver
balance, an additional $20.0 million paydown on our term loans, and the payment
of finance fees and dividends in the first half of the year. 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 $2.2 million of cash for the six months ended
June 30, 2002, due to the issuance of our 11 7/8% senior secured notes and the
sale of 50,000 shares of Series B mandatorily redeemable convertible preferred
stock to an investor group led by ABRY Mezzanine Partners, L.P. These proceeds
were primarily offset by the paydown of the balance of our senior secured credit
facility; the purchase of $10.0 million face value of our 10 3/8% senior
subordinated notes at prevailing market prices; the payment of financing fees
associated with the amendment to our senior credit facility and the issuance of
our senior secured notes, and the payment of the short-term portion of our note
payable. 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 issuance of our senior subordinated notes, offset partially by
debt repayments and dividends paid to stockholders.
We had a working capital deficit of $8.4 million at December 31, 2001. The
recent sale of our convertible preferred stock and warrants and the subsequent
paydown of debt, along with proceeds from operations, was sufficient to overcome
this deficit.
Set forth below, in tabular form, is information as of December 31, 2001
for the periods indicated concerning our obligations and commitments to make
future payments under long-term obligations (in thousands):
<Table>
<Caption>
LESS THAN 1 - 3 4 - 5 AFTER 5
TOTAL 1 YEAR YEARS YEARS YEARS
-------- --------- -------- ------- --------
Long-term debt............................ $368,787 $16,489 $ 87,451 $79,847 $185,000
Capital lease obligation.................. 120 60 60 -- --
Operating leases.......................... 51,608 9,277 20,356 9,302 12,673
Unconditional purchase obligations........ 38,130 8,370 22,785 6,975 --
-------- ------- -------- ------- --------
Total..................................... $458,645 $34,196 $130,652 $96,124 $197,673
======== ======= ======== ======= ========
</Table>
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.
On September 1, 1999, we entered into a $340.0 million credit agreement
with several banks. The agreement provided for a revolving credit facility of up
to $125.0 million, a term loan A of $140.0 million and a term loan B of $75.0
million. 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 revolving
credit facility up to an aggregate of $100.0 million prior to September 30,
2001. At that time, we increased the commitment under the revolving credit
facility by $60.0 million to $185.0 million. The remaining $40.0 million could
not be requested on more than three separate occasions, and any increase had to
take place by September 30, 2001. We did not exercise this option. As described
in the following paragraphs, we amended our credit facility and paid off our
term A and term B loans in the first quarter of 2002.
51
In June 2001, we issued $185.0 million of 10 3/8% senior subordinated notes
(the "Subordinated Notes") due June 15, 2011. Interest on the notes is payable
semi-annually, on June 15 and December 15 of each year. The Subordinated Notes
are fully and unconditionally, jointly and severally guaranteed, on a senior
subordinated basis, by the assets of our domestic subsidiaries which are 100%
owned by the Company, and may be redeemed, in whole or in part, on or after June
15, 2006. In addition, we may redeem up to 35% of the aggregate principal amount
of the Subordinated Notes before June 15, 2004, with the proceeds of certain
equity offerings. The Subordinated Notes, which were offered at a discount of
$4.2 million, are being amortized using the interest method, over the term of
the Subordinated Notes. Costs representing underwriting fees and other
professional fees of approximately $1.7 million are being amortized over the
term of the Subordinated Notes. The net proceeds of $180.2 million were used to
pay down the $136.0 million outstanding balance of the revolving credit
facility, $12.8 million of the term loan A facility and $7.2 million of the term
loan B facility. The remaining proceeds were used for general corporate
purposes. The Subordinated Notes are our unsecured senior subordinated
obligations, subordinated in right of payment to all existing and future senior
indebtedness, including the senior secured credit facility and the 11 7/8%
senior secured notes discussed below. The Subordinated Notes are jointly and
severally irrevocably and unconditionally guaranteed on a senior subordinated
basis by each of our present and future domestic subsidiaries. The indenture
governing the Subordinated Notes contain covenants that, among other things,
restrict our and our subsidiaries' ability to borrow money; pay dividends on or
repurchase capital stock; make certain investments; 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 our subsidiaries; and merge, consolidate or sell all
or substantially all or our assets and the assets of our subsidiaries. Our
ability to obtain dividends from our subsidiaries is only restricted if we are
in default under our debt arrangement or if we have exceeded our limitation of
additional indebtedness, as specified in such agreement.
In January 2002, we received $5.8 million in net proceeds from the sale of
our remaining investment in INT Media Group, Inc. common stock.
In March 2002, we entered into an agreement with a group of investors led
by ABRY Mezzanine Partners, L.P. to sell 50,000 shares of Series B Convertible
Preferred Stock and warrants to purchase 1.6 million shares of our common stock
for $50.0 million. We received gross proceeds of $40.0 million from the sale of
40,000 shares of preferred stock and warrants to purchase 1,280,000 shares of
our common stock on March 19, 2002 and gross proceeds of $10.0 million from the
sale of 10,000 shares of preferred stock and warrants to purchase 320,000 shares
of our common stock on March 28, 2002 (See Note 6 - Mandatorily Redeemable
Convertible Preferred Stock in the Consolidated Financial Statements for the six
months ended June 30, 2002, included elsewhere in this prospectus). Net proceeds
from the sale of the preferred stock, along with the net proceeds from our
recent sale of our INT Media Group, Inc. common stock, and cash on hand from our
tax refund were used to repay $48.0 million of amounts outstanding under our
term loans.
In March 2002, Penton issued $157.5 million of 11 7/8% senior secured notes
(the "Secured Notes") due in 2007. Interest is payable on the Secured Notes
semi-annually on April 1 and October 1. The Secured Notes are fully and
unconditionally, jointly and severally guaranteed on a senior basis by all of
our domestic subsidiaries which are 100% owned by the Company and also the stock
of certain subsidiaries. We may redeem the Secured Notes, in whole or in part,
during the periods October 1, 2005 through September 30, 2006 and October 1,
2006 and thereafter at redemption prices of 105.9375% and 100.0000% of the
principal amount, respectively, together with accrued and unpaid interest to the
date of redemption. In addition, at any time prior to October 1, 2005, upon
certain public equity offerings of our common stock, up to 35% of the aggregate
principal amount of the Secured Notes may be redeemed at our option, within 90
days of such public equity offering, with cash proceeds from the offering at a
redemption price equal to 111.875% of the principal amount, together with
accrued and unpaid interest to the date of redemption.
The Secured Notes were offered at a discount of $0.8 million, which is
being amortized, using the interest method, over the term of the Secured Notes.
Costs representing underwriting fees and other professional fees of $6.6 million
are being amortized over the term of the Secured Notes. Net proceeds of $150.1
million were used to pay down $83.6 million of term loan A and $49.0 million of
term loan B, and
52
net proceeds of $8.3 million were used to repurchase $10.0 million of our
Subordinated Notes. The remaining net proceeds of $9.2 million were used for
general corporate purposes. The Secured Notes rank senior in right to all of our
senior subordinated indebtedness, including our Subordinated Notes, and equal in
right of payment with all of our other senior indebtedness, which is
approximately $0.4 million at June 30, 2002. The guarantees are senior secured
obligations of each of our subsidiary guarantors and rank senior in right of
payment to all subordinated indebtedness of the subsidiary guarantors, including
the guarantees of our 10 3/8% Subordinated Notes, and equal in right of payment
with all of our senior indebtedness. The notes and guarantees are secured by a
lien on substantially all of our assets and those of our subsidiary guarantors,
other than specified excluded assets. Excluded assets consist of, among other
things, the capital stock of Duke Communications International, Inc. and
Internet World Media, Inc., the capital stock of our foreign subsidiaries
directly owned by us or the subsidiary guarantors which exceed 65% of the
outstanding capital stock or equity interest of such foreign subsidiaries, and
all of the capital stock of our other foreign subsidiaries. The indenture
governing the Secured Notes contain covenants that, among other things, restrict
our and our subsidiaries' ability to borrow money; pay dividends on or
repurchase capital stock; make certain investments; 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 our subsidiaries; and merge, consolidate or sell all
or substantially all or our assets and the assets of our subsidiaries. Our
ability to obtain dividends from our subsidiaries is only restricted if we are
in default under our debt arrangement or if we have exceeded our limitation of
additional indebtedness, as specified in such agreement.
In March 2002, we amended and restated our senior credit facility and
repaid our term loan A facility and our term loan B facility under our senior
credit facility from the proceeds received from the sale of preferred shares and
the issuance of $157.5 million in senior notes, as noted above. The amended and
restated facility provides for a revolving credit facility of up to a maximum
amount of $40.0 million. Availability under the revolving credit facility is
determined by a borrowing base that is limited to 80% of eligible receivables.
In order to access the revolver, Penton must not have more than $7.5 million of
cash and cash equivalents available, must be in compliance with the loan
documents and must submit a borrowing base certificate immediately prior to each
extension of credit showing compliance with the borrowing base. Penton is
required to prepay the revolver in the event that it has loans outstanding in
excess of the borrowing base, or it has more than $7.5 million in cash and cash
equivalents available at the end of any month. The commitment under the amended
and restated credit facility decreases by 15% in 2003, 30% in 2004, 35% in 2005
and 20% in 2006. The amended and restated credit facility has no financial
covenants. In connection with the amendment and restatement of the credit
facility, the interest rate on the revolving credit facility was increased. In
addition, further restrictions were placed on Penton's ability to make certain
restricted payments, to make capital expenditures in excess of certain amounts,
to incur additional debt and contingent obligations, to make acquisitions and
investments, and to sell assets. At June 30, 2002, $23.0 million was available
under the revolving credit facility; however, no amounts were outstanding.
The extinguishment of the term loans resulted in a non-cash extraordinary
charge of $0.7 million, net of $0.5 million in taxes ($0.02 per diluted share
after tax), relating to the write-off of unamortized deferred finance costs.
We anticipate adequate liquidity for operations and expect to meet all
interest payment obligations on our bonds. We have no principal repayment
requirements until maturity of our Senior Secured notes in October 2007. In
addition, we have no bank debt and no maintenance covenants on our existing bond
debt. Penton does have access to an asset-based, maintenance-free revolver of up
to $40.0 million, which is currently undrawn. Based on current estimates of our
net loss for 2002, we expect to receive a tax refund of approximately $12
million to $16 million in the first quarter of 2003. 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,
competitive, business and other factors, including factors beyond our control.
If we are unable to meet our debt obligations or fund our other liquidity needs,
we may be required to raise additional capital through additional financing
arrangements or the issuance of private or public debt or equity securities. We
cannot assure you that such additional financing will be available at
53
acceptable terms. In addition, the terms of our convertible preferred stock and
warrants issued, including the conversion price, dividend and liquidation
adjustment provisions that could result in substantial dilution to stockholders,
the redemption price premiums and board representation rights, could negatively
impact our ability to access the equity markets in the future.
SEASONALITY
The majority of our trade shows are held in the second and fourth quarters
and, accordingly, the majority of our trade shows and conferences revenue is
recognized in 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. We
believe the critical accounting policies and areas that require the most
significant judgments and estimates to be used in the preparation of the
consolidated financial statements are allowance for doubtful accounts, asset
impairment and income tax accounting.
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
Our review of our long-lived assets and goodwill and other intangibles
requires us to initially estimate the undiscounted future cash flow of these
assets whenever events or changes in circumstances indicate that the carrying
amount of these assets may not be fully recoverable. If such analysis indicates
that a possible impairment may exist, we are required to then estimate the fair
value of the asset, principally determined either by third-party appraisals,
sales price negotiations or estimated discounted future cash flows, which
includes making estimates of the timing of the future cash flows, discount rates
and reflecting varying degrees of perceived risk.
The determination of fair value includes numerous uncertainties, unless a
viable, actively traded market exists for the asset, which is not always the
case. Significant judgments are made concerning future growth rates, interest
and discount rates, terminal values, continued consumer demand for particular
products, and any future effects of governmental regulations or competition. Our
estimated cash flows are based on historical results and transactions adjusted
to reflect the best estimate of future market and operating conditions. If these
estimates or their underlying assumptions change in the future, we may be
required to record additional impairment charges for these assets.
As part of the process of preparing our consolidated financial statements,
we are required to estimate income taxes in each of the jurisdictions in which
we operate. The process involves estimating actual current tax expense along
with assessing temporary differences resulting from differing treatment of items
for book and tax purposes. These timing differences result in deferred tax
assets and liabilities, which are included in our consolidated balance sheet. It
is our policy to record a valuation allowance to reduce our deferred tax assets
to the amount that is more likely than not to be realized. Increases in the
valuation allowance result in additional expenses to be reflected within the tax
provision in the consolidated statement of operations. Different assumptions as
to the future expected results of our operation could lead to additional
charges.
In the second quarter of 2002, we performed a detailed analysis of our
valuation allowance for our deferred tax assets of $14.7 million, in accordance
with Company policy. Our analysis included reviewing the future profitability of
the Company as well as the Company's ability to carryback losses, and have
determined that no valuation allowance is required at this time. We will
continue to monitor our deferred taxes
54
throughout the remainder of the year to determine if an allowance is required.
The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if current estimates of the timing and amount of future
taxable income during the carryforward period are significantly revised.
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"). 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 19 in the Notes to Consolidated Financial
Statements for the year ended December 31, 2001, appearing elsewhere in this
prospectus for additional information.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS
No. 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. We
adopted this statement effective January 1, 2002.
In July 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets." 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. We adopted this statement effective January
1, 2002.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This Statement requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the entity capitalizes
the cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. We are required to
adopt this Statement for fiscal 2004. We do not expect that the adoption of this
Statement will have a material effect on our consolidated financial position,
results of operations or cash flows.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement, which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," provides a single accounting model for
long-lived assets to be disposed of. Although retaining many of the fundamental
recognition and measurement provisions of SFAS No. 121, the Statement
significantly changes the criteria that would have to be met to classify an
asset as held-for-sale. We adopted this statement effective January 1, 2002.
In May 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44,
and 64, Amendment of SFAS 13, and Technical Corrections as of April 2002." The
provisions of this Statement related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002, while provisions
related to SFAS No. 13 are effective for transactions occurring after May 15,
2002, and all remaining provisions of this Statement are effective for financial
statements issued on or after May 15, 2002. This Statement eliminates SFAS No.
4. As a result, gains and losses from extinguishment of debt should be
classified as extraordinary items if they meet the criteria of APB Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently
55
Occurring Events and Transactions." This Statement also eliminates SFAS No. 44,
which was established to provide accounting requirements for effects of
transition for provisions of the Motor Carrier Act of 1980. The deregulation of
intrastate operating rights and transition to the provisions of those laws being
complete has necessitated the rescission of SFAS No. 44. This Statement also
eliminates the need to have SFAS 64, which was an amendment to SFAS 4 and has
been rescinded with this Statement. Lastly, this Statement amends SFAS 13,
requiring lease modifications that have economic effects similar to
sale-leaseback transactions to be accounted for in the same manner as
sale-leaseback transactions. We are currently in the process of evaluating this
Statement and do not expect the adoption of this Statement to have a material
impact on our financial statements or results of operations.
In June 2002, the FASB issued SFAS No. 146 "Accounting for costs associated
with exit or disposal activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities. This
statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred as opposed to recognizing
the liability at the date of an entity's commitment to an exit plan. This
Statement is effective for exit or disposal activities that are initiated after
December 31, 2002. We are currently in the process of evaluating this Statement
but do not expect its adoption to have a material impact on our financial
statements or results of operations.
EURO CONVERSION
On January 1, 2002, the introduction of the single European currency, the
euro, was completed with the launch of euro bank notes and coins as legal
currency within 12 of the 15 member states of the European Union. Businesses in
participating countries will conduct transactions in the euro and must convert
their financial records and reports to be euro based.
Although we generate revenues in some of the participating countries, we do
not anticipate that the conversion to the euro will have a material effect on
our results of operations or financial condition.
56
BUSINESS
OVERVIEW
We are a leading, global 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 as part of their sales and marketing efforts. We publish 61 trade
magazines, produce 125 trade shows and conferences, and maintain 30 Web
businesses and over 80 electronic newsletters. Our products serve 12 industry
sectors, which we group into four segments:
<Table>
INDUSTRY MEDIA TECHNOLOGY MEDIA
Manufacturing Internet/Broadband
Design/Engineering Information Technology
Mechanical Systems/Construction Electronics
Supply Chain OTHER MEDIA
Government/Compliance Food/Retail
Aviation Leisure/Hospitality
LIFESTYLE MEDIA
Natural Products
</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, technology, and retail 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 25 companies since the spinoff. We also have launched many new
media properties. These initiatives have helped:
- strengthen our presence in our existing markets;
- provide us with strong market positions in new markets;
- diversify our business into higher-margin trade shows and conferences;
and
- increase our international product offerings.
Of the 25 companies we have acquired since the spinoff, nine acquisitions
were completed in 2001, eight acquisitions were completed in 2000 and six
acquisitions were completed in 1999. Of the nine acquisitions completed in 2001,
the acquisition of the assets of DWR Media PTY Ltd. for cash consideration of
$2.45 million was the largest. The purchase agreement contains an earnout
provision. DWR publishes several technology-related magazines and produces web
sites.
In 2000, we acquired three larger properties as well as five smaller
companies. We acquired the assets of Duke Communications International, Inc., an
integrated media company serving certain Microsoft and IBM operating system
markets, for cash consideration of $100.0 million and an earnout provision. We
also acquired the stock of Streaming Media, Inc., an integrated media company
serving the streaming media market, for cash consideration of $65.0 million and
an earnout provision. We also acquired the assets of Professional Trade Shows,
Inc., or PTS, for cash consideration of $17.0 million. PTS produces regional
trade shows for the plant engineering and maintenance, material handling,
buildings and facilities maintenance, design engineering and machine tool
industries.
In 1999, we acquired substantially all of the assets of New Hope Natural
Media for cash consideration of $41.0 million, an earnout provision and shares
of common stock with a market value of $41.0 million at the time of issuance.
New Hope is a business media company serving the natural products industry
though
57
trade shows, conferences, magazines and Web sites. In 1999, we also completed
the acquisition of five smaller companies.
In 2000, we completed the sale of the net assets of our Direct Mail segment
for $4.0 million in cash. In 1999, we sold our Printing segment, realizing cash
proceeds of $31.0 million.
We have not made any material acquisitions or dispositions in the first six
months of 2002.
OUR INDUSTRY
The business-to-business communications industry is an important segment of
the media industry. Veronis Suhler Stevenson estimated in July 2002 that the
business-to-business communications industry will experience a 3.1% compound
annual growth rate between 2001 and 2006 and will surpass $24 billion in revenue
in 2006. Veronis Suhler also forecasted that, over the same period, spending on
business-to-business magazines will grow at a compound annual growth rate of
2.0% and trade show spending will grow at a compound annual growth rate of 4.6%.
In an October 2001 study by Yankelovich Partners and Harris Interactive,
executives ranked business-to-business magazines and trade shows as the two most
valuable media channels for both obtaining information and influencing and
supporting their business purchasing decisions.
The domestic business-to-business communications industry is highly
fragmented. In June 2001, there were about 1,500 publishing companies, according
to American Business Media; 5,200 trade magazine titles, according to Standard
Rate & Data Service; and 3,000 trade shows in the United States and Canada
produced by 1,500 independent companies and industry associations, according to
Tradeshow Week Research Services.
The business-to-business media industry experienced severe declines since
2001 as companies reduced their overall marketing expenditures in response to
the global economic slowdown. While most publishers began to experience declines
in the third quarter of 2001, technology-focused publishers realized declines
starting in the beginning of 2001 with advertising pages down nearly 34% over
2000, according to Technology Advertising & Branding Report. The September 11th
terrorist attacks exacerbated the downturn in the business-to-business media
industry, causing greater business declines in the latter part of 2001. In 2001,
business-to-business magazines serving the industry sectors analyzed in the
Business Information Network experienced a year-over-year decline in advertising
spending of over 20%. In addition, trade show and conference producers
experienced significant declines in exhibition sales and attendance as travel
fears and economic and political uncertainty adversely affected customers'
marketing, education, and travel spending. According to Tradeshow Week, trade
shows held in the fourth quarter of 2001 experienced the most severe decline
ever recorded in the 29-year history of the publication's quarterly analysis, as
attendance was down 20.4% over fourth quarter 2000 levels and the number of
exhibitors was down 6.8% over the same period. Through the first quarter of
2002, trade shows continued to show declines as compared to the first quarter of
2001, according to Tradeshow Week.
OUR COMPETITIVE STRENGTHS
Market Leadership and Strong Reputation in Industries Served. Our media
products provide proprietary information to decision makers 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 34 of our magazines is measured by audit services; of these
measured titles, 27, or about 79%, are ranked either #1 or #2 in their target
markets based on number of advertising pages. 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
58
- 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 launched Medical Design News and Netronics
magazines; two domestic Internet World Wireless shows, Streaming Media events in
Germany and Japan, 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 Motion Control Monthly electronic newsletters.
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 5.1% of our total revenue in 2001. We provide our
products in 12 diverse industries. Our top ten customers accounted for only 3.1%
of our total revenue in 2001. Our diversity should provide opportunities for
growth and mitigate our exposure to downturns in any one industry we serve.
Highly Experienced Management Team with Deep Industry Relationships. Our
senior management team has an average of 28 years of experience in the media
industry and has shown an ability to develop new products, penetrate new
markets, and complete acquisitions in both strong and weak economic
environments.
OUR BUSINESS STRATEGY
Due to the difficult business environment, we have shifted the emphasis of
our business strategy from accelerating growth to improving our profitability.
In 2001 and the first six months of 2002, we experienced declines in our
revenues and adjusted EBITDA due to the negative factors affecting our industry
generally. The 2001 declines were most significant in the third and fourth
quarters.
Reduce Fixed Costs. Our cost structure was created to support the
approximately 25% compounded annual revenue growth we experienced between 1996
and 2000. In the second half of 2001 and first six months of 2002, we
implemented a number of cost reduction initiatives in an effort to align our
cost structure with a more uncertain business environment. These efforts
included eliminating over 550 positions from our workforce, freezing salaries
and hiring, shutting down and consolidating more than 25 facilities worldwide,
reducing capital spending, centralizing all information technology services,
reducing employee benefit expenses, and outsourcing certain corporate and
division functions.
Restructure Product Portfolio. In an effort to improve the profitability
of our publications, trade shows and conferences, and online media products, we
aggressively restructured our product portfolio in the second half of 2001. This
restructuring effort involved eliminating unprofitable products, including seven
magazines, more than 20 trade shows and conferences, and nearly 20 Web sites,
reducing the production costs of certain of our trade magazines, and co-locating
certain of our events. We reduced magazine production costs through process
improvements, automation of pre-press work, new printing and paper supply
contracts, and selective reductions in frequency and circulation levels. In
2002, we are continuing to evaluate each of our products to determine whether
additional properties should be eliminated or restructured. We believe these
restructuring efforts will improve the adjusted EBITDA of our individual
products without reducing their usefulness to our customers.
Low-Risk, High-Return Growth Strategy. Due to the uncertain business
environment, we intend to grow our business by launching new products that
require minimal capital investment and by exporting our successful domestic
products to other global markets. We launch new products by capitalizing on our
existing knowledge base to identify growth segments within the market sectors we
currently serve, using our proprietary databases to identify buyers and sellers
within those markets, and leveraging our existing sales and marketing
infrastructure to generate revenue without investing significant incremental
capital.
We also intend to grow our business by extending our established domestic
brands into key international markets. By utilizing this strategy, we increased
our international revenue at a compound annual growth rate of approximately 41%
from 1998 to 2001. In 2001, we launched Streaming Media events in Germany and
Japan and in 2002 we launched a natural products event in Asia.
59
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 June 2001 annual ranking of magazines in
the United States, we publish four of the 50 largest trade magazines, based on
advertising revenues. About 79% of our 34 audited magazines hold the #1 or #2
market share positions in their target markets based on number of advertising
pages. Our publications are recognized for the quality of their editorial
content; since 1990, our magazines have won over 700 editorial awards.
We publish 61 trade magazines with a combined circulation of over 3.6
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.
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. 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 Buyers' Guides. We also publish nine industry directories
as well as buyers' 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 currently produce 125 trade shows and conferences, which annually
attract nearly a half million attendees with significant buying and specifying
responsibility.
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
60
and business publications in Germany and its German speaking neighboring
countries, serving 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. In
addition, we receive revenues from attendee fees at trade shows and conferences
and from exhibitor sponsorships of promotional media.
ONLINE: WEB SITES AND ELECTRONIC NEWSLETTERS
We currently maintain 30 Web businesses, which are comprised of dozens of
market-specific Web sites, serving numerous market segments. Our online
portfolio also includes more than 80 electronic newsletters. These electronic
newsletters provide timely and focused information to highly targeted
professionals and typically are sponsored by advertisers interested in
delivering marketing information to our targeted subscribers. 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 and electronic
newsletters to targeted audiences through our magazines and trade shows.
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 and e-mail lists
for rental by marketers who want to promote their products and services through
direct mail and online marketing 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. 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
The following information contains financial data with respect to expected
revenues in 2002 by industry sector. This financial data is taken from our
budgets, which are based on estimates and assumptions made by us that are
inherently uncertain and subject to significant business, economic and
competitive uncertainties and contingencies, all of which are difficult to
predict. Although we believe that our estimates and assumptions are reasonable,
our revenue mix in 2002 may be materially different from that set forth below.
Our products serve 12 industry sectors, which we group into four segments:
Industry Media, Technology Media, Lifestyle Media, and Other Media.
INDUSTRY MEDIA
Manufacturing
The manufacturing sector represented about 14% of our revenues in 2001 and
we estimate the sector will represent 17% of our revenues in 2002. Our
manufacturing portfolio targets executives in manufacturing organizations,
managers of industrial facilities, and management personnel in the machine tool
and metals industries. Leading products in this sector include IndustryWeek,
American Machinist, and New Equipment
61
Digest magazines. In the manufacturing industry sector, we produce 11 trade
magazines and 40 trade shows and conferences.
<Table>
<Caption>
PUBLICATIONS
- ------------
33 Metalproducing Gases & Welding Distributor
American Machinist IndustryWeek
Cutting Technology New Equipment Digest
Expansion Management Used Equipment Directory
Forging Welding Design & Fabrication
Foundry Management & Technology
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
Atlanta Plant Engineering & Maintenance Show Northern California Plant Engineering &
Carolina Plant Engineering & Maintenance Show Maintenance Show
Central Valley Plant Engineering & Maintenance Northern New Jersey Plant Engineering &
Show Maintenance Show
Computers in Manufacturing Northwest Machine Tool Show
ENSsolv of Baltimore Northwest Plant Engineering & Maintenance
ENSsolv of Central Florida Show
ENSsolv of Indianapolis Reno Plant Engineering & Maintenance Show
ENSsolv of Portland Rhode Island Plant Engineering &
Florida Plant Engineering & Maintenance Show Maintenance Show
Fresno Plant Engineering & Maintenance Show Roundtable in the Rockies
Greater Jacksonville Plant Engineering & Salt Lake City Plant Engineering &
Maintenance Show Maintenance Show
Greater Orlando Plant Engineering & Maintenance South Florida Buildings & Facilities Maintenance
Show Show
Greater Philadelphia Plant Engineering & Southern California Plant Engineering &
Maintenance Show Maintenance Show
Indiana Plant Engineering & Maintenance Show Southwest Plant Engineering & Maintenance
Kansas City Engineering & Plant Operations Show Show
Maryland Plant Engineering & Maintenance Show TEAM Total Engineering and Manufacturing
Metalmecanica Tooling
Michigan Plant Engineering & Maintenance Show Tulsa Industrial & Machine Tool Show
Midwest Plant Engineering & Maintenance Show U.S./Mexico Plant Engineering & Maintenance
New England Buildings & Facilities Maintenance Show
Show Virginia Industrial Show
North Texas Plant Engineering & Maintenance Washington State Plant Engineering &
Show Maintenance Show
Northern Alabama Industrial & Machine Tool Western Michigan Plant Engineering &
Show Maintenance Show
</Table>
Design/Engineering
The design/engineering sector contributed about 8% of our revenues in 2001
and we estimate the sector will represent 9% of our revenues in 2002. This
sector serves the information needs of engineers and designers in the original
equipment, medical and biomedical markets, and designers and engineers of
products that incorporate hydraulic and motion systems technologies. Leading
products in this sector include Machine
62
Design and machinedesign.com, as well as Hydraulics & Pneumatics magazine. In
the design/engineering industry sector, we produce seven trade magazines and
five trade shows and conferences.
<Table>
<Caption>
PUBLICATIONS
- ------------
Design Mart Motion System Design
Hydraulics & Pneumatics Systems Integrator
Machine Design The Motion Systems Distributor
Medical Design News
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
Michigan Design Engineering Show Total Design Solutions, Northeast
Northwest Design Engineering Show Total Design Solutions, West
Total Design Solutions, Midwest
</Table>
Mechanical Systems/Construction
The mechanical systems/construction sector contributed about 4% of our
revenues in 2001 and we estimate the sector will represent 6% of our revenues in
2002. This sector serves engineers, designers, and contractors in the mechanical
systems (heating/ventilation/air conditioning/refrigeration/plumbing) markets,
as well as professionals in the architectural and construction trades. Leading
products in this sector include Contracting Business and HPAC Engineering
magazines and the A/E/C SYSTEMS Spring trade show. In the mechanical
systems/construction industry sector, we produce three trade magazines and four
trade shows and conferences.
<Table>
<Caption>
PUBLICATIONS
------------
Contracting Business HPAC Engineering
Contractor Magazine
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
---------------------------
A/E/C Japan Computers for Construction
A/E/C SYSTEMS Spring HVAC Comfortech
</Table>
Supply Chain
The supply chain sector represented about 3% of our revenues in 2001 and we
estimate the sector will represent 3% of our revenues in 2002. Products in this
sector target decision makers along the entire supply chain, including material
handling engineers, third-party logistics providers, and those responsible for
carrying, delivering, and warehousing goods. Leading products in this sector
include Material Handling Management and Supply Chain Technology News magazines.
In the supply chain industry sector, we produce four trade magazines and seven
trade shows and conferences.
<Table>
<Caption>
PUBLICATIONS
------------
Material Handling Business Supply Chain Technology News
Material Handling Management Transportation & Distribution
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
---------------------------
Atlanta Material Handling Show Northwest Material Handling Show
Kansas City Material Handling & Packaging Show Southern California Material Handling Show
Midwest Material Handling & Packaging Show Supply Chain & Logistics Conference and
Northern California Material Handling & Exhibition
Packaging Show
</Table>
Government/Compliance
The government/compliance sector represented about 2% of our revenues in
2001 and we estimate the sector will represent 3% of our revenues in 2002.
Products in this sector target government buyers and
63
professionals who manage industrial safety, occupational health, and
environmental compliance. A leading product in this sector is Government Product
News magazine. In the government/compliance industry sector, we produce three
trade magazines.
<Table>
<Caption>
PUBLICATIONS
------------
Government Procurement Occupational Hazards
Government Product News
</Table>
Aviation
The aviation sector represented about 1% of our revenues in 2001 and we
estimate the sector will represent 2% of our revenues in 2002. This sector's
products target executives in the worldwide commercial airline industry. A
leading product in this sector is our Air Transport World magazine. In the
aviation sector, we produce one trade magazine and one conference.
<Table>
<Caption>
PUBLICATIONS
- ------------
Air Transport World
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
Air Transport World Awards & Conference
</Table>
TECHNOLOGY MEDIA
Internet/Broadband
The Internet/Broadband industry sector contributed about 29% of our
revenues in 2001 and we estimate the sector will represent 12% of our revenues
in 2002. Media products in this sector target communications service providers
and other professionals who utilize Web technologies and services to achieve
their enterprises' e-business objectives. Leading products in this sector
include the Internet World trade shows and Boardwatch magazine. In the
Internet/Broadband industry sector, we produce five trade magazines and 35 trade
shows and conferences.
<Table>
<Caption>
PUBLICATIONS
- ------------
Boardwatch Internet World UK
Information Security Management ISP World - Europe
Internet World
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
Content Management Pocket PC New York
CRM Spring Pocket PC UK
Internet World Berlin Security Matters
Internet World Fall Service Networks Spring
Internet World Italy Service Networks Fall
Internet World Japan SMS
Internet World Manchester SMS February
Internet World Mexico SMS Germany
Internet World Portugal Streaming Media Berlin
Internet World Spring Streaming Media East
Internet World UK Streaming Media Europe
Internet World Wireless East Streaming Media Japan
ISPCON London Streaming Media Spring
ISPCON London - December Streaming Media West
Lightspeed Europe Teamwork
Penton's M-Commerce World WMF - Wireless Multimedia Forum
M-Commerce World - Germany Web Services Fall
NanoBusiness Spring
</Table>
64
Information Technology
The information technology sector contributed about 14% of our revenues in
2001 and we estimate the sector will represent 18% of our revenues in 2002. Our
products in this sector serve professionals involved with the Microsoft Windows
NT/2000/XP and SQL, IBM iSeries/AS400, and Lotus Domino application server
environments; information security; and graphics applications. Leading products
in this sector include the Windows & .NET Magazine and online network, the
iSeries NEWS magazine and online network, and SQL Server Magazine. In the
information technology sector we produce 13 trade magazines and 17 trade shows
and conferences.
<Table>
<Caption>
PUBLICATIONS
- ------------
Business Finance IT Consultant
CRN - Computer Reseller News - Australia IT Graphics
e-Pro Magazine SQL Server Magazine
Information Week - Australia Service Management
iSeries NEWS Windows & .NET Magazine
iSeries NEWS - UK Windows 2000 - Australia
IT Business
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
Business Recovery & Continuity Services NEWS/400 International Executive Summit
Summit - Australia Conference
Call Center Trends NexTech - Australia
Dealers Only NexTech - Europe
Disaster Recovery Asia SQL Server Magazine LIVE! - Spring
IT Graphics Expo Australia SQL Server Magazine LIVE! - Fall
IT Leaders Australia Service Management Europe
..NET Developer Spring Win Developer Spring
..NET Developer Fall Windows & .NET Magazine LIVE! - Spring
Windows & .NET Magazine LIVE! - Fall
</Table>
Electronics
The electronics sector contributed about 10% of our revenues in 2001 and we
estimate the sector will represent 10% of our revenues in 2002. Products in this
sector reach electronics engineers and engineering managers in the OEM,
communications systems, microwave systems, wireless applications, and network
design markets. Some of our largest products in this sector are Electronic
Design and EE Product News magazines. In the electronics industry sector, we
produce five trade magazines and three trade shows and conferences.
<Table>
<Caption>
PUBLICATIONS
- ------------
EE Product News Netronics
Electronic Design Wireless Systems Design
Microwaves & RF
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
EDA Front to Back Wireless Systems Design Conference & Expo
Military Electronics Show
</Table>
65
LIFESTYLE MEDIA
Natural Products
Our natural products sector portfolio generated about 8% of our revenues in
2001 and we estimate the sector will represent 11% of our revenues in 2002. The
products in this sector serve the natural products and nutraceuticals markets,
including producers of raw materials, manufacturers, distributors, and
retailers. Leading products in this sector include the Natural Products Expos in
the United States and The Natural Foods Merchandiser magazine. In the natural
products industry sector, we produce three magazines and seven trade shows and
conferences.
<Table>
<Caption>
PUBLICATIONS
- ------------
Delicious Living The Natural Foods Merchandiser
Functional Foods & Nutraceuticals
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
Natural Products Expo Asia New Hope Natural Media
Natural Products Expo East Newport Summit
Natural Products Expo Europe Nutracon
Natural Products Expo West
</Table>
OTHER MEDIA
Food/Retail
The food/retail sector contributed about 5% of our revenues in 2001 and we
estimate the sector will represent 7% of our revenues in 2002. This industry
sector targets full-service restaurant operators, decision makers in
institutional foodservice, retail and large-volume baking operations, and
management staff at convenience store headquarters. Leading products in this
sector include Food Management and Modern Baking magazines, bakery-net.com, and
the National Convenience Store Advisory Group conventions. In the food/retail
industry sector, we produce five trade magazines and four trade shows and
conferences.
<Table>
<Caption>
PUBLICATIONS
- ------------
Baking Management Modern Baking
Convenience Store Decisions Restaurant Hospitality
Food Management
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
Concepts of Tomorrow National Convenience Store Advisory Group
Kids Marketing Conference Fall Convention
National Convenience Store Advisory Group
Winter Show
</Table>
Leisure/Hospitality
The leisure/hospitality sector represented about 2% of our revenues in 2001
and we estimate the sector will represent 2% of our revenues in 2002. This
sector serves professionals managing leisure and recreation facilities and
outdoor sports and grounds facilities in the United Kingdom and the hospitality
industry in the United States. A leading product in this sector is the
International Leisure Industry Week exhibition held annually in the United
Kingdom. In the leisure/hospitality industry sector, we produce one trade
magazine and two trade shows and conferences.
<Table>
<Caption>
PUBLICATIONS
- ------------
Lodging Hospitality
</Table>
<Table>
<Caption>
TRADE SHOWS AND CONFERENCES
- ---------------------------
International Leisure Industry Week IOG SALTEX
</Table>
66
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..................... 51 Chairman of the Board, Chief Executive Officer and Director
King W. Harris..................... 58 Vice Chairman of the Board and Director
Daniel J. Ramella.................. 50 President, Chief Operating Officer and Director
David B. Nussbaum.................. 44 Executive Vice President, Division President and Director
John J. Meehan..................... 55 Division President and Director
Darrell C. Denny................... 44 Executive Vice President and Division President
William C. Donohue................. 58 Executive Vice President and Division President
Preston L. Vice.................... 54 Senior Vice President, Interim Chief Financial Officer and
Secretary
Jocelyn A. Bradford................ 44 Vice President and Controller
Paul W. Brown...................... 49 Director
R. Douglas Greene.................. 52 Director
Edward J. Schwartz................. 61 Director
William B. Summers................. 52 Director
Daniel C. Budde.................... 41 Director
Peni Garber........................ 39 Director
Hannah C. Stone.................... 37 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 28 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 October 2000, Mr. Harris
served as Chief Executive Officer 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.
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 25 years. Mr. Ramella was Senior Vice
67
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. He is a past Chairman of American Business Media
and is currently a member of the association's Executive Committee. He 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.
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 22 years.
John J. Meehan has served as a Director of Penton since August 1998 and as
President of the Retail Media division of Penton since July 2002. Since January
1987, Mr. Meehan has served as Executive Vice President of Donohue Meehan
Publishing Company, a subsidiary of Penton. Mr. Meehan started his 30-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.
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 Industry Media division of Penton since July 2002. Mr. Donohue
served as Executive Vice President and President of the Retail Media division of
Penton from February 2001 to July 2002. He has also served as President of
Donohue Meehan Publishing, a business publishing company and subsidiary of
Penton, since January 1987.
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 served as
Interim Chief Financial Officer since May 2002. Mr. Vice has 23 years of
business-to-business publishing experience and 32 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 Managing Partner of Volpe Brown Whelan & Co.,
an investment banking company, from May 1989 to December 1999. Mr. Brown has
served as Chairman of Artemis Medical Technologies, Inc., a surgical products
manufacturer, since July 1999.
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. From February 1981 to May 1999, Mr.
Greene served as Chairman and Chief Executive Officer of New Hope
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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.
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 Chairman since October 2000, and served as the
Chairman and Chief Executive Officer from August 1995 to October 2000, of
McDonald Investments Inc., an investment banking and securities firm and a
subsidiary of Key Corp. Mr. Summers also served as Executive Vice President and
a member of the Management Committee of Key Corp. from November 1998 to December
2000. He has also served as a Director of the New York Stock Exchange since 1998
and a Director of Greatbatch Technologies, Inc. since 2001.
Daniel C. Budde has served as a Director of Penton since March 2002. Mr.
Budde has been a Partner of ABRY Partners, LLC, an investment holding company,
since 2001. Prior to joining ABRY, Mr. Budde was a Managing Director in the Bond
and Corporate Finance Group of the John Hancock Financial Services Company, an
investment holding company, from 1989 to 2001 and was Co-President of Hancock
Mezzanine Investments, LLC, an investment holding company, from August 2000 to
July 2001.
Peni Garber has served as a Director of Penton since March 2002. Ms. Garber
has been a Partner of ABRY Partners, LLC, an investment holding company, since
October 2000 and Co-Head of ABRY Mezzanine Partners, L.P., an investment holding
company, since 2001. She has also served as a Director of Muzak Holdings, LLC, a
provider of business music programming, since March 1999.
Hannah C. Stone has served as a Director of Penton since March 2002. Ms.
Stone has served as a managing director of Sandler Capital Management, an
investment holding company, since 1993. She has also served as a Director of
Millbrook Press, a publisher of non-fiction children's books, since 1997.
69
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY
Our credit facility is with The Bank of New York, as administrative agent,
and various financial institutions, as lenders. On March 8, 2002 we amended the
terms of our credit facility, which became effective on March 19, 2002 upon the
closing of our sale of $40.0 million of convertible preferred stock and warrants
to purchase common stock, the proceeds of which were used to repay a portion of
our term loans. As amended, our credit facility consisted of existing term loans
and a revolving credit facility with a maximum availability of $40.0 million. We
used a portion of the net proceeds of the offering of the outstanding notes to
repay the term loans in full. Three business days after we repaid our term loans
in full, availability under the credit facility became subject to a borrowing
base in an amount equal to 80% of our eligible accounts receivable and the
eligible accounts receivable of the subsidiaries that guarantee our obligations
under the credit facility. Also at that time, the financial maintenance
covenants in the credit facility ceased to apply.
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 and the guarantees are secured by a first
priority lien on substantially all of our assets and those of the guarantor
subsidiaries, including certain deposit accounts and a pledge of all of the
capital stock, or similar equity interests, of our domestic subsidiaries, the
capital stock, or similar equity interests, of the foreign subsidiaries directly
owned by us and our domestic subsidiaries (but not exceeding 65% of the
outstanding capital stock of each such foreign subsidiary) and, subject to a few
exceptions, the capital stock, or similar equity interests, we, or the guarantor
subsidiaries, own in other entities. Our credit facility contains affirmative
and negative covenants customary for such financings, such as operating
covenants that limit our ability to engage in acquisitions or incur additional
indebtedness.
10 3/8% SENIOR SUBORDINATED NOTES DUE 2011
On June 28, 2001, we issued and sold in a private placement $185.0 million
aggregate principal amount of 10 3/8% senior subordinated notes due June 15,
2011 pursuant to an indenture between us and The Bank of New York, as trustee.
On October 12, 2001, we offered to exchange up to all of the outstanding notes
for a like principal amount of 10 3/8% notes due June 15, 2011 issued in a
transaction registered under the Securities Act. We consummated this exchange
offer on November 16, 2001, with all of the originally issued notes being
exchanged for the new notes.
Our 10 3/8% notes bear interest at 10 3/8% per year, payable semi-annually
in cash in arrears on each June 15 and December 15, and mature on June 15, 2011.
The 10 3/8% notes are our general, unsecured senior subordinated obligations.
The 10 3/8% notes are guaranteed fully, unconditionally, and jointly and
severally by our domestic subsidiaries, on a senior subordinated basis.
Our 10 3/8% senior subordinated notes are redeemable, at our option, in
whole or in part, upon not less than 30 nor more than 60 days notice, at the
redemption prices set forth below (expressed in percentages of principal
amount), plus accrued and unpaid interest thereon, if redeemed during the
12-month period beginning on June 15 of the years indicated below:
<Table>
<Caption>
YEAR REDEMPTION PRICE
- ---- ----------------
2006....................................... 105.188%
2007....................................... 103.458%
2008....................................... 101.729%
2009 and thereafter........................ 100.000%
</Table>
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The provisions of the indenture governing the 10 3/8% notes limit our and
our subsidiaries' ability, among other things, to:
- pay dividends, redeem capital stock, and make other restricted payments
and investments;
- incur additional debt or issue disqualified capital 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.
The indenture for our 10 3/8% notes also provides that upon a change of
control, as defined therein, each holder of our 10 3/8% notes will have the
right to require us to repurchase all or any part of their notes at a purchase
price in cash equal to 101% of their principal amount plus accrued and unpaid
interest.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On March 28, 2002, we sold $157.5 million in principal amount at maturity
of the outstanding notes in a private placement through an initial purchaser to
a limited number of "qualified institutional buyers," as defined in the
Securities Act. In connection with the sale of the outstanding notes, we entered
into a registration rights agreement with the initial purchaser, dated as of
March 28, 2002. Under that agreement, we must, among other things, file with the
SEC 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 obligations 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, or if you are an affiliate, 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 SEC 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 SEC 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 SEC requests amendments or supplements to the registration statement
or the prospectus forming a part thereof or for additional information;
- the SEC 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; and
- 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.
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, $157.5 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, 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 , 2002,
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
74
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.
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 The Depository Trust Company, 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 The Depository Trust Company, 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
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer;
- the staff of the SEC 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, 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 The Depository Trust
Company,
- 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
75
otherwise deliver the letter of transmittal to the exchange agent prior to the
expiration date of the exchange offer. 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 The Depository Trust Company, 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 MEDIA, INC. 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
- an eligible guarantor institution as provided by Rule 17Ad-15 of the
Securities Exchange Act of 1934.
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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 the
requirement, 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 our sole discretion. All of these
determinations 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 counsel for us, 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 our agreements relating to our 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"; 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 of 1933.
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 The Depository Trust
Company, 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 The Depository Trust Company 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 The Depository
Trust Company, without expense to the tendering holder of outstanding notes.
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BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at The Depository Trust Company for the purposes of the
exchange offer within two business days after the date of this prospectus, and
any financial institution that is a participant in The Depository Trust
Company's systems may make book-entry delivery of outstanding notes by causing
The Depository Trust Company to transfer the outstanding notes into the exchange
agent's account at The Depository Trust Company in accordance with The
Depository Trust Company's procedures for transfer. However, although delivery
of outstanding notes may be effected through book-entry transfer at The
Depository Trust Company, 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 complies with the guaranteed delivery
procedures described below.
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
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- 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, which determination will be final and binding on all parties.
Any outstanding notes so withdrawn will be deemed not to have been 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 re-tendered.
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 The Depository Trust Company, 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
re-tendered 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
U.S. Bank National Association 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:
U.S. Bank National Association
U.S. Bank Trust Center
180 East Fifth Street, 2nd Floor
St. Paul, MN 55101
Attention: Corporate Trust Services
By Telephone (to confirm receipt of facsimile): (651) 244-8677
By Facsimile (for Eligible Institutions only): (651) 244-0711
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 facsimile, telephone, or in person by
officers and regular employees of Penton 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 $200,000. 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 Penton or any subsidiary thereof;
- 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 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.
NO APPRAISAL OR DISSENTERS' RIGHTS
In connection with the exchange offer, you do not have any appraisal or
dissenters' rights under the General Corporation Law of the State of Delaware or
the indenture governing the notes. We intend to conduct the exchange offer in
accordance with the registration rights agreement, the applicable requirements
of the Exchange Act and the rules and regulations of the SEC related to exchange
offers.
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DESCRIPTION OF OUR PREFERRED STOCK AND WARRANTS
In March 2002, we sold 50,000 shares of a new series of convertible
preferred stock and warrants to purchase 1.6 million shares of our common stock
for $50.0 million to a group of investors led by ABRY Mezzanine Partners, L.P.
PREFERRED STOCK
Liquidation Preference. Upon our liquidation, dissolution or winding up,
each holder of convertible preferred stock will be entitled to be paid in cash,
before any distribution or payment is made on our common stock, an amount per
share equal to the greater of:
- the liquidation value of such share, as described below, plus accrued and
unpaid dividends,
- the amount that the holder would be entitled to receive in connection
with a liquidation event had such holder converted the convertible
preferred stock into shares of our common stock immediately prior to such
liquidation event, and
- the product of the number of shares of common stock into which such share
is convertible immediately prior to the liquidation event and the
applicable minimum share price, as described in "--Redemption" below, as
of the date of such liquidation event.
The initial liquidation value per share of the convertible preferred stock will
be $1,000. If the preferred stock is not converted or redeemed prior to March
19, 2008, the liquidation value per share will increase to $4,570. In the event
of a sale of Penton or a change of control of Penton, unless a holder of the
convertible preferred stock requires us to redeem its shares as described in
"--Redemption" below, such holder may require us to make a payment on its
convertible preferred stock at the liquidation preference of its convertible
preferred stock, subject to our satisfaction of our obligations under the
indentures governing the 10 3/8% senior subordinated notes and the exchange
notes.
Dividends. From the date of issuance until March 19, 2008, the dividends
on the convertible preferred stock will accrue daily on the sum of the then
applicable liquidation value and the accrued dividends thereon at a rate of 5%
per annum. From and after March 19, 2008, the dividends will accrue at an annual
rate of 15%. The dividends are payable semi-annually in cash only if declared by
our board of directors and approved by no less than 75% of the convertible
preferred stock then outstanding. The provisions of our debt instruments limit
our ability to pay dividends in cash and we have no present intention to pay
cash dividends on the convertible preferred stock. Upon the occurrence of
certain triggering events, the dividend rate increases by one percentage point,
with further one percentage point increases per quarter up to a maximum increase
of five percentage points if any such event is continuing. The triggering events
include:
- failure to pay the liquidation preference or any cash dividends, to the
extent declared, when due;
- failure to comply with specified covenants and obligations contained in
the convertible preferred stock certificate of designations or purchase
agreement;
- failure to comply with the other covenants and obligations contained in
the convertible preferred stock certificate of designations or purchase
agreement and such failure is not cured within 90 days;
- any representation or warranty in the convertible preferred stock
purchase agreement is proven to be false or incorrect in any material
respect;
- any default that results in the acceleration of indebtedness, where the
principal amount of such indebtedness, when added to the principal amount
of all other indebtedness then in default, exceeds $5.0 million or final
judgments for the payment of money aggregating more than $1.0 million
(net of insurance proceeds) are entered against us and are not
discharged, dismissed, or stayed pending appeal within 90 days after
entry; and
- we initiate or consent to proceedings under any applicable bankruptcy,
insolvency, composition, or other similar laws or make a conveyance or
assignment for the benefit of our creditors generally or
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any holders of any lien takes possession of, or a receiver,
administrator, or other similar officer is appointed for, all or
substantially all of our properties, assets or revenues and is not
discharged within 90 days.
Conversion. Each share of the preferred stock is convertible at any time
at each holder's option into a number of shares of our common stock computed by
multiplying the number of shares of preferred stock to be converted by the
liquidation value of such shares (currently $1,000), plus accrued but unpaid
dividends, divided by the conversion price. The conversion price for the
convertible preferred stock initially is $7.61 and is subject to certain
anti-dilution adjustments. Adjustments will be made to the conversion price if
dilutive events specified in the certificate of designations for the convertible
preferred stock occur before the conversion of the convertible preferred stock.
These events include stock splits, stock dividends and sales of our common stock
or securities convertible into our common stock at prices lower than either the
conversion price of the convertible preferred stock or the volume weighted
average closing share price of our common stock for the preceding 30 trading
days. If any of these events occur, the maximum number of shares of common stock
issuable upon conversion of the convertible preferred stock would increase.
The conversion price of the convertible preferred stock will not be
adjusted, regardless of the sales price, for an issuance of our common stock:
- subject to certain limits, related to the granting of common stock or
options to purchase common stock to our employees pursuant to our stock
option plans or the exercise of currently outstanding options;
- upon conversion of the convertible preferred stock;
- upon exercise of the warrants to purchase common stock;
- in certain situations, for consideration other than cash;
- subject to certain limits, to a bank or similar financial institution in
connection with a loan or other indebtedness for borrowed money; or
- pursuant to an underwritten offering but only if the sale price is
greater than the conversion price then in effect.
If we fail to comply with specific covenants contained in the convertible
preferred stock purchase agreement, the conversion price of the convertible
preferred stock will be reduced by $0.76 (adjusted for stock splits and similar
transactions). The conversion price will readjust to what it would have been
absent such breach (to the extent of any shares of convertible preferred stock
still outstanding) once the breach is cured. In addition, no such reduction to
the conversion price will be made at any time that representatives of the
holders of the convertible preferred stock constitute a majority of our board of
directors.
Finally, if our leverage ratio (as defined in the convertible preferred
stock purchase agreement) exceeds 7.5 to 1.0 for any quarterly period beginning
on December 31, 2002, and such leverage ratio remains in excess of 7.5 to 1.0
for a period of 90 days, the conversion price of the convertible preferred stock
will be reduced by $0.76 (adjusted for stock splits and similar transactions).
Thereafter, until the leverage ratio reduces below 7.5 to 1.0, every 90 days the
conversion price will be reduced by another $0.76 (adjusted for stock splits and
similar transactions), subject to a maximum reduction not to exceed $3.80
(adjusted for stock splits and similar transactions). The conversion price will
readjust to what it would have been absent such event (to the extent of any
shares of convertible preferred stock still outstanding) once the leverage ratio
reduces below 7.5 to 1.0. In addition, no such reduction to the conversion price
will be made at any time that representatives of the holders of the convertible
preferred stock constitute a majority of our board of directors.
We may require the holders to convert the convertible preferred stock into
common stock at any time provided that:
- no triggering event, as described in "--Dividends" above or
"--Registration Rights" below, has occurred or is continuing;
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- the proposed conversion would not occur within 30 days of any period
during which trading by our officers or directors is restricted by our
policies or within 90 days of another conversion at our option;
- the volume weighted average closing share price of our common stock for
the preceding 30 trading days is equal to or greater than the applicable
minimum share price, as set forth in "--Redemption" below;
- the aggregate number of shares of our common stock issued upon conversion
of the preferred stock at our election during any period of 12
consecutive weeks does not exceed 15% of the aggregate volume of our
shares traded on the New York Stock Exchange during the 12 week period
ended on the Saturday immediately preceding the notice date; and
- the aggregate number of shares of convertible preferred stock converted
at any one time does not exceed 12,500 shares (adjusted for stock splits
and similar transactions).
The shares of common stock issuable upon conversion of the preferred stock
have been registered under the Securities Act.
Redemption. We may redeem the convertible preferred stock at any time, in
whole or in part, provided that the redemption price is equal to the amount the
holders would receive on an as-converted basis assuming a common stock share
price equal to the greater of the volume weighted average closing share price of
our common stock for the preceding 30 trading days and the applicable minimum
share price derived from the following schedule (as the same may be adjusted for
stock splits and similar transactions):
<Table>
- - If being redeemed prior to the third anniversary.......... $15.18
- - If being redeemed after the third, but before the fourth
anniversary............................................... $17.51
- - If being redeemed after the fourth, but before the fifth
anniversary............................................... $19.31
- - If being redeemed after the fifth, but before the sixth
anniversary............................................... $23.26
</Table>
In the event of a sale of Penton or a change of control of Penton, any
holder of convertible preferred stock may require us to redeem all of its
convertible preferred stock at the redemption price determined above, subject to
our satisfaction of our obligations under the indentures governing our 10 3/8%
senior subordinated notes and the exchange notes.
Board Representation. The terms of the convertible preferred stock entitle
the holders thereof initially to three board seats. However, at such time as the
holders of convertible preferred stock cease to hold shares of convertible
preferred stock having an aggregate liquidation preference of at least $25.0
million, they will lose the right to appoint the director for one of these three
board seats.
Upon the occurrence of the following events, the holders of a majority of
the convertible preferred stock may nominate two additional members to our board
of directors and, if such triggering events have not been cured or waived prior
to the end of the next succeeding quarter, may appoint one less than a minimum
majority of our board of directors:
- failure to comply with the other covenants and obligations contained in
the convertible preferred stock certificate of designations or purchase
agreement and such failure is not cured within 90 days;
- any representation or warranty in the convertible preferred stock
purchase agreement is proven to be false or incorrect in any material
respect; and
- any default that results in the acceleration of indebtedness, where the
principal amount of such indebtedness, when added to the principal amount
of all other indebtedness then in default, exceeds $5.0 million or final
judgments for the payment of money aggregating more than $1.0 million
(net of insurance proceeds) are entered against us and are not
discharged, dismissed, or stayed pending appeal within 90 days after
entry.
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Upon the occurrence of the following events, the holders of a majority of
the convertible preferred stock may appoint one less than a minimum majority of
our board of directors:
- failure to pay the liquidation preference or any cash dividends, to the
extent declared, when due; and
- failure to comply with specified covenants and obligations contained in
the convertible preferred stock certificate of designations or purchase
agreement.
Upon the occurrence of the following event, the holders of a majority of
the convertible preferred stock may appoint a minimum majority of our board of
directors:
- we initiate or consent to proceedings under any applicable bankruptcy,
insolvency, composition, or other similar laws or make a conveyance or
assignment for the benefit of our creditors generally or any holders of
any lien takes possession of, or a receiver, administrator, or other
similar officer is appointed for, all or substantially all of our
properties, assets or revenues and is not discharged within 90 days.
On March 19, 2008, the holders of a majority of the convertible preferred
stock then outstanding, if any, will be entitled to appoint one less than a
minimum majority of our board of directors, subject to the right to appoint a
minimum majority of our board of directors as described in the immediately
preceding paragraph.
At such time as the holders of convertible preferred stock cease to hold
shares of convertible preferred stock having an aggregate liquidation preference
of at least $10.0 million and such holders' beneficial ownership of our
convertible preferred stock and common stock constitutes less than 5% of the
aggregate voting power of our voting securities, the holders of convertible
preferred stock will no longer have the right to any directors.
Voting Rights. The holders of the convertible preferred stock are entitled
to vote on all matters submitted to the vote of our stockholders, voting as a
single class with the common stockholders on an as-converted basis. In addition,
we may not, without the affirmative vote of the holders of not less than 75% of
the convertible preferred stock then outstanding:
- amend, modify, restate, or repeal our certificate of incorporation or
bylaws in any way that would alter the rights of the convertible
preferred stock or create any new class of capital stock having rights
senior to or on parity with the convertible preferred stock;
- authorize or issue any new or existing class of capital stock or any
security convertible into or exchangeable for, or having rights to
purchase, any shares of our stock having any preference or priority
senior to or on parity with the convertible preferred stock;
- increase or decrease the authorized number of shares of convertible
preferred stock;
- reclassify our capital stock into shares having any preference or
priority senior to or on parity with any preference or priority of the
convertible preferred stock;
- pay or declare any dividend on any shares of our capital stock (other
than dividends on our common stock payable in additional shares of our
common stock) or apply any of our assets to the redemption, retirement,
purchase, or acquisition, directly or indirectly, of any shares of our
capital stock, other than redemptions of the convertible preferred stock
and certain repurchases of shares of common stock from our current or
former employees pursuant to contractual rights; or
- increase the size of our board of directors to more than 12 directors,
other than as may be required to satisfy the rights of the convertible
preferred stock described in "--Board Representation" above.
Covenants. Without the prior approval of a majority of the holders of a
majority of the shares of convertible preferred stock then outstanding we may
not:
- use the proceeds from the sale of the convertible preferred stock and
warrants other than to refinance our credit facility and for general
corporate purposes;
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- make any restricted payment or restricted investment unless our leverage
ratio is less than 6.0 to 1.0 and such restricted payment or restricted
investment would otherwise be permitted under the indenture governing the
10 3/8% senior subordinated notes after the application of a deemed
restricted payment in an amount equal to the aggregate liquidation value
of the convertible preferred stock then outstanding;
- enter into any agreement (or amend or modify the terms of any existing
agreement), other than our credit facility, the indentures governing the
10 3/8% senior subordinated notes and the exchange notes, or any
refinancing thereof to the extent the terms of such refinancing are not
more restrictive than the credit facility or indentures, as applicable,
which by its terms would restrict our ability to comply with the
agreements related to the convertible preferred stock;
- prior to March 19, 2008, sell any of our assets, including the capital
stock of our subsidiaries, unless such sale is in the ordinary course of
business, does not exceed 5% of our total assets or EBITDA or, in the
case of a sale of the capital stock of our subsidiaries, is between us or
any of our wholly owned subsidiaries and another of our wholly owned
subsidiaries;
- prior to March 19, 2008, enter into any agreement with any affiliate
(other than certain permitted affiliate transactions), unless such
affiliate transaction is determined by a majority of our board of
directors to be fair, reasonable and no less favorable to us than could
have been obtained in an arm's length transaction with a non-affiliate
and is approved by a majority of the disinterested members of our board
of directors;
- materially alter our principal line of business or engage in any business
unless such business is reasonably related to our principal line of
business;
- grant any options to purchase our common stock or securities convertible
into or exchangeable for shares of our common stock, other than options
or securities granted pursuant to a stock option plan having an exercise
price equal to or greater than the market value of our common stock on
the date of such grant and accounting for, either individually or in the
aggregate, not more than 15% of our outstanding common stock determined
as of the day before the closing on a fully diluted, as-converted basis;
or
- increase the size of our board of directors (other than as may be
required to satisfy the rights of the convertible preferred stock
described in "-- Board Representation" above) to greater than 12
directors.
From and after March 19, 2008, we may not, without the prior approval of a
majority of the holders of a majority of the shares of convertible preferred
stock then outstanding:
- sell any of our assets, including the capital stock of our subsidiaries;
- enter into any agreement with any affiliate;
- incur or permit to exist any indebtedness other than indebtedness
existing as of such date and indebtedness incurred thereafter under the
revolving credit facility in the ordinary course of business to provide
for our working capital needs;
- acquire (by merging or consolidating with, or by purchasing an equity
interest in or a portion of the assets of) any business, corporation,
other business organization, or division thereof or otherwise acquire any
material assets (other than inventory or other assets to be sold in the
ordinary course of business); and
- hire or terminate any of our executive officers or modify or alter in any
way the employment terms relating to any of our executive officers.
In addition, the terms of the convertible preferred stock require that we
maintain a ratio of consolidated senior securities, defined as debt less cash
balances in excess of $5.0 million plus the accreted value of the convertible
preferred stock, to EBITDA of 7.5 to 1.0 for the twelve month period ending on
the last day of December, March, June, and September of each year beginning with
the period ending on December 31, 2002.
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Sales Rights. If, beginning with the quarterly period ending on December
31, 2002, our leverage ratio, as described above, exceeds 7.5 to 1.0 for four
consecutive fiscal quarters, then the holders of a majority of the convertible
preferred stock have the right to cause us to seek a buyer for all of our assets
or all of our issued and outstanding capital stock. The holders of the
convertible preferred stock will not have this right if their representatives
constitute a majority of our board of directors.
In addition, beginning on March 18, 2008, the holders of the convertible
preferred stock will have the right to cause us to seek a buyer for
substantially all of our assets or issued and outstanding capital stock if at
least 3,500 shares of convertible preferred stock (adjusted for stock splits and
similar transactions) are then outstanding.
Preemptive Rights. Subject to specified limitations, the holders of the
convertible preferred stock may participate in all of our future issuances of
equity securities, options or rights to acquire equity securities, or any
securities convertible or exchangeable for equity securities.
WARRANTS
The initial exercise price of the warrants is $7.61 per share. The warrants
are subject to anti-dilution and other adjustments that mirror those applicable
to the convertible preferred stock. The warrants are immediately exercisable and
expire 10 years after issuance. The shares of common stock issuable upon
exercise have been registered under the Securities Act.
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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 March 28, 2002, by and among the
Company, the Guarantors and U.S. Bank National Association, as trustee (the
"Trustee").
The following summaries of certain provisions of the Indenture, the
Registration Rights Agreement, the Intercreditor Agreement and the Collateral
Agreements 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, the
Registration Rights Agreement, the Intercreditor Agreement and the Collateral
Agreements. We urge you to read the Indenture, the Registration Rights
Agreement, the Intercreditor Agreement and the Collateral Agreements because
they, and not this description, define your rights as a holder of the notes. You
can obtain copies of the proposed forms of Indenture, Registration Rights
Agreement, the Intercreditor Agreement and Collateral Agreements from us.
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," "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.
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.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes will be:
- our senior secured general obligations;
- ranked senior in right of payment to all of our Indebtedness that is
subordinated to the notes, including the Senior Subordinated Notes;
- ranked equal in right of payment with all of our Indebtedness that is not
subordinated to the notes; 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") by each of our present and future Subsidiaries,
other than our Foreign Subsidiaries (the "Guarantors"). The guarantees will be
senior secured general obligations of the Guarantors and will rank senior in
right of payment to all Indebtedness of the Guarantors that is subordinated to
such guarantees including the guarantees of the Senior Subordinated Notes, and
equal in right of payment with all Indebtedness of the Guarantors that is not
subordinated to such guarantees. The obligations of each Guarantor under its
guarantee, however, will be limited in a manner intended to avoid it being
subject to avoidance as a fraudulent transfer under applicable law. See
"--Certain Bankruptcy Limitations" below.
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SECURITY
The notes and the guarantees will be secured by a Lien on substantially all
of our and the Guarantors' assets, other than the Excluded Assets (the
"Collateral"). These assets also will secure our obligations under the Credit
Facility. The Lien on the Collateral securing our obligations under the notes
and the guarantees will be junior to the Lien on these assets securing our
obligations under the Credit Facility.
The Collateral owned by us and the Guarantors will include, among other
things, accounts receivable, certain deposit accounts, equipment, general
intangibles (including, but not limited to, contract rights and certain
intellectual property), intercompany loans, inventory, securities accounts, the
capital stock of certain subsidiaries, and proceeds of the foregoing, in each
case subject to certain customary exceptions and to the extent not included in
the Excluded Assets. The Lien on certain deposit accounts is subject to
completion of deposit account control agreements, which are expected to be
executed on or before April 15, 2002. In addition, the Liens in foreign
intellectual property and stock of certain foreign subsidiaries may not be
effective to the extent that additional actions must be taken under foreign law
to make these Liens effective.
The Indenture and the Collateral Agreements will require that we and the
Guarantors grant a security interest in and/or pledge all After-Acquired
Property as Collateral under the Indenture and the Collateral Agreements,
including granting a mortgage on material real property (other than leasehold
interests) we or the Guarantors may acquire after the issuance of the notes. If,
however, we or a Guarantor becomes a debtor in a case under the United States
Bankruptcy Code, it is likely that After-Acquired Property (other than proceeds
of Collateral) would not become Collateral. In addition, the Bankruptcy Court
would likely avoid as a preference (that is, cancel) any grant of a security
interest in After-Acquired Property made within 90 days before the commencement
of such a case.
The security interest in favor of the Trustee for the benefit of the
Holders will be created in the Collateral pursuant to the Collateral Agreements.
These documents will contain covenants prohibiting us and the Guarantors from
selling or otherwise transferring any interest in the Collateral, except as
permitted under the Indenture. In addition, the Trustee and the agent, on behalf
of the lenders, under the Credit Facility will enter into the Intercreditor
Agreement, which will, among other things, subordinate the Liens securing the
notes and the guarantees to the Liens securing obligations under the Credit
Facility. Under the Intercreditor Agreement, upon an event of default under the
Credit Facility, the agent thereunder will be entitled to sell or dispose of
these assets without regard to the Lien under the Indenture and the Collateral
Agreements, except that the agent will be required to deliver promptly to the
Trustee any proceeds remaining from such sale, transfer or other disposition of
these assets after payment and satisfaction of all obligations under the Credit
Facility. Moreover, the Trustee, on behalf of itself and the Holders of the
notes, will agree to release the Lien under the Indenture and the Collateral
Agreements on the Collateral to allow any such sale or disposition. The
Intercreditor Agreement will also limit the Trustee's rights with respect to the
Collateral after the occurrence of an Event of Default. The Intercreditor
Agreement will provide that if the notes become due and payable prior to the
Stated Maturity or are not paid in full at the Stated Maturity at a time during
which we have obligations outstanding under the Credit Facility, the Trustee
will not have the right to foreclose or otherwise realize upon the Collateral
unless and until the agent under the Credit Facility fails to take steps to
exercise remedies with respect to or in connection with the Collateral within
180 days following notice to such agent of the occurrence of an Event of Default
under the Indenture. In addition, the Intercreditor Agreement will prevent the
Trustee and the Holders of the notes from pursuing remedies with respect to the
Collateral in an insolvency proceeding. The Intercreditor Agreement will require
the net proceeds from the sale of Collateral to first be applied to obligations
outstanding under the Credit Facility and thereafter to the Holders of the
notes.
Upon the occurrence and during the continuance of an Event of Default, the
Trustee will have the right to exercise on behalf of the Holders of the notes
such remedies, including, subject to the Intercreditor Agreement, remedies with
respect to the Collateral, as are available under the Indenture, the Collateral
Agreements and at law, such as the institution of sale or foreclosure
proceedings. The right of the Trustee to repossess and dispose of the Collateral
upon the occurrence of an Event of Default under the Indenture is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be
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commenced by or against us or any Guarantor. See "--Certain Bankruptcy
Limitations" below. Subject to the Intercreditor Agreement, all funds
distributed under the Collateral Agreements and received by the Trustee for the
benefit of the Holders of the notes will be distributed by the Trustee in
accordance with the provisions of the Indenture and the Intercreditor Agreement.
We have not conducted appraisals of the Collateral in connection with this
offering. The Collateral, as well as some of the Excluded Assets, will also
secure our obligations under the Credit Facility. The Excluded Assets will
consist of, among other things, the capital stock of Duke Communications
International, Inc. and Internet World Media, Inc., the capital stock of the
foreign subsidiaries directly owned by us or the Guarantors which exceed 65% of
the outstanding Equity Interests of such Foreign Subsidiaries, and all of the
capital stock of our other foreign subsidiaries. For the year ended December 31,
2001, Duke Communications and Internet World Media generated approximately 33.8%
of our adjusted EBITDA, before general and administrative costs. The amount
realized in respect of the Collateral in the event of a liquidation will depend
upon market and economic conditions, including the availability of buyers, and
similar factors. By its nature, some or all of the Collateral will be illiquid
and may have no readily ascertainable market value. Likewise, the Collateral may
not be saleable, or, if saleable, there could be substantial delays in its
liquidation. A substantial portion of our asset value is goodwill. The fact that
the lenders under the Credit Facility have a first priority Lien on the assets
constituting the Collateral could have a material adverse effect on the amount
that would be realized by the Holders of the notes upon a liquidation of the
Collateral because any amounts received after liquidation of the Collateral
would first be used to repay amounts outstanding under the Credit Facility.
Accordingly, the proceeds of any sale of the Collateral pursuant to the
Indenture and the related Collateral Agreements following an Event of Default
may be substantially less than amounts due under the notes. See "Risk
Factors--The value of the collateral securing the notes may not be sufficient to
satisfy all amounts we owe under our credit facility and the indenture." If the
proceeds from the sale of any of the Collateral were not sufficient to repay all
amounts due on the notes, the Holders of the notes (to the extent not repaid
from the proceeds of the sale of the Collateral) would only have an unsecured
claim against our and the Guarantors' remaining assets.
The Indenture will permit the release of all or specified portions of the
Collateral as set forth under "--Possession, Use and Release of Collateral."
CERTAIN BANKRUPTCY LIMITATIONS
SUBSIDIARIES
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 subsidiary upon its
liquidation or reorganization 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.
Holders of the notes will be direct creditors of each Guarantor by virtue
of its guarantee. Our Unrestricted Subsidiaries and our Foreign Subsidiaries
will not guarantee the notes. In the event of the bankruptcy or financial
difficulty of a Guarantor, such Guarantor's obligations under its guarantee and
any security interest granted to secure such guarantee may be subject to review
and avoidance under state and federal fraudulent transfer laws. Among other
things, a court may avoid (that is, cancel) those obligations and security
interests if it concludes that such obligations were incurred and such security
interests were granted for less than reasonably equivalent value or fair
consideration, at a time when the Guarantor was insolvent, was rendered
insolvent, was left with inadequate capital to conduct its business or believed
or should have believed that it would incur debts beyond its ability to pay. 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
this offering. The obligations of each Guarantor under its guarantee will be
limited in a manner intended to cause it not to be subject to avoidance as a
fraudulent transfer under applicable law, although a court may not give the
Holder the benefit of such
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provision. See "Risk Factors--Under some circumstances, a court could cancel the
subsidiary guarantees and pledges."
If the obligations of a Guarantor under its guarantee and the security
interests granted to secure such guarantee were avoided, Holders of notes would
have to look to the assets of any remaining Guarantors for payment. These assets
may not suffice to pay the outstanding principal and interest on the notes.
COLLATERAL
In addition, the right of the Trustee to repossess and dispose of the
Collateral upon the occurrence of an Event of Default is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy proceeding
were to be commenced by or against us or any Guarantor. The Bankruptcy Code
prohibits a debtor's secured creditor from exercising its rights with respect to
the secured creditor's collateral without bankruptcy court authorization. Thus,
if we and our Subsidiaries became debtors in bankruptcy cases, the Trustee could
not exercise its rights under the Indenture to repossess and dispose of the
Collateral without first seeking court approval. It is uncertain whether or when
the court would grant that approval. The Bankruptcy Code permits a debtor, in
certain circumstances, to retain and to use collateral (and the proceeds
thereof), so long as the secured creditor receives "adequate protection" of its
interest in the collateral. Due to the junior nature of the Lien on the notes,
Holders may not be entitled to "adequate protection." Moreover, because the term
"adequate protection" lacks a precise definition, and because the bankruptcy
court has broad discretionary powers, it is impossible to predict if and to what
extent Holders of notes would be compensated for any delay in payment or
depreciation in the Collateral's value.
In most instances, the Bankruptcy Code prohibits the accrual of interest
after a case's commencement, except with respect to claims that are over
secured. Accordingly, unless the bankruptcy court concluded that the Collateral
securing the notes exceeded the principal amount outstanding thereunder and
under the Credit Facility, the amount of your claims, based on the notes, would
be fixed as of the time of bankruptcy, regardless of the length of the
bankruptcy case and the delay in payment.
The Bankruptcy Code generally provides for the payment of secured claims
(in the amount determined as of the date of bankruptcy) in full. If, however,
the court determined that the value of the Collateral securing the notes was
less than the amount due thereunder, claims of the Holders of notes would be
deemed to be secured only to the extent of the Collateral's value, and the
deficiency would constitute unsecured claims. In most bankruptcy cases, holders
of unsecured claims receive significantly less than the face amount of their
claims.
PRINCIPAL, MATURITY AND INTEREST
On the Issue Date, we will issue notes with a maximum aggregate principal
amount of $157.5 million. The Indenture provides, in addition to the $157.5
million aggregate principal amount of notes being issued on the Issue Date, 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 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 October 1, 2007. 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 April 1 and
October 1 of each year, commencing October 1, 2002, to the Persons in whose
names such notes are registered at the close of business on the March 15 or
September 15 immediately preceding such Interest Payment Date. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
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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 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.
OPTIONAL REDEMPTION
We will not have the right to redeem any notes prior to October 1, 2005
(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 October 1, 2005, 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 commencing October 1 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
- ---- ----------
2005........................................................ 105.9375%
2006 and thereafter......................................... 100.0000%
</Table>
At any time prior to October 1, 2005, upon any Public Equity Offering of
our common stock, 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 111.875% 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 our registry. Any notice which relates to a note to be redeemed in part
only must state
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the portion of the principal amount equal to the unredeemed portion thereof and
must state that on and after the Redemption Date, 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 Redemption Date, 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 will contain 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 will provide 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 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 (i) 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, and (ii) purchases all notes validly tendered and not withdrawn
under such Change of Control Offer.
Any event that would constitute a Change of Control would also constitute
an event of default under the Credit Facility. Future Indebtedness of ours or
any of our Subsidiaries may also contain prohibitions of, or defaults by virtue
of, certain events that would constitute a Change of Control or require such
Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise
by the Holders of their right to require us to repurchase the notes could cause
a default under such Indebtedness, even if the Change of Control itself
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did not, due to the financial effect of such repurchase on us, which could cause
an acceleration of such Indebtedness and a foreclosure with respect to any
collateral securing it in the event such Indebtedness was not paid. Finally our
ability to pay cash to the Holders upon a repurchase may be limited by our then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required purchases.
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 will provide 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.
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
93
(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 $10.0
million; and
(b) our incurrence or the incurrence by any Guarantor of Indebtedness
pursuant to the Credit Facility 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 $40.0 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 will provide 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
(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 June 28, 2001, 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 June 28, 2001,
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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 (other than, in either of (1) or (2), (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), in each of (1) and
(2), after June 28, 2001; 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) any purchase, redemption, or other acquisition or retirement
for value of the Senior Subordinated Notes in an amount not to exceed
$25.0 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 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
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(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 will provide 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, the guarantees, the Indenture
or the Collateral Agreements;
(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
Facility pursuant to the covenant "--Limitation on Incurrence of Additional
Indebtedness;" provided, that such restriction or requirement is no more
restrictive than that imposed by the Credit Facility 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.
LIMITATIONS ON LAYERING INDEBTEDNESS
The Indenture will provide 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 any Indebtedness that is contractually subordinate
to any of our other Indebtedness or the other Indebtedness of any Guarantor
unless such Indebtedness is at least as contractually subordinate to the notes
or the guarantees, as applicable.
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LIMITATION ON LIENS SECURING INDEBTEDNESS
The Indenture will provide that 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.
LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK
The Indenture will provide 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
(ii) used to retire Purchase Money Indebtedness secured by the
asset that was the subject of the Asset Sale or Indebtedness outstanding
under the Credit Facility, and to permanently reduce (in the case of
Indebtedness that is not such Purchase Money Indebtedness) the amount of
such Indebtedness outstanding on the Issue Date or permitted pursuant to
paragraph (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 clause (b)(i), only proceeds from an Asset Sale
of assets or capital stock of a Foreign Subsidiary may be invested in a
Foreign Subsidiary;
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(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;
(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; and
(5) if such Asset Sale involves the disposition of Collateral, we or
such Subsidiary, as applicable, has complied with the provisions described
under "Possession, Use and Release of Collateral."
Pending the final application of any Net Cash Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest the Net Cash
Proceeds in any manner that is not prohibited by the Indenture. Until so
applied, such Net Cash Proceeds shall constitute Collateral under the Indenture
and the Collateral Agreements.
The Indenture will provide 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;
(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;
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(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 will provide 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 will provide 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 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, the Registration Rights Agreement
and the Collateral Agreements;
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(2) the Collateral subject to the Indenture and the Collateral
Agreements at the time of such transaction shall, upon consummation of such
transaction, (A) continue to constitute Collateral under the Indenture and
the Collateral Agreements, (B) be subject to the Lien in favor of the
Trustee for the benefit of the Holders of the notes, and (C) not be subject
to any Lien other than Permitted Liens;
(3) the property and assets of the Person that is merged or
consolidated with or into the consolidated, resulting, surviving or
transferee entity, to the extent that they are property or assets of the
types that would constitute Collateral under the Indenture and the
Collateral Agreements, shall be treated as After-Acquired Property and such
entity shall take such action as may be necessary to cause such property
and assets to be made subject to the Lien under the Indenture and the
Collateral Agreements in the manner and to the extent required thereby;
(4) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a pro forma basis to such transaction;
(5) 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
(6) 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, the
Registration Rights Agreement and the Collateral Agreements 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, the Indenture, the Registration Rights Agreement and the Collateral
Agreements, except with respect to any obligations that arise from, or are
related to, such transaction. The Trustee may require any such surviving entity
to ensure, by executing and delivering appropriate instruments and opinions of
counsel in form reasonably satisfactory to the Trustee, that the Trustee
continues to hold a Lien, having the same relative priority as was the case
immediately prior to such transaction, on all Collateral for the benefit of the
Holders.
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 will provide 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 will provide 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 basis and will grant a security interest in and/or pledge
the Collateral and After-Acquired Property, as applicable, owned by such
Subsidiary to secure such obligations on the terms set forth in the Collateral
Agreements.
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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 will provide 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, the Registration Rights Agreement and the
Collateral Agreements, (1) the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor under its guarantee, the notes, the Indenture, the
Registration Rights Agreement and the Collateral Agreements pursuant to a
supplemental indenture and other documents in form reasonably satisfactory to
the Trustee, pursuant to which such Person shall, among other things,
unconditionally guarantee, on a senior basis, all of such Guarantor's
obligations under such Guarantor's guarantee on the terms set forth in the
Indenture; (2) the Collateral owned by such Guarantor at the time of such
transaction shall, upon consummation of such transaction, (A) continue to
constitute Collateral under the Indenture and the Collateral Agreements, (B) be
subject to the Lien in favor of the Trustee for the benefit of the Holders of
the notes, and (C) not be subject to any Lien other than Permitted Liens; (3)
the property and assets of the Person that is merged or consolidated with or
into such Guarantor, to the extent that they are property or assets of the types
that would constitute Collateral under the Indenture and the Collateral
Agreements, shall be treated as After-Acquired Property, and such Guarantor or
the surviving Person, as the case may be, shall take such action as may be
necessary to cause such property and assets to be made subject to the Lien under
the Indenture and the Collateral Agreements in the manner and to the extent
required thereby; and (4) 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 this covenant shall not apply
to the merger of any Guarantors with and into each other or with or into us. In
addition, the Trustee may require any such Person to ensure, by executing and
delivering instruments and opinions of counsel in form reasonably satisfactory
to the Trustee, that the Trustee continues to hold a Lien, having the same
relative priority as was the case immediately prior to such transaction(s), on
all Collateral for the benefit of the Holders.
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,
under the Registration Rights Agreement and under the Collateral Agreements as
set forth in "--Possession, Use and Release of Collateral;" 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 will prohibit 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.
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IMPAIRMENT OF SECURITY INTERESTS
The Indenture will provide that, except as permitted in the Indenture, the
Intercreditor Agreement and the Collateral Agreements, neither we nor any of our
Subsidiaries will take or omit to take any action that would have the result of
adversely affecting or impairing the Lien on the Collateral in favor of the
Trustee for the benefit of the Holders of the notes.
REPORTS
The Indenture will provide 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 will define 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, the
Indenture or the Collateral Agreements and, except for the provisions under
"--Repurchase of Notes at the Option of the Holder Upon a Change of
Control," "--Limitation 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;
(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;
(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); and
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(8) any of the Collateral Agreements cease under any circumstances to
create a valid, enforceable Lien on the assets purported to be pledged
thereunder, other than as permitted under "-- Possession, Use and Release
of Collateral."
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 addition, the
Trustee will have the right to exercise on behalf of the Holders of the notes
such remedies, including, subject to the Intercreditor Agreement, remedies with
respect to the Collateral as are available under the Indenture, the Collateral
Agreements and at law, including the institution of sale or foreclosure
proceedings. 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 (i) a
Default with respect to any provision requiring a supermajority approval to
amend, which Default may only be waived by such a supermajority, (ii) 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 (iii) 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, the Collateral Agreements 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.
POSSESSION, USE AND RELEASE OF COLLATERAL
Subject to and in accordance with the provisions of the Collateral
Agreements, the Indenture and the Credit Facility, so long as neither the
Trustee nor the agent under the Credit Facility has exercised its rights with
respect to the Collateral upon the occurrence and continuance of an Event of
Default, the Company and the Guarantors will have the right to remain in
possession and retain exclusive control of the Collateral, to operate the
Collateral, to alter or repair the Collateral and to collect, invest and dispose
of any income thereon.
The Indenture and the Collateral Agreements will provide that, in the cases
of clauses (1), (3) and (5) below, all of the Collateral, and in the case of
clauses (2), (4), (6) and (7) below, the Collateral specified therein, shall be
released from the Liens created by the Collateral Agreements:
(1) upon payment in full of the notes and all other obligations under
the Indenture, the notes, the guarantees, the Collateral Agreements and the
Registration Rights Agreement then due and owing,
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(2) unless an Event of Default shall have occurred and be continuing,
upon the sale or other disposition of Collateral pursuant to the provisions
of "Certain Covenants -- Limitation on Sale of Assets and Subsidiary
Stock," solely with respect to the asset sold or otherwise disposed of
pursuant to such provisions and the Net Cash Proceeds received therefor
upon application in accordance with the provisions of such covenant,
(3) upon the written consent of the Holders of a majority in aggregate
principal amount of the then outstanding notes (including consents obtained
in connection with a tender offer or exchange offer for notes),
(4) as required pursuant to the terms of the Intercreditor Agreement,
(5) upon a Legal Defeasance or Covenant Defeasance,
(6) upon eminent domain, condemnation or similar circumstances, solely
with respect to the Collateral taken thereby, or
(7) upon the release or deemed release of any Guarantor from its
obligations under the Indenture and its guarantee, solely with respect to
the Collateral owned by such Guarantor.
The Trustee will not be permitted to release any Lien on any Collateral
unless and until it receives the documents, certificates and opinions required
by the Collateral Agreements, the Indenture and the Trust Indenture Act;
provided, however, with respect to compliance with Section 314(d) of the Trust
Indenture Act, the Company and the Guarantors may, without any release or
consent of the Trustee, sell or otherwise dispose of inventory and collect or
dispose of accounts receivable, notes receivable and cash in the ordinary course
of business if the Company or the Guarantor, as applicable, delivers to the
Trustee semi-annually a certificate of an officer stating that the sale,
collection and/or disposition of all inventory, accounts receivable, notes
receivable and cash during the immediately preceding six-month period was in the
ordinary course of business.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture will provide 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 and
Remedies" 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.
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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;
(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' rights
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 the Guarantors under the Indenture will be revived and no such
defeasance will be deemed to have occurred.
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AMENDMENTS AND SUPPLEMENTS
The Indenture will contain 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; or
(4) cause the notes or any guarantee to become contractually
subordinate in right of payment to any other Indebtedness of the Company or
any Guarantor.
GOVERNING LAW
The Indenture will provide 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).
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The Indenture will provide 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, the notes or the Collateral Agreements 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
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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.
"After-Acquired Property" means assets or property of the type that
constitutes or would constitute Collateral that is acquired after the date of
the Indenture.
"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
(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 Standard & Poor's Ratings Service or at least P-2 or
the equivalent thereof by Moody's Investors Service, Inc.; 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 Investors
Service, Inc. or Standard & Poor's Ratings Service; 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.
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"Collateral Agreements" mean, collectively, the pledge and security
agreement and all other pledges, agreements, financing statements, filings or
other documents that grant or evidence the Lien in the Collateral in favor of
the Trustee for the benefit of the Holders of the notes.
"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) 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
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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 stockholders 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 Facility" means the Amended and Restated Credit Agreement, dated as
of March 8, 2002, among the Company, the lenders party thereto, Bank of America
N.A., as syndication agent, Bank One, NA and Fleet National Bank, as
co-documentation agents, and The Bank of New York, as administrative agent, and
any related notes, guarantees, security agreements, and other collateral
documents, instruments and agreements executed by the Company and/or any of its
Subsidiaries, as such Amended and Restated 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
Facility" shall include agreements in respect of Interest Swap and Hedging
Obligations with lenders (or Affiliates thereof) party from time to time to the
Amended and Restated Credit Agreement and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to the Credit Facility and all refundings, refinancings and
replacements of the Credit Facility, 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 guarantors 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 the covenant
" --Limitation on Incurrence of Additional Indebtedness;" or
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(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.
"Excluded Assets" means (a) cash and cash equivalents to the extent a Lien
thereon may not be perfected through the filing of a UCC financing statement or
through the obtaining of "control" (as defined in the Uniform Commercial Code),
(b) assets securing Purchase Money Indebtedness; (c) any license, contract or
agreement to the extent that a grant of a Lien on such license, contract or
agreement is prohibited by law, results in a breach or termination of terms
thereof, or constitutes a default under or termination of such license, contract
or agreement (other than to the extent that any such term would be rendered
ineffective pursuant to Section 9-406, 9-407 or 9-408 of the Uniform Commercial
Code (or any successor provision or provisions) of any relevant jurisdiction)
and, in any event, immediately upon the ineffectiveness, lapse or termination of
any such terms of or default under such license, contract or agreement, the
Excluded Assets shall not include, and such debtor shall be deemed to have
granted a security interest in, all such licenses, contracts or agreements as if
such terms or defaults had never been in effect, (d) the Capital Stock of Duke
Communications International, Inc. and Internet World Media, Inc. and the Equity
Interests of Subsidiaries acquired by the Company or the Guarantors after the
Issue Date, (e) Equity Interests owned by the Company or the Guarantors in (i)
Leisurehub.com Limited, (ii) Penton Media France SAS, and (iii) ComMunic GmbH
Kongresse-Messen Seminare, and (f) the Equity Interests of Foreign Subsidiaries
directly owned by us or the Guarantors which exceed 65% of the outstanding
Equity Interests of such Foreign Subsidiaries and all of the Equity Interests of
our other Foreign Subsidiaries; provided, that Excluded Assets do not include
the proceeds thereof to the extent such proceeds do not otherwise constitute
Excluded Assets.
"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
110
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."
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Facility) 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.
"Holder" means the Person in whose name a note is registered on our
registry.
"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, or
(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, refinancings 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
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(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 U.S. Government Obligations
(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 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.
"Intercreditor Agreement" means the Intercreditor Agreement, dated the date
of the Indenture, between the Trustee and the agent for the lenders under the
Credit Facility, as amended from time to time or replaced pursuant to the terms
thereof.
"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
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(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.
"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
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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 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.
"Offering" or "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
114
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
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 Indebtedness 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 June 28, 2001 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.
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"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;
(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 and the guarantees, including under the
Collateral Agreements;
(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 Indebtedness incurred under the Credit Facility in
accordance with the terms 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.
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"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, 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.
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"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.
"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 Subordinated Notes" means the Company's 10 3/8% Senior Subordinated
Notes due 2011.
"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 October 1,
2007.
"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 (collectively, the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the Trustee, as custodian for
The Depository Trust Company ("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
"--Transfers 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
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. Those operations and procedures are
solely within the control of DTC and are subject to changes by them. We take no
responsibility for these operations and procedures and urge investors to contact
the system or their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the "Direct
Participants") and to facilitate the clearance and settlement of transactions in
those securities between Direct Participants through electronic book-entry
119
changes in accounts of Participants. The Direct Participants include securities
brokers and dealers (including the initial purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to DTC's system is
also available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant (collectively, the
"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
designated by the initial purchasers with portions of the principal amount of
the Global Notes that have been allocated to them by the initial purchasers, 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.
Investors in the Global Notes may hold their interests therein directly
through DTC if they are Direct Participants in DTC or indirectly through
organizations that are Direct Participants in DTC. All ownership interests in
any Global Notes may be subject to the procedures and requirements of DTC.
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.
120
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 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 the 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, the
initial purchasers or the Trustee shall have any responsibility for the
performance by DTC or its Direct and Indirect Participants of their 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 ("Certificated Notes") 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 the 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).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Transfer Restrictions," unless we determine
otherwise in compliance with applicable law.
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.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and, in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer described under "--Transfer Restrictions."
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require 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
121
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 secondary trading in the
Certificated Notes will also be settled in immediately available funds.
122
FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a discussion of the U.S. federal income tax consequences
that are anticipated to be material to the ownership and disposition of the
exchange notes to non-U.S. holders (as defined below) of exchange notes. This
summary is based upon existing U.S. federal income tax law, which is subject to
change, possibly retroactively. This discussion is limited to exchange notes
held as capital assets within the meaning of Section 1221 of the U.S. Internal
Revenue Code of 1986 (the "Code"). This summary does not discuss all of the U.
S. federal income tax consequences that may be relevant to a particular non-U.S.
holder in light of such holder's specific circumstances or to holders subject to
special tax rules, such as certain financial institutions, insurance companies,
securities dealers, tax-exempt organizations, real estate investment trusts,
regulated investment companies, grantor trusts or persons holding exchange notes
in connection with a hedging, straddle, conversion or other integrated
transaction. This summary also does not address the tax consequences that may be
relevant to persons who have ceased to be United States citizens or who are no
longer subject to tax as resident aliens or that have a functional currency
other than the U.S. dollar, all of whom may be subject to tax rules that differ
significantly from those summarized below. Holders are urged to consult their
tax advisors with regard to the application of U.S. federal income tax laws to
their particular situations, as well as any tax consequences arising under the
laws of any state, local, or foreign taxing jurisdiction.
As used herein, the term "non-U.S. holder" means a beneficial owner of an
outstanding note or an exchange note that is, for U.S. federal income tax
purposes:
- a nonresident alien individual;
- a foreign corporation;
- a foreign estate; or
- a foreign trust.
Foreign partnerships, including other foreign entities taxable as
partnerships for U.S. federal income tax purposes, are subject to special U.S.
income and withholding tax rules. The tax treatment of a partner in a foreign
partnership will generally depend on the status of the partner and the
activities of the foreign partnership. Prospective investors that are foreign
partnerships or partners in a foreign partnership are urged to consult their tax
advisors regarding the U.S. federal income tax consequences of the ownership and
disposition of the exchange notes.
PAYMENT OF INTEREST
Subject to the discussion below concerning backup withholding, payments of
interest on the exchange notes by us or our paying agent to any non-U.S. holder
should qualify as portfolio interest under the Code and should not be subject to
U.S. federal income or withholding tax, provided that:
- the interest 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, and (3) is not a bank
receiving interest from us under a loan agreement entered into in the
ordinary course of the bank's business; 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 Internal Revenue Service
("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, (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
123
institution files with the withholding agent Form W-8IMY (or successor form)
certifying that it has received certifications from the beneficial owners of
exchange notes, furnishes the withholding agent with a copy thereof, and
otherwise complies with applicable IRS requirements, or (3) in the case of
exchange notes held by a foreign partnership, such foreign partnership (a) files
with the withholding agent IRS Form W-8IMY certifying that it has received
certifications from its partners that are non-U.S. holders, furnishes the
withholding agent with the required withholding statement, and otherwise
complies with applicable IRS requirements, or (b) enters into a withholding
agreement with the IRS under which it assumes certain U.S. withholding
responsibilities and otherwise complies with applicable IRS requirements.
Alternatively, these certification requirements will not apply if the
beneficial owner of the 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), 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
intermediary 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 and withholding requirements.
Except to the extent that an applicable treaty otherwise provides, a
non-U.S. holder generally will be taxed with respect to interest in the same
manner as a holder that is a U.S. person if the interest is effectively
connected with a United States trade or business of the non-U.S. holder.
Effectively connected interest income received or accrued by a corporate
non-U.S. holder may also, under certain circumstances, be subject to an
additional "branch profits" tax at a 30% rate (or, if applicable, at a lower tax
rate specified by a treaty). Even though such effectively connected income is
subject to income tax, and may be subject to branch profits tax, it is not
subject to withholding tax if the non-U.S. holder delivers a properly executed
IRS Form W-8ECI (or successor form) to the withholding agent.
The gross amount of payments of interest 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 on IRS Form W-8BEN that it is entitled to such treaty benefits.
SALE, EXCHANGE, REDEMPTION, OR DISPOSITION OF 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, exchange, 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 exist; 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.
UNITED STATES FEDERAL ESTATE TAX
If interest on the exchange notes is exempt from withholding of U.S.
federal income tax under the portfolio interest exemption (without regard to the
certification requirement), the exchange notes will not be included in the
estate of a deceased non-U.S. holder for U.S. federal estate tax purposes.
124
BACKUP WITHHOLDING AND INFORMATION REPORTING
We must report annually to the IRS and to each non-U.S. holder any interest
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 the 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 our paying agent on an exchange note if
the certifications are received or the qualified intermediary requirements are
met as described above under "Payment of interest," 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 generally 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. 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.
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.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
Because the exchange notes should not differ materially in kind or extent
from the outstanding notes, your exchange of outstanding notes for exchange
notes will not constitute a taxable disposition of the outstanding notes for
United States federal income tax purposes. As a result, you will not recognize
income, gain or loss on your exchange of outstanding notes for exchange notes,
your holding period for the exchange notes will generally include your holding
period for outstanding notes, your adjusted tax basis in the exchange notes will
generally be the same as your adjusted tax basis in your outstanding notes and
the United States federal income tax consequences associated with owning the
outstanding notes will continue to apply to the exchange notes.
125
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 , 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.
EXPERTS
The financial statements of Penton Media, Inc. and Donohue Meehan
Publishing Company (a wholly owned subsidiary of Penton Media, Inc.) as of
December 31, 2001 and 2000 and for each of the three years in the period ended
December 31, 2001 included in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
appearing herein.
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
We file reports, proxy statements, and other information with the SEC.
These reports, proxy statements and other information can be read and copied at
the SEC's Public Reference Room at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. The SEC 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 SEC,
including Penton. In addition, our common stock is listed on the New York
126
Stock Exchange under the symbol "PME" and our reports and other information can
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the documents that we file
with the SEC. This means that we can disclose information to you by referring
you to those documents. Any information we incorporate in this manner is
considered part of this prospectus except to the extent updated and superseded
by information contained in this prospectus. Some information we file with the
SEC after the date of this prospectus and until this offering is completed will
automatically update and supersede the information contained in this prospectus.
We incorporate by reference the following documents that we have filed with
the SEC and any filings that we will make with the SEC in the future under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
this offering is completed:
- Annual Report on Form 10-K for the year ended December 31, 2001;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and
June 30, 2002;
- Preliminary Proxy Statement on Schedule 14A filed with the SEC on April
8, 2002;
- Definitive Proxy Statement on Schedule 14A filed with the SEC on April
30, 2002;
- Definitive Proxy Supplement on Schedule 14A filed with the SEC on May 9,
2002;
- Definitive Proxy Supplement on Schedule 14A filed with the SEC on May 10,
2002; and
- Current Reports on Form 8-K filed with the SEC on March 11, 2002, March
13, 2002, March 19, 2002, March 22, 2002, March 28, 2002, May 3, 2002,
August 1, 2002, August 12, 2002, August 15, 2002 and August 22, 2002.
We will provide without charge, upon written or oral request, a copy of any
or all of the documents which are incorporated by reference into this
prospectus. 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.
127
INDEX TO FINANCIAL STATEMENTS
<Table>
Penton Media, Inc. Consolidated Financial Statements
(Audited):
Report of Independent Accountants......................... F-2
Consolidated Statements of Operations for the years ended
December 31, 1999, 2000, and 2001...................... F-3
Consolidated Balance Sheets at December 31, 2000 and
2001................................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000, and 2001...................... F-6
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999,
2000, and 2001......................................... F-7
Notes to Consolidated Financial Statements................ F-8
Penton Media, Inc. Consolidated Financial Statements
(Unaudited):
Consolidated Balance Sheets at December 31, 2001 and June
30, 2002............................................... F-47
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2001 and 2002................ F-49
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2001 and 2002........................... F-50
Notes to Consolidated Financial Statements................ F-51
Donohue Meehan Publishing Company Financial Statements
(Audited):
Report of Independent Accountants......................... F-75
Balance Sheets at December 31, 2000 and 2001.............. F-76
Statements of Operations for the years ended December 31,
1999, 2000, and 2001................................... F-77
Statements of Cash Flows for the years ended December 31,
1999, 2000, and 2001................................... F-78
Statements of Stockholders' Equity for the years ended
December 31, 1999, 2000, and 2001...................... F-79
Notes to Financial Statements............................. F-80
</Table>
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders 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. and its subsidiaries at December 31, 2001 and
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, 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.
As discussed in Note 8 of the Notes to Consolidated Financial Statements,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
in 2001.
/s/ PricewaterhouseCoopers LLP
Cleveland, Ohio
March 19, 2002
F-2
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999 2000 2001
--------- --------- ----------
(DOLLARS AND SHARES IN THOUSANDS,
EXCEPT PER SHARE DATA)
Revenues.................................................... $300,824 $404,571 $ 371,552
Operating expenses:
Editorial, production and circulation..................... 116,924 147,012 153,379
Selling, general and administrative....................... 116,592 166,271 177,904
Impairment of Internet assets............................. -- 2,095 --
Impairment of other assets................................ -- 1,051 69,565
Restructuring charge...................................... -- -- 18,790
Depreciation and amortization............................. 27,918 33,431 45,492
-------- -------- ---------
261,434 349,860 465,130
-------- -------- ---------
Operating income (loss)..................................... 39,390 54,711 (93,578)
Other income (expense):
Interest expense, net of interest earned.................. (21,131) (14,133) (28,721)
Gain on sale of investments............................... 5,906 110,210 --
Writedown of Internet investments......................... -- (9,490) 824
Miscellaneous, net........................................ (170) (64) (2,839)
-------- -------- ---------
(15,395) 86,523 (30,736)
-------- -------- ---------
Income (loss) from continuing operations before income
taxes..................................................... 23,995 141,234 (124,314)
Provision (benefit) for income taxes........................ 16,065 61,559 (20,207)
-------- -------- ---------
Income (loss) from continuing operations.................... 7,930 79,675 (104,107)
Discontinued operations:
Income (loss) from discontinued operations less applicable
income
taxes of $34 in 1999.................................... 33 -- --
Gain (loss) on sale of discontinued operations, including
provision of $60 in 1999 for operating losses during
phase-out period (less applicable income taxes (benefit)
of $5,771 and $(57), in 1999 and 2000, respectively).... 8,660 (85) --
-------- -------- ---------
8,693 (85) --
-------- -------- ---------
Income (loss) before extraordinary item..................... 16,623 79,590 (104,107)
Extraordinary item -- early extinguishment of debt (net of
income
taxes of $5,600).......................................... (8,413) -- --
-------- -------- ---------
Net income (loss)........................................... $ 8,210 $ 79,590 $(104,107)
======== ======== =========
Earnings per common share -- basic:
Income (loss) from continuing operations.................. $ 0.28 $ 2.51 $ (3.26)
Discontinued operations................................... 0.31 -- --
Extraordinary item........................................ (0.30) -- --
-------- -------- ---------
Net income (loss)......................................... $ 0.29 $ 2.51 $ (3.26)
======== ======== =========
Earnings per common share -- diluted:
Income (loss) from continuing operations.................. $ 0.28 $ 2.49 $ (3.26)
Discontinued operations................................... 0.31 -- --
Extraordinary item........................................ (0.30) -- --
-------- -------- ---------
Net income (loss)......................................... $ 0.29 $ 2.49 $ (3.26)
======== ======== =========
Weighted-average number of shares outstanding:
Basic..................................................... 28,108 31,730 31,917
======== ======== =========
Diluted................................................... 28,209 32,010 31,917
======== ======== =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
AS OF DECEMBER 31,
----------------------
2000 2001
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 11,605 $ 20,191
Accounts and notes receivable, less allowance for doubtful
accounts of $3,863 and $10,976, respectively........... 70,059 56,452
Inventories............................................... 798 1,351
Income taxes receivable................................... -- 14,750
Deferred tax assets....................................... 5,562 6,645
Prepayments, deposits and other........................... 11,763 7,854
-------- --------
Total current assets................................... 99,787 107,243
-------- --------
Property, plant and equipment:
Land, buildings and improvements.......................... 8,205 8,846
Machinery and equipment................................... 63,998 62,056
-------- --------
72,203 70,902
Less: accumulated depreciation............................ 36,706 40,726
-------- --------
35,497 30,176
-------- --------
Other assets:
Goodwill, less accumulated amortization of $49,142 and
$76,517 in 2000 and 2001, respectively................. 574,626 493,141
Other intangibles, less accumulated amortization of
$14,901 and $21,384 in 2000 and 2001, respectively..... 54,122 56,800
Deferred tax assets....................................... -- 7,468
Investments............................................... 17,725 5,649
-------- --------
646,473 563,058
-------- --------
$781,757 $700,477
======== ========
</Table>
F-4
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
<Table>
<Caption>
AS OF DECEMBER 31,
----------------------
2000 2001
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior secured credit facility............................ $ 11,250 $ 16,489
Note payable.............................................. -- 2,804
Accounts payable.......................................... 12,054 12,094
Income taxes payable...................................... 3,260 3,674
Accrued earnouts.......................................... 14,704 6,572
Accrued compensation and benefits......................... 18,485 12,411
Other accrued expenses.................................... 15,024 24,705
Unearned income, principally trade show and conference
deposits............................................... 55,772 36,939
-------- --------
Total current liabilities.............................. 130,549 115,688
-------- --------
Long-term liabilities and deferred credits:
Revolving credit facility................................. 91,000 --
Senior secured credit facility............................ 199,875 164,098
Senior subordinated notes, net of discount................ -- 180,957
Note payable.............................................. -- 417
Net deferred pension credits.............................. 15,241 15,140
Deferred taxes............................................ 5,978 --
Other..................................................... 2,545 3,647
-------- --------
314,639 364,259
-------- --------
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized; none
issued................................................. -- --
Common stock, $0.01 par value, 60,000,000 shares
authorized; 31,836,316 and 31,895,621 shares issued and
outstanding at December 31, 2000 and 2001,
respectively........................................... 318 319
Capital in excess of par value............................ 226,446 227,245
Retained earnings......................................... 112,745 6,724
Notes receivable officers/directors....................... (10,207) (10,824)
Accumulated other comprehensive income (loss)............. 7,267 (2,934)
-------- --------
336,569 220,530
-------- --------
$781,757 $700,477
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 2000 2001
--------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 8,210 $ 79,590 $(104,107)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................ 27,918 33,431 45,492
Gain on sale of investments.......................... (5,906) (110,210) --
Loss (gain) from discontinued operations............. (8,693) 85 --
Extraordinary loss on extinguishment of debt......... 8,413 -- --
Deferred income taxes................................ (363) (4,379) (9,773)
Retirement and deferred compensation plans........... (1,182) (875) (102)
Provision for losses on accounts receivable.......... 943 1,714 4,372
Non-cash restructuring charge........................ -- -- 11,632
Asset impairments and writedowns..................... -- 12,636 68,741
Changes in assets and liabilities, excluding effects from
acquisitions and dispositions:
Accounts and notes receivable........................ (3,470) (22,817) 11,205
Income tax receivable................................ -- -- (14,750)
Inventories.......................................... (389) 403 (567)
Prepayments and deposits............................. 869 1,295 2,762
Accounts payable and accrued expenses................ (5,444) 7,531 (17,696)
Unearned income...................................... 12,325 12,894 (20,134)
Other changes, net................................... 1,126 (2,058) 2,582
--------- --------- ---------
Net cash provided by (used for) operating
activities....................................... 34,357 9,240 (20,343)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (5,884) (27,272) (7,602)
Acquisitions, including earnouts paid, net of cash
acquired................................................ (57,415) (200,996) (19,853)
Proceeds from sale of INT Media Group Inc. stock and
interests............................................... 6,640 113,100 --
Net proceeds from sale of discontinued operations......... 28,889 4,000 --
--------- --------- ---------
Net cash used for investing activities............. (27,770) (111,168) (27,455)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from senior subordinated notes................... -- -- 180,836
Proceeds from $325 million senior debt facility........... 24,500 -- --
Repayment of $325 million senior debt facility............ (330,500) -- --
Proceeds from $340 million senior debt facility........... 235,000 91,000 45,000
Repayment of $340 million senior debt facility............ (20,000) (3,875) (166,538)
Payment of notes payable.................................. (1,000) -- (201)
Payment of financing costs................................ (3,461) (283) (1,657)
Proceeds from equity offering, net........................ 118,416 -- --
Employee stock purchase plan.............................. -- (209) (353)
Proceeds from deferred shares and options exercised....... 170 473 1,153
Dividends paid............................................ (3,246) (3,800) (1,914)
--------- --------- ---------
Net cash provided by financing activities.......... 19,879 83,306 56,326
--------- --------- ---------
Effect of exchange rate changes on cash..................... (49) (143) 58
--------- --------- ---------
Net increase (decrease) in cash and equivalents.... 26,417 (18,765) 8,586
Cash and cash equivalents at beginning of period............ 3,953 30,370 11,605
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 30,370 $ 11,605 $ 20,191
========= ========= =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
ACCUMULATED
CAPITAL IN NOTES OTHER
EXCESS OF RECEIVABLE COMPREHENSIVE
COMMON PAR RETAINED OFFICERS/ INCOME
STOCK VALUE EARNINGS DIRECTORS (LOSS) TOTAL
------ ---------- -------- ---------- ------------- ---------
(DOLLARS IN THOUSANDS)
Balance at December 31, 1998............ $228 $ 55,050 $ 32,262 $ -- $ (51) $ 87,489
---- -------- -------- -------- -------- ---------
Comprehensive income:
Net income............................ -- -- 8,210 -- -- 8,210
Other comprehensive income (loss):
Foreign currency translation
adjustments....................... -- -- -- -- (787) (787)
Unrealized gain on securities, at
fair value........................ -- -- -- -- 151,605 151,605
---------
Comprehensive income.................. -- -- -- -- -- 159,028
---------
Dividends............................... -- -- (3,502) -- -- (3,502)
Issuance of common stock:
Stock offering........................ 64 118,352 -- -- -- 118,416
In connection with New Hope
acquisition......................... 21 40,979 -- -- -- 41,000
Exercise of deferred shares and stock
options............................. -- 170 -- -- -- 170
---- -------- -------- -------- -------- ---------
Balance at December 31, 1999............ $313 $214,551 $ 36,970 $ -- $150,767 $ 402,601
---- -------- -------- -------- -------- ---------
Comprehensive income (loss):
Net income............................ -- -- 79,590 -- -- 79,590
Other comprehensive income (loss):
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 loss.................... (63,910)
---------
Dividends............................... -- -- (3,815) -- -- (3,815)
Issuance of common stock:
Executive loan program................ 4 9,662 -- -- -- 9,666
Contingent shares..................... 1 1,428 -- -- -- 1,429
Exercise of stock options............. -- 1,014 -- -- -- 1,014
Employee stock purchase plan.......... -- (209) -- -- -- (209)
Notes receivable officers/directors..... -- -- -- (10,207) -- (10,207)
---- -------- -------- -------- -------- ---------
Balance at December 31, 2000............ $318 $226,446 $112,745 $(10,207) $ 7,267 $ 336,569
---- -------- -------- -------- -------- ---------
Comprehensive income (loss):
Net loss.............................. -- -- (104,107) -- -- (104,107)
Other comprehensive income (loss):
Unrealized loss on securities, at
fair value........................ -- -- -- -- (7,202) (7,202)
Net loss on cash flow hedges........ -- -- -- -- (1,439) (1,439)
Foreign currency translation
adjustment........................ -- -- -- -- (1,560) (1,560)
---------
Comprehensive loss.................... (114,308)
---------
Dividends............................... -- -- (1,914) -- -- (1,914)
Issuance of common stock:
Exercise of deferred shares and stock
options............................. 1 1,152 -- -- -- 1,153
Employee stock purchase plan.......... -- (353) -- -- -- (353)
Notes receivable officers/directors..... -- -- -- (617) -- (617)
---- -------- -------- -------- -------- ---------
Balance at December 31, 2001............ $319 $227,245 $ 6,724 $(10,824) $ (2,934) $ 220,530
==== ======== ======== ======== ======== =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Penton Media, Inc., ("Penton" or the "Company") 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 segments comprising of the following market sectors: Industry
Media; design/engineering, government/compliance, manufacturing; mechanical
systems/construction, supply chain and aviation; Technology Media;
Internet/Broadband, information technology and electronics; Lifestyle Media;
natural products; and Other Media; food/retail and leisure/hospitality.
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 if 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.
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 were $0.1 million at both December 31, 2000
and 2001, respectively.
F-8
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
Buildings................................. 18-40 years
Leasehold improvements.................... Estimated useful lives or lease term, whichever
is shorter
</Table>
Depreciation expense amounted to approximately $4.9 million, $6.9 million
and $9.8 million for the years ended December 31, 1999, 2000 and 2001,
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.
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 three to 15
years.
Amortization expense amounted to approximately $23.0 million, $26.6 million
and $35.7 million for the years ended December 31, 1999, 2000 and 2001,
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
also evaluates the recoverability of enterprise-level goodwill and intangible
assets by estimating the future discounted cash flows of the businesses to which
the goodwill relates. See Note 15 -- Business Restructuring and Other Charges
for discussion of impairment charges.
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.
DERIVATIVE FINANCIAL INSTRUMENTS
In January 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", ("SFAS 133"). SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative, and its designation
as a hedge. Derivatives that are not hedges must be adjusted to fair
F-9
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value through earnings. If a derivative qualifies as a hedge under SFAS No. 133,
the change in the fair value of the derivative either offsets the change in fair
value of the hedged assets, liabilities or firm commitments through earnings, or
is recognized in Other Comprehensive Income until the hedged item impacts
earnings. The change in a derivative's fair value related to the ineffective
portion of a hedge, if any, is immediately recognized in earnings.
The Company uses derivatives to manage exposures to changes in the interest
rates on its floating-rate borrowings. The Company's objectives are to reduce
the volatility of earnings and cash flows associated with changes in interest
rates. The Company does not enter into derivative financial instruments for
speculative or trading purposes.
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 and 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 as earned.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are expensed as incurred. These costs
amounted to $18.2 million, $26.1 million and $27.7 million in 1999, 2000 and
2001, 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, 2000 and
2001; income and expense are translated at the average rates of exchange
prevailing during the applicable year. There were no significant foreign
currency transaction gains or losses in 1999, 2000 or 2001. 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 that are dilutive, whether exercisable or not.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 requires that all business combinations be accounted
for under the purchase method of accounting. In addition, this Statement
addresses financial accounting and reporting for goodwill and other intangible
assets acquired in a business
F-10
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
combination at acquisition. The Statement also provides criteria for the
separate recognition of intangible assets acquired in a business combination.
SFAS No. 141 is effective for all business combinations initiated after June 30,
2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition. SFAS No. 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 No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. We anticipate that the adoption
of this Statement will lead to the elimination of approximately $27.4 million of
goodwill amortization in 2002. The Company is in the process of evaluating the
impact of the other provisions of this Statement.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement, which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," provides a single accounting model for
long-lived assets to be disposed of. Although retaining many of the fundamental
recognition and measurement provisions of SFAS No. 121, the there are a number
of changes including the removal of goodwill from its scope. The Statement also
retains the basic provision of ABP Opinion No. 30. However, for long-lived
assets held-for-sale, this Statement introduces the "components of an entity"
(rather than a segment of a business) approach to determine discontinued
operations. A "component of an entity" has clearly distinguishable operating and
financial reporting practices. The Company does not expect this Statement to
have a material effect on the Company's consolidated financial position, results
of operations or cash flows.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 2000 financial
statements to conform to the 2001 presentation.
NOTE 3 -- ACQUISITIONS AND DISPOSALS
Acquisitions
During 1999, 2000 and 2001, the Company completed 23 acquisitions that were
accounted for using the purchase method of accounting.
2001 ACQUISITIONS
In May 2001, the Company acquired the assets of Australia-based DWR Media
Pty. Ltd. ("DWR"). DWR publishes several technology-related magazines and
produces Web sites.
In 2001, the Company also completed the acquisition of eight smaller
companies.
2000 ACQUISITIONS
In September 2000, the Company acquired the assets of Duke Communications
International, Inc. ("Duke"). Duke is an integrated media company serving
certain Microsoft and IBM operating system markets.
In September 2000, the Company acquired the stock of Streaming Media, Inc.
("Streaming Media"). Streaming Media is an integrated media company serving the
streaming media market.
F-11
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 2000, the Company acquired the assets of Professional Trade
Shows, Inc. ("PTS"). PTS produces regional trade shows for the plant engineering
and maintenance, material handling, buildings and facilities maintenance, design
engineering and machine tool industries.
In 2000, the Company also completed the acquisition of five smaller
companies.
1999 ACQUISITIONS
In May 1999, the Company acquired substantially all of the assets of New
Hope. New Hope is a leading business media company serving the natural products
industry through trade shows, conferences, magazines and Web sites.
In 1999, the Company also completed the acquisition of five smaller
companies.
Consideration paid, potential contingent consideration, and goodwill and
other intangibles acquired as part of the acquisitions completed in 1999, 2000
and 2001 are as follows (in thousands, except number of shares):
<Table>
<Caption>
SHARES OF LOAN MAXIMUM TOTAL GOODWILL
PENTON STOCK NOTES CASH CONTINGENT MAXIMUM & OTHER
ISSUED ISSUED PAID CONSIDERATION CONSIDERATION INTANGIBLES
------------ ------ -------- ------------- ------------- -----------
1999
New Hope................ 2,102,564(1) $ -- $ 41,000 $15,000 $ 97,000 $ 78,200
Other................... -- -- 9,370 9,700 19,070 8,268
2000
Duke.................... -- $ -- $100,000 $50,000 $150,000 $103,280
Streaming Media......... -- -- 65,000 35,000 100,000 62,896
PTS..................... -- -- 17,000 -- 17,000 16,172
Other................... -- -- 3,802 4,439 8,241 3,700
2001
DWR..................... -- $ -- $ 2,450 $ 1,700 $ 4,150 $ 2,263
Other................... -- 3,500 7,307 3,057 13,864 9,263
</Table>
- ---------------
(1) Market value of $41.0 million when issued
Goodwill and other intangibles are being amortized over periods ranging
from three to 40 years. At December 31, 1999, 2000 and 2001, Penton accrued $9.1
million, $14.7 million and $6.6 million, respectively, for contingent
consideration. Cash paid for contingent consideration in 1999, 2000 and 2001 was
$4.8 million, $5.8 million and $12.0 million, respectively. Approximately $1.9
million of the amount accrued for earnouts at December 31, 2001 relates to New
Hope, 80% of which is expected to be paid in company stock. In 2000, the Company
issued 52,920 shares of stock for a total value of $1.4 million as part of a
contingent payment related to New Hope.
At December 31, 2001, the remaining maximum potential liability for future
contingent consideration related to the acquisitions above was approximately
$56.5 million. The earnout period for $52.2 million of this amount expires at
December 31, 2002; $0.4 million expires at January 31, 2003; and $3.9 million
expires at December 31, 2003. In addition, if Duke's revenue contingent
consideration does not equal at least $15.0 million at the end of 2002, an
additional year will be added to achieve up to, but not more than, a total
cumulative revenue contingent payment of $15.0 million. At December 31, 2001,
Duke had not earned any of its potential revenue contingent consideration.
F-12
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DISPOSALS
In March 2000, the Company completed the sale of the net assets of its
Direct Mail segment for $4.0 million in cash. The sale resulted in a loss of
$0.7 million, net of a tax benefit of $0.4 million.
In November 1999, the Company 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 for the discontinued segments for 1999 and 2000 are as
follows (in thousands):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 2000
---------------------- -----------
DIRECT MAIL PRINTING DIRECT MAIL
----------- -------- -----------
Revenues............................................. $12,199 $10,424 $ --
======= ======= =====
Income (loss) before income tax provision
(benefit).......................................... $ (464) $ 531 $(142)
Provision (benefit) for income taxes................. (186) 220 (57)
------- ------- -----
Income (loss) from discontinued operations........... $ (278) $ 311 $ (85)
======= ======= =====
</Table>
The following pro forma financial information compares the Company's net
income (loss) for the three years ended December 31, 1999, 2000 and 2001 had the
provisions of SFAS 142 been applied on January 1, 1999 (amounts in thousands,
except per share data):
<Table>
<Caption>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 2000 2001
-------- -------- ----------
(DOLLARS IN THOUSANDS)
Net income (loss)...................................... $ 8,210 $79,590 $(104,107)
Goodwill amortization, net of tax...................... 11,296 13,052 16,425
------- ------- ---------
Adjusted net income (loss)............................. $19,506 $92,642 $ (87,682)
======= ======= =========
Basic earnings per share:
Reported net income (loss)........................... $ 0.29 $ 2.51 $ (3.26)
Goodwill amortization, net of tax.................... 0.40 0.41 0.51
------- ------- ---------
Adjusted basic earnings per share...................... $ 0.69 $ 2.92 $ (2.75)
======= ======= =========
Diluted earnings per share:
Reported net income (loss)........................... $ 0.29 $ 2.49 $ (3.26)
Goodwill amortization, net of tax.................... 0.40 0.41 0.51
------- ------- ---------
Adjusted diluted earnings per share.................... $ 0.69 $ 2.90 $ (2.75)
======= ======= =========
Weighted-average shares outstanding -- basic.......... 28,108 31,730 31,917
Weighted-average shares outstanding -- diluted........ 28,209 32,010 31,917
</Table>
NOTE 4 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information for the year ended
December 31, 2000 assumes that the 2000 acquisitions occurred as of January 1,
2000, 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. Pro forma results
for the year ended December 31, 2001 have not been presented because the impact
of the 2001 acquisitions is immaterial.
F-13
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31, 2000
-----------------
Pro forma revenues.......................................... $449,366
========
Pro forma income from continuing operations................. $ 72,710
========
Pro forma net income applicable to common stockholders...... $ 72,625
========
Per share data:
Earnings per common share -- basic:
Income from continuing operations......................... $ 2.29
Discontinued operations................................... --
Extraordinary item........................................ --
--------
Net income................................................ $ 2.29
========
Earnings per common share -- diluted:
Income from continuing operations......................... $ 2.27
Discontinued operations................................... --
Extraordinary item........................................ --
--------
Net income................................................ $ 2.27
========
</Table>
The pro forma information above does not include the operations of
Profit.Net, Inc. and ComMunic, which were acquired in 2000, as the historical
information is immaterial.
NOTE 5 -- INVESTMENTS
In November 1998, Penton entered into a joint venture agreement with Mr.
Meckler, formerly associated with Mecklermedia, with respect to internet.com,
LLC (now known as INT Media Group, Inc.). As part of the acquisition of
Mecklermedia, Penton sold 80.1% of its interest in INT Media Group, Inc. ("INT
Media") to Mr. Meckler; other ownership interests were contributed to INT Media
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, INT Media 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, retaining a 23.4% ownership
interest. In July 1999, Penton sold 510,000 shares as part of an 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 INT Media stock as part
of a 3,750,000-share secondary offering. Penton received cash of $113.1 million
and recognized a pre-tax gain of approximately $110.2 million. At December 31,
2001, Penton maintained an 11.8% ownership interest in INT Media, or 2,973,383
shares. Penton treats its investment as available for sale; accordingly, Penton
marks to market its investment in INT Media. At December 31, 2001, Penton's
investment totaled $5.6 million, including a cumulative mark-to-market
adjustment of $1.3 million and related adjustment in Long-Term Deferred Tax
liability of $0.5 million and Other Comprehensive Income (loss) of $0.8 million.
See Note 20 -- Subsequent Events.
F-14
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
semi-annually on June 15 and December 15. 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, which is being amortized, using the interest method, over the term of
the Notes. Amortization of the discount was $0.2 million for the year ended
December 31, 2001. Costs representing underwriting fees and other professional
fees of $1.7 million are being amortized over the term of the Notes. Net
proceeds of $180.2 million were used to pay down $136.0 million under the
revolving credit facility, $12.8 million of term loan A and $7.2 million of term
loan B. The remaining net proceeds of $24.2 million were used for general
corporate purposes. 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, and enter into mergers or consolidations.
The Company filed a Form S-4 with the Securities and Exchange Commission
with respect to the above Notes, which became effective in November 2001.
SENIOR SECURED CREDIT FACILITY
Penton maintains a credit agreement ("credit facility") 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 facility 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 could not be
increased on more than three separate occasions, and any increase had to take
place by September 30, 2001. Concurrent with the 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 option to increase term loan A, term loan B
and/or the revolver by an additional $40.0 million by September 30, 2001 was not
exercised by the Company.
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.
On March 19, 2002, Penton amended its credit facility (see Note
20 -- Subsequent Events, for further discussion). If Penton were required to
file its compliance certificate prior to the amendment of the credit facility,
the Company would not have been in compliance with its financial covenants. The
amended and restated facility provides for the following: (i) the revolving
credit facility is permanently reduced to $40.0 million from $185.0 million;
(ii) Penton has been relieved of its financial covenants at December 31, 2001
and March 31, 2002; (iii) Penton obtained revised financial covenant
requirements after March 31, 2002. For example, our leverage ratio and fixed
charge ratio are not applicable until after June 30, 2003 and September 30,
2003, respectively; (iv) the revolver is limited to $15.0 million until the
leverage ratio is less than 5.0x or the term loans have been prepaid in full. An
additional $10.0 million will become available in
F-15
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the event that not less than $10.0 million is raised from an equity issuance and
the proceeds are used to prepay the term loans. Upon receipt of the
second-quarter compliance certificate, an additional $5.0 million will become
available; (v) in order to access the revolver, the Company must not have more
than $7.5 million of cash and cash equivalents available and must be in
compliance with the loan documents; and (vi) the amendment also increased the
interest rate on the revolver as well as the term A and term B loans, places
additional restrictions on certain payments, limits additional debt and
contingent obligations, requires additional collateral, limits additional
acquisitions and investments, limits our ability to sell assets and limits
capital expenditures.
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, defined as the ratio of total debt to total adjusted EBITDA. 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, 2001, the
rate in effect was 4.0625%. The loan, which requires quarterly principal
payments starting in September 2000, will mature on June 30, 2006. Once amounts
are repaid on term loan A, they may not be reborrowed. At December 31, 2001,
$113.8 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, 2001, the
rate in effect was 4.4375%. 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 June 30, 2007.
Once amounts are repaid on term loan B, they may not be reborrowed. At December
31, 2001, $66.7 million was outstanding under term loan B.
As of December 31, 2001, the scheduled principal payments of the term A and
B loans for the next five years and thereafter were as follows (in thousands):
<Table>
<Caption>
YEAR AMOUNT
- ---- --------
2002............................................. $ 16,489
2003............................................. 22,813
2004............................................. 29,138
2005............................................. 32,300
2006............................................. 47,998
Thereafter....................................... 31,849
--------
$180,587
========
</Table>
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 -- Hedging
Activities.
In September 1999, Penton recognized a non-cash extraordinary charge of
approximately $6.3 million, net of $4.2 million in taxes ($0.20 per share),
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
F-16
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Cash paid for interest for 1999, 2000 and 2001 was $19.9 million, $19.5
million and $16.4 million, respectively. The drop in interest paid for 2001 was
due to significantly lower prime rates. Included in interest expense in the
Consolidated Statements of Operations are $0.4 million, $5.4 million and $1.8
million of interest income for 1999, 2000 and 2001, respectively.
NOTES PAYABLE
The Company's long-term notes payable at December 31, 2001 of $3.2 million
represents indebtedness resulting from the acquisition of Hillgate in February
2001. Loan note A in the amount of $2.8 million bears interest at 1% and matures
in April 2004. However, the holders of loan note A have the option to demand
payment at any time after April 30, 2002. Loan note B in the amount of $0.4
million bears interest at 0.5% and matures in July 2004. However, the holders of
loan note B have the option to demand payment at any time after April 30, 2004.
Both notes are denominated in British pounds.
NOTE 7 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating fair value disclosures of financial instruments:
CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, ACCOUNTS PAYABLE,
ACCRUED EXPENSES AND SENIOR SECURED CREDIT FACILITY
The carrying amounts reported in the Consolidated Balance Sheets for cash
and cash equivalents, accounts and notes receivable, accounts payable and
accrued expenses approximated fair value because of their short maturities. The
carrying amount of the long-term senior secured credit facility approximates
fair value as the effective rates are comparable to market rates at December 31,
2001.
SENIOR SUBORDINATED NOTES
The fair value of the 10 3/8% senior subordinated notes is determined by
reference to quoted market prices. At December 31, 2001, the Company's senior
subordinated notes had a fair value of $104.5 million and a carrying amount of
$181.0 million.
INTEREST RATE SWAPS
At December 31, 2001, the Company had interest rate swaps related to the
Company's variable-rate term loans. The carrying amount of the swaps
approximates fair value. See Note 8 -- Hedging Activities.
NOTE 8 -- HEDGING ACTIVITIES
ADOPTION OF FAS NO. 133
The Company adopted Statement of Financial Accounting Standards No. 133, as
amended, effective January 1, 2001. FAS No. 133 requires that all derivative
instruments be recognized on the balance sheet at fair value. 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.
F-17
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 2001, the Company had the following activity in Other Comprehensive
Income related to hedging activities, net of tax:
<Table>
Total cumulative effect of adoption on other comprehensive
income at January 1, 2001................................. $ 1,351
Net change related to hedging transactions during the
year.................................................. 1,246
Net amount reclassified to earnings.................... (1,158)
-------
Net deferred loss on cash flow hedges at December 31,
2001...................................................... $ 1,439
=======
</Table>
RISK MANAGEMENT
In the ordinary course of business, the Company is exposed to fluctuations
in interest rates and foreign currency rates. The Company maintains assets and
operations in Europe and Asia and, as a result, may be exposed to fluctuations
in foreign currency rates relative to the markets in which it sells; however,
the Company 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
facility. 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
caps.
CASH FLOW HEDGES
The Company enters into cash flow hedges to reduce the exposure to interest
rate fluctuations. 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 our credit facility and other factors.
The Company purchases interest rate caps and swaps to minimize its exposure to
volatility in LIBOR. 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.
At December 31, 2001, the Company had the following interest rate
instruments in effect:
<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...................................... $17,916 5.95% 9/99-10/02
Interest rate cap....................................... $26,875 8.50% 10/99-10/02
</Table>
At December 31, 2001, the interest rate instruments had a fair value of
($3.4) million, which is recorded as a liability in Other Accrued Expenses on
the Consolidated Balance Sheet.
For the 12 months ended December 31, 2001, the Company recognized a net
loss of $0.9 million (reported as Interest Expense, Net, in the Consolidated
Statements of Operations), which represents the total ineffectiveness of all
cash flow hedges. All components of interest rate swaps were included in the
assessment of hedge effectiveness. With respect to interest rate caps, the hedge
effectiveness assessment excluded the time value element.
During the 12 months ended December 31, 2001, the Company reclassified $1.2
million from Accumulated Other Comprehensive Income to current period earnings
(reported as Interest Expense, Net, in the Consolidated Statements of
Operations). 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
F-18
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2001, $1.4 million of deferred losses on derivative instruments
classified in Accumulated Other Comprehensive Income are expected to be
reclassified to expense during the next 12 months. As of December 31, 2001, the
maximum term over which the Company was hedging its exposure to the variability
of future cash flows is 10 months.
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.
NOTE 9 -- INCOME TAXES
The source of income (loss) on continuing operations before income tax
expense consists of (in thousands):
<Table>
<Caption>
1999 2000 2001
------- -------- ---------
U.S. domestic................................. $23,021 $135,164 $(122,995)
Foreign....................................... 974 6,070 (1,319)
------- -------- ---------
$23,995 $141,234 $(124,314)
======= ======== =========
</Table>
The provision for income taxes (benefits) on continuing operations in the
Consolidated Statements of Operations is as follows (in thousands):
<Table>
<Caption>
1999 2000 2001
------- ------- --------
Current:
Federal............................................... $12,797 $51,052 $(11,981)
State and local....................................... 2,837 12,828 --
Foreign............................................... 794 2,058 1,547
------- ------- --------
16,428 65,938 (10,434)
------- ------- --------
Deferred:
Federal............................................... (301) (3,814) (5,445)
State and local....................................... (62) (565) (4,328)
Foreign............................................... -- -- --
------- ------- --------
(363) (4,379) (9,773)
------- ------- --------
$16,065 $61,559 $(20,207)
======= ======= ========
</Table>
The consolidated provision for income taxes comprises the following (in
thousands):
<Table>
<Caption>
1999 2000 2001
------- ------- --------
Provision (benefit) for income taxes from continuing
operations............................................ $16,065 $61,559 $(20,207)
Provision (benefit) for income taxes from discontinued
operations............................................ 5,805 (57) --
Provision (benefit) for income from extraordinary
item.................................................. (5,600) -- --
------- ------- --------
Consolidated tax provision (benefit).................... $16,270 $61,502 $(20,207)
======= ======= ========
</Table>
F-19
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the actual income tax provision (benefit) on
continuing operations and the tax provision (benefit) computed by applying the
statutory federal income tax rate of 35% to income before income taxes is as
follows (in thousands):
<Table>
<Caption>
1999 2000 2001
------- ------- --------
Income tax provision (benefit) at statutory rate........ $ 8,398 $49,432 $(43,509)
Tax effect of:
Impairment of assets.................................. -- -- 16,438
State income benefit, net of federal provision........ 1,804 7,766 (3,100)
Non-deductible goodwill............................... 4,830 5,104 6,698
Foreign tax items..................................... -- -- 2,828
Non-deductible expenses............................... 548 259 305
Other items, net...................................... 485 (1,002) 133
------- ------- --------
Actual income tax provision (benefit)................. $16,065 $61,559 $(20,207)
======= ======= ========
Effective income tax rate............................. 67.0% 43.6% 16.3%
======= ======= ========
</Table>
The components of deferred tax assets and liabilities at December 31, 1999,
2000 and 2001 are as follows (in thousands):
<Table>
<Caption>
1999 2000 2001
--------- -------- --------
Deferred tax assets:
Deferred pension credits........................... $ 6,532 $ 6,100 $ 6,202
Accrued vacation................................... 989 889 1,460
Bad debts.......................................... 1,551 1,963 3,594
Reserves recorded for financial reporting
purposes........................................ 2,107 3,420 2,253
Investment writedown............................... -- 3,821 2,565
Branch net operating losses........................ 452 1,133 --
Impairment of assets............................... -- -- 6,319
Restructuring charge............................... -- -- 4,083
Net operating loss carryforwards................... -- -- 2,096
Foreign tax credits................................ -- -- 1,779
Deferred compensation.............................. -- -- 883
Other.............................................. 188 283 148
--------- -------- --------
Total deferred tax assets before valuation
allowance..................................... 11,819 17,609 31,382
Valuation allowance............................. -- -- (1,779)
--------- -------- --------
Total deferred tax assets....................... $ 11,819 $ 17,609 $ 29,603
========= ======== ========
Deferred tax liabilities:
Mark-to-market adjustment for securities........... (101,070) (5,340) (584)
Depreciation....................................... (1,366) (896) (2,081)
Amortization....................................... (9,209) (10,265) (12,825)
Trade show expenses................................ (668) (954) --
Other.............................................. (27) (570) --
--------- -------- --------
Total deferred tax liabilities.................. (112,340) (18,025) (15,490)
--------- -------- --------
Net deferred tax asset (liability)................... $(100,521) $ (416) $ 14,113
========= ======== ========
</Table>
F-20
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These balances are allocated between current assets, long-term assets and
long-term liabilities in the accompanying Consolidated Balance Sheets.
At December 31, 2001, the Company had state operating loss carryforwards of
$3.5 million for tax purposes, which can be carried forward from 5 to 20 years.
At December 31, 2001, the Company had available foreign tax credit
carryforwards of approximately $1.8 million, which will expire between 2003 and
2006, if not utilized. A full valuation allowance has been provided on the
foreign tax credit carryforwards.
At December 31, 2001, a valuation allowance was not recorded for the $14.1
million net deferred tax asset as it is more likely than not that the asset will
be realized in the future. The Company's assessment is based on restructuring
efforts currently in process, the asset impairment and restructuring charges
recorded in 2001, and the potential for loss carrybacks.
The net change in the mark-to-market adjustments for investments included
in the deferred balances for the period ended December 31, 1999, 2000 and 2001
had a balance sheet impact only.
For 1999, 2000 and 2001, cash paid for income taxes was $13.9 million,
$71.6 million and $3.0 million, respectively.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
Penton's non-contributory retirement plans cover 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>
2000 2001
-------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, January 1.......................... $ 37,433 $ 40,555
Service cost........................................ 1,831 2,213
Interest cost....................................... 3,036 2,966
Benefits paid....................................... (5,236) (3,541)
Actuarial loss...................................... 3,491 559
Plan amendments..................................... -- --
Curtailments........................................ -- (553)
-------- --------
Benefit obligation, December 31........................ $ 40,555 $ 42,199
======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1................... $ 40,908 $ 45,772
Actual return on plan assets........................ 10,100 1,729
Benefits paid....................................... (5,236) (3,541)
-------- --------
Fair value of plan assets, December 31................. $ 45,772 $ 43,960
======== ========
</Table>
F-21
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2000 2001
-------- --------
FUNDED STATUS OF THE PLAN
Projected benefit obligation less than fair value of
assets, December 31................................. $ 5,217 $ 1,761
Unrecognized actuarial gain............................ (21,355) (17,589)
Unrecognized prior service cost........................ 897 688
Unrecognized net transition asset...................... -- --
-------- --------
Net deferred pension credits........................... $(15,241) $(15,140)
======== ========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
Accrued benefit cost................................... $(15,241) $(15,140)
Additional minimum liability........................... -- --
Intangible assets...................................... -- --
-------- --------
Net amount recognized, December 31..................... $(15,241) $(15,140)
======== ========
ASSUMPTIONS AS OF DECEMBER 31
Discount rates:
Pre-retirement...................................... 7.50% 7.25%
Post-retirement..................................... 6.50% 6.25%
Expected return on plan assets......................... 9.00% 9.00%
Weighted-average salary increase rate.................. 5.00% 4.00%
</Table>
The following table summarizes the components of pension expense for the years
ended December 31, (in thousands, except for percentages):
<Table>
<Caption>
1999 2000 2001
------- ------- -------
NET PERIODIC COST
Service cost................................... $ 2,107 $ 1,831 $ 2,213
Interest cost.................................. 2,666 3,036 2,966
Expected return on assets...................... (3,782) (3,737) (3,515)
Amortization of:
Transition asset............................ (841) (840) --
Prior service cost.......................... 346 126 101
Actuarial gain.............................. (1,678) (1,444) (1,421)
------- ------- -------
Net pension expense (income)..................... (1,182) (1,028) 344
------- ------- -------
Cost of special termination benefits........... 91 -- --
Curtailment gain............................... (647) -- (446)
------- ------- -------
Total net periodic pension cost (benefit)... $(1,738) $(1,028) $ (102)
======= ======= =======
ASSUMPTIONS AS TO PERIODIC PENSION COST
Discount rate
Pre-retirement.............................. 7.75% 8.00% 7.50%
Post-retirement............................. 6.75% 7.00% 6.50%
Expected return on plan assets................. 9.00% 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
F-22
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and $0.8 million and $0.6 million,
respectively, as of December 31, 2001. Amounts in 1999 were immaterial. The SERP
plan is an unfunded, non-qualified plan, and hence has no plan assets.
401(k) PLAN
The Penton Media, Inc. Retirement Savings Plan (the "401(k) Plan") covers
substantially all domestic officers and employees of the Company. 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, 1999, 2000 and 2001 were $1.5 million,
$1.7 million and $2.2 million, respectively. Effective January 1, 2002, the
Company temporarily suspended the 50% Company match.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LEASES
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, 2001 (in
thousands):
<Table>
<Caption>
YEARS ENDING
DECEMBER 31,
- ------------------------------------------------------------
2002..................................................... $ 9,277
2003..................................................... 7,599
2004..................................................... 6,764
2005..................................................... 5,993
2006..................................................... 4,769
Thereafter............................................... 17,206
-------
$51,608
=======
</Table>
Future minimum lease payments under capital leases are $0.06 million, $0.04
million and $0.02 million for the years ended December 31, 2002, 2003 and 2004
and thereafter, respectively.
For the years ended December 31, 1999, 2000 and 2001, the total rent
expense (including taxes, insurance and maintenance when included in the rent)
incurred by Penton was approximately $7.5 million, $8.4 million and $9.8
million, respectively.
LEGAL PROCEEDINGS
In connection with the acquisition of Mecklermedia Corporation on December
1, 1998, a lawsuit was brought against the Company by Ariff Alidina (the
"Plaintiff"), a former stockholder of Mecklermedia Corporation, in United States
Federal District Court in the Southern District of New York for an unspecified
amount, as well as other relief. The Plaintiff has claimed that the Company
violated the federal securities laws by selling Mr. Meckler, a beneficial owner
of approximately 26% of the shares of Mecklermedia, an 80.1% interest in INT
Media for what the Plaintiff alleges was a below-market price, thereby giving to
F-23
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mr. Meckler more consideration for his common stock in Mecklermedia Corporation
than was paid to other stockholders of Mecklermedia Corporation. On May 16,
2001, the United States District Court for the Southern District of New York
granted the Plaintiff's motion for certification of a class consisting of all
former stockholders of Mecklermedia who tendered their shares in the tender
offer. On October 17, 2001, the District Court denied the Company's motion for a
summary judgment. Management does not expect that the outcome of this case will
have a material impact on the Company's consolidated financial position, results
of operations or cash flows.
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.
OTHER COMMITMENTS
In December 1999, Penton entered into a print agreement with R.R. Donnelley
& Sons Company ("R.R. Donnelley"), which entitles R.R. Donnelley to the
exclusive right to print and produce certain magazines for a period of seven
years beginning December 1, 1999 through November 30, 2006. Under the agreement,
which is non-cancelable, Penton is obligated to pay certain minimum amounts.
These minimum amounts will be adjusted annually based on changes in the Consumer
Price Index.
The following schedule sets forth the minimum liability under the agreement
with R.R. Donnelley (in thousands):
<Table>
<Caption>
YEARS ENDING
DECEMBER 31,
- ------------------------------------------------------------
2002................................................... $ 8,370
2003................................................... 7,905
2004................................................... 7,440
2005................................................... 7,440
2006................................................... 6,975
-------
$38,130
=======
</Table>
For the years ended December 31, 2000 and 2001, Penton paid $10.5 million
and $9.0 million, respectively, under the agreement with R.R. Donnelley.
NOTE 12 -- 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. Penton 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.
F-24
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDER RIGHTS AGREEMENT
In June 2000, Penton adopted a Stockholder Rights Agreement (the "Rights
Agreement"). Under the plan, the rights will initially trade together with
Penton'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 Penton's common stock at a discounted price if any person or group
acquires 20 percent or more of the outstanding shares of Penton'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's common stock. Under
this option, Penton 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.
The Rights Agreement was amended by the board to permit the sale of
convertible preferred stock to an investor group led by ABRY Mezzanine Partners,
L.P. See Note 20 -- Subsequent Events for further discussion.
EMPLOYEE STOCK PURCHASE PLAN
Effective January 2000, Penton 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.
The plan 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. In 2000 and 2001, 38,002 and 165,767 shares, respectively, were
purchased by employees under this plan.
MANAGEMENT STOCK PURCHASE PLAN
Effective January 2000, Penton 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, 2001 and 2002, respectively, 25,507 RSUs, 31,942
RSUs and 21,976 RSUs were granted at a fair market value of $25.94, $25.10 and
$7.38 per share. As of December 31, 2000 and 2001, 25,507 and 56,968 RSUs were
outstanding, respectively. The discount is recorded as compensation expense over
the vesting period. In both 2000 and 2001, approximately $0.1 million was
recognized as expense related to the discount. During 2001, 361 shares of common
stock were issued under this plan.
EXECUTIVE LOAN PROGRAM
In January 2000, Penton 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 December 2001, the loan notes were amended such that interest was no
longer compounded semi-annually at a rate equal to the applicable interest rate
as published by the Internal
F-25
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Service. Furthermore, the maturity dates were changed from the fifth
anniversary of the first loan date to six months following the seventh
anniversary of the first loan date. No principal or interest payments are
required until maturity, at which time all outstanding amounts are due. Variable
stock compensation treatment will be accorded such stock awards from December
31, 2001 forward.
At December 31, 2000 and 2001, 400,000 shares had been issued under the
Executive Loan Program and the outstanding loan balance was approximately $10.2
million and $10.8 million (including $0.5 million and $1.2 million of accrued
interest), respectively. The loan balance is classified in the Stockholders'
Equity section of the Consolidated Balance Sheets as Notes Receivable
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 2,500,000 shares to 5,500,000 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.
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.
The following table presents a summary of Penton's stock option activity
and related information for the years ended 1999, 2000 and 2001 (in thousands,
except per share amounts):
<Table>
<Caption>
NUMBER OF OPTIONS
---------------------
EMPLOYEES DIRECTORS WEIGHTED AVERAGE
--------- --------- ----------------
Balance, December 31, 1998............... 681 69 $16.23
----- ---
Granted.................................. 349 -- $21.50
Exercised................................ (4) -- $16.23
Canceled................................. (65) -- $17.70
----- ---
Balance, December 31, 1999............... 961 69 $17.93
----- ---
Granted.................................. 519 30 $22.72
Exercised................................ (37) (8) $17.63
Canceled................................. (70) -- $20.51
----- ---
Balance, December 31, 2000............... 1,373 91 $19.80
----- ---
Granted.................................. 1,565 52 $12.83
Exercised................................ (51) -- $16.94
Canceled................................. (101) -- $20.92
----- ---
Balance, December 31, 2001............... 2,786 143 $15.98
===== ===
</Table>
F-26
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 2001 (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
RANGE OF OF CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE 2001 PRICE
- --------------- ------- ------------ --------- -------------- ---------
$27.75-29.19 . 36 8.6 years $28.55 5 $27.75
$16.23-24.25 . 1,832 7.8 years $21.00 106 $16.52
$ 6.89 . 1,061 9.9 years $ 6.89 -- --
</Table>
Deferred Shares
At December 31, 1999, 2000 and 2001, deferred shares of 63,029, 63,029 and
397,749, respectively, were outstanding. Of the shares outstanding at December
31, 2001, 341,500 shares vest one-fourth on each three-month anniversary
following the date of grant, 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. In August 2001, 6,780 fully vested
deferred shares were issued for common stock of Penton.
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, 2000
and 2001, approximately $0.08 million, $0.4 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, 2001, no such authorization had been made.
Performance Shares
In February 2001, the board of directors approved a grant of 101,485
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 October 2000, the board of directors approved a grant of 15,000
performance shares to a key executive, subject to the attainment of certain
performance goals over a three-year period from January 1, 2001 through December
31, 2003. The grantee is eligible to receive between 17% 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 years
ended December 31, 2000 and 2001, approximately $1.4 million and $0.5 million,
respectively, were charged to expense for these shares.
F-27
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 under the
fair value method as provided by Financial Accounting Standard No. 123,
"Accounting and Disclosure of Stock-Based Compensation" ("FAS 123").
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 FAS 123. The weighted-average fair value of options
granted in 1999, 2000 and 2001 was $5.07, $10.95 and $6.32, respectively. 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 1999,
2000 and 2001:
<Table>
<Caption>
1999 2000 2001
------- ------- -------
Risk-free interest rate........................... 6.20% 5.06% 4.03%
Dividend yields................................... 0.50% 0.40% 0.0%
Expected volatility............................... 61.25% 55.93% 59.4%
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 (loss) and earnings per share would
have been as follows (dollars in thousands, except per share data):
<Table>
<Caption>
1999 2000 2001
------ ------- ---------
Net income (loss) applicable to common stockholders
As reported........................................... $8,210 $79,590 $(104,107)
Pro forma............................................. $6,238 $77,406 $(107,461)
Basic earnings per share
As reported........................................... $ 0.29 $ 2.51 $ (3.26)
Pro forma............................................. $ 0.22 $ 2.44 $ (3.37)
Diluted earnings per share
As reported........................................... $ 0.29 $ 2.49 $ (3.26)
Pro forma............................................. $ 0.22 $ 2.42 $ (3.37)
</Table>
NOTE 13 -- 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."
F-28
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Computations of basic and diluted earnings per share for the years ended
December 31, 1999, 2000 and 2001 are as follows (in thousands, except per share
amounts):
<Table>
<Caption>
YEARS ENDED DECEMBER 31,
----------------------------
1999 2000 2001
------ ------- ---------
Income (loss) from continuing operations applicable to
common stockholders................................... $7,930 $79,675 $(104,107)
====== ======= =========
Number of shares:
Basic - weighted-average shares outstanding............. 28,108 31,730 31,917
Effect of dilutive securities:
Stock options......................................... 74 280 --
Performance shares.................................... -- -- --
Contingent shares..................................... 27 -- --
------ ------- ---------
Diluted - weighted-average shares outstanding........... 28,209 32,010 31,917
====== ======= =========
Per share amount:
Income (loss) from continuing operations
Basic................................................. $ 0.28 $ 2.51 $ (3.26)
Diluted............................................... $ 0.28 $ 2.49 $ (3.26)
</Table>
Due to the net loss from operations for the year ended December 31, 2001,
36 stock options and 206 performance shares were excluded from the calculation
of diluted earnings per share, as the result would have been anti-dilutive.
NOTE 14 -- COMPREHENSIVE INCOME (LOSS)
Comprehensive income, which is displayed in the Consolidated Statements of
Stockholders' Equity, represents net income (loss) plus the results of certain
stockholder equity changes not reflected in the Consolidated Statements of
Operations.
The after-tax components of other comprehensive income (loss) are as
follows:
<Table>
<Caption>
1999 2000 2001
-------- -------- ---------
Net income (loss).................................... $ 8,210 $ 79,590 $(104,107)
Change in unrealized gain (loss) on securities
reported at fair value, net of tax of $60.6
million, $29.3 million, and $2.9 million in 1999,
2000 and 2001, respectively........................ 151,605 (73,323) (7,202)
Reclassification adjustment for gain on sale of
securities, net of tax of $28.1 million in 2000.... -- (70,272) --
Reclassification adjustment for cash flow hedges..... -- -- (1,439)
Change in accumulated translation adjustments........ (787) 95 (1,560)
-------- -------- ---------
Comprehensive income (loss).......................... $159,028 $(63,910) $(114,308)
======== ======== =========
</Table>
NOTE 15 -- BUSINESS RESTRUCTURING AND OTHER CHARGES
IMPAIRMENT OF ASSETS
Triggered by the continued decline in the economy and the negative impact
of the September 11, 2001 catastrophe, Penton recorded asset and goodwill
impairment charges of $69.6 million ($41.7 million after tax, or $1.31 per
diluted share) in the second half of 2001. In addition to goodwill writedowns of
$66.4 million,
F-29
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the remaining charge primarily represents assets of $1.7 million related to
various Web sites that were shut down and $0.9 million related to abandoned
circulation software costs.
Asset impairment charges of $9.7 million in the third quarter included the
writedown of goodwill by $7.1 million on five small acquisitions; $1.7 million
for various Web sites that were shut down; and $0.9 million of abandoned
circulation software costs. Asset impairment charges of $59.6 million in the
fourth quarter included primarily the writedown of goodwill related to eight
acquisitions.
In December 2000, the Company wrote off $2.1 million of impaired assets
related to certain internally funded Internet media initiatives. The impaired
assets related to certain abandoned projects. In addition, 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.
WRITEDOWN OF INTERNET INVESTMENTS
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 for $6.3 million.
Penton recorded its investment under the cost method of accounting 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 accounted 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 and Leisurehub.com to zero. In 2001, Leisurehub.com voluntarily
liquidated and, in December 2001, Penton received partial settlement proceeds of
approximately $0.8 million that was recorded in the Writedown of Internet
Investments in the Consolidated Statements of Operations.
RESTRUCTURING CHARGES
In February 2001, Penton announced a restructuring program with the intent
of discontinuing certain Internet operations that had not demonstrated revenue
growth, customer acceptance and near-term opportunity for profit. The charge of
$5.6 million ($3.3 million after tax, or $0.10 per share on a basic and diluted
basis) 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, including the reduction of
approximately 60 employees at Healthwell.com as well as a reduction of workforce
related to a number of other Internet initiatives throughout Penton; and exit
costs associated with existing office spaces under lease and other contractual
obligations. In the third quarter of 2001, the Company determined that some
first-quarter restructuring initiatives would not require the level of spending
that had been originally estimated. Based on the Company's third quarter
estimates, approximately $1.0 million was reversed from the first-quarter charge
and the total amount of the charge was adjusted to $4.6 million ($2.7 million
after tax, or $0.09 per share on a basic and diluted basis). The majority of the
remaining costs incurred in connection with the first-quarter restructuring plan
have been paid.
In the second half of 2001, the Company implemented a number of expense
reduction and restructuring initiatives to more closely align its cost structure
with the business environment. Restructuring charges of $9.5 million ($5.7
million after tax, or $0.18 per share on a diluted basis), net of $1.0 million
reversal noted
F-30
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
above, in the third quarter and $3.7 million ($2.3 million after tax, or $0.07
per share on a diluted basis) in the fourth quarter resulted primarily from
strategic decisions to restructure a number of businesses and support
departments, including reducing our overhead infrastructure by consolidating and
closing several branch offices, centralizing information technology and
outsourcing certain corporate functions. Of the total charges, $4.7 million
relates to employee termination benefits for the elimination of nearly 340
positions, of which 294 positions and $2.7 million in payments had been
completed by year end. Approximately 84% of the positions eliminated or to be
eliminated are in the U.S., with the remaining positions predominantly in the
United Kingdom and Germany. The remaining $8.5 million of the restructuring
charges relates to the closure of over 20 Penton offices worldwide, and includes
costs associated with existing office spaces under lease and other contractual
obligations.
The following table summarizes the restructuring and impairment charges,
the amounts paid and the ending accrual balances for the year ended December 31,
2001(in thousands):
<Table>
<Caption>
ENDING
TOTAL CASH NON-CASH ACCRUAL
DESCRIPTION CHARGES PAYMENTS CHARGES BALANCE
- ----------- ------- -------- -------- -------
Severance, outplacement and other personnel
costs........................................ $ 6,583 $4,468 $ -- $ 2,115
Facility closing costs......................... 8,764 267 -- 8,497
Asset impairments.............................. 2,288 567 1,084 637
Other exit costs............................... 1,155 772 -- 383
------- ------ ------ -------
Total.......................................... $18,790 $6,074 $1,084 $11,632
======= ====== ====== =======
</Table>
The majority of the severance costs are expected to be paid by the end of
April 2002, while the balance of facility costs, which include long-term leases,
is expected to be paid through the end of the respective lease term.
NOTE 16 -- SEGMENT INFORMATION
During 2001, we began to view and manage our business differently than we
had in the past. Our new approach involves dividing the business into four media
segments; Technology, Industry, Lifestyle and Other, and grouping our industry
sectors within each segment. During 2001, we put a senior manager in charge of
each segment. These senior managers report directly to the Chief Executive
Officer and President and Chief Operating Officer. We have included segment
information for 2000 on the same basis as has begun to be used in 2001. It was
not practicable to obtain similar segment information for 1999 as a result of
refinements made to our accounting systems and procedures beginning in 2000.
Our four segments derive their revenues from the production of trade shows,
publications and online media products, including Web sites serving customers in
our 12 distinct industry sectors. The Industry Media segment serves customers in
the aviation, design/engineering, government/compliance, manufacturing,
mechanical systems/construction and supply chain industry sectors. The
Technology Media segment serves customers in the electronics, information
technology and Internet/Broadband industry sectors. The Lifestyle Media segment
serves customers in the natural products industry, and the Other segment serves
customers in the food/retail, hospitality and leisure industry markets.
The accounting policies of the operating segments are the same as those
described in Note 2 -- Summary of Significant Accounting Policies. The chief
operating decision makers evaluate performance of the segments based on revenues
and adjusted EBITDA. Adjusted EBITDA for segments is calculated as previously
defined except that segment adjusted EBITDA also excludes corporate level costs.
Corporate level costs include costs for centralized functions, such as finance,
accounting and information systems, which
F-31
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
cannot be reasonably allocated to each segment. Assets are not allocated to
segments and as such have not been presented.
Summary information by segment for the years ended December 31, 2001 and
2000 is as follows (in thousands):
<Table>
<Caption>
INDUSTRY TECHNOLOGY LIFESTYLE
MEDIA MEDIA MEDIA OTHER TOTAL
-------- ---------- --------- ------- --------
2000
Revenues........................ $142,245 $205,380 $30,121 $26,825 $404,571
Adjusted EBITDA................. $ 28,739 $ 69,652 $ 7,495 $ 7,526 $113,412
2001
Revenues........................ $124,331 $196,928 $29,893 $20,400 $371,552
Adjusted EBITDA................. $ 17,443 $ 34,513 $ 9,814 $ 4,775 $ 66,545
</Table>
Segment revenues, which are all realized from external customers, equal
Penton's consolidated revenues. Following is a reconciliation of Penton's total
segment adjusted EBITDA to consolidated income (loss) before taxes (in
thousands):
<Table>
<Caption>
YEARS ENDED
DECEMBER 31,
--------------------
2000 2001
-------- ---------
CONSOLIDATED INCOME (LOSS) BEFORE TAXES:
Total segment adjusted EBITDA............................... $113,412 $ 66,545
Depreciation and amortization............................... (33,431) (45,492)
Restructuring charge........................................ -- (18,790)
Asset writedowns and impairments............................ (12,636) (68,741)
Gain on sale of investments................................. 110,210 --
Interest expense, net of interest earned.................... (14,133) (28,721)
Miscellaneous, net.......................................... (64) (2,839)
Corporate costs............................................. (22,124) (26,276)
-------- ---------
Consolidated income (loss) before taxes..................... $141,234 $(124,314)
======== =========
</Table>
Enterprise-wide Disclosures
Revenues by product offerings are as follows for the years ended December
31, 1999, 2000 and 2001 (in thousands):
<Table>
<Caption>
1999 2000 2001
-------- -------- --------
Publishing........................................... $202,472 $230,120 $210,208
Trade shows and conferences.......................... 97,444 168,436 149,202
Online media......................................... 908 6,015 12,142
-------- -------- --------
$300,824 $404,571 $371,552
======== ======== ========
</Table>
Domestic revenues of our products and services comprised $277.3 million,
$362.9 million and $323.3 million of total revenues for the years ended December
31, 1999, 2000 and 2001, respectively. Foreign revenues totaled $23.5 million,
$41.7 million and $48.2 million of our revenues for the years ended December 31,
1999, 2000 and 2001, respectively, of which $17.8 million, $15.6 million and
$31.6 million,
F-32
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, were from the United Kingdom. No single customer accounted for 10%
or more of sales during 1999, 2000 and 2001.
Long-lived assets at December 31, 1999, 2000 and 2001 included $31.3
million, $36.4 million and $42.2 million, respectively, identified with foreign
operations, substantially all of which were intangible assets, with the
remaining assets identified with domestic operations. Long-lived assets from the
United Kingdom comprised $31.2 million, $29.8 million and $33.1 million,
respectively, of these foreign assets.
NOTE 17 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
INVESTING ACTIVITIES
Penton assumed liabilities of approximately $5.6 million, $21.0 million and
$9.9 million in connection with acquisitions completed in 1999, 2000 and 2001,
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, 2000 and 2001, Penton marked to market its investment in INT Media
Group, Inc. stock by approximately $252.7 million, $13.4 million and $1.3
million, respectively. See Note 5 -- Investments, for further discussion.
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, 1999 and 2000, dividends of $0.9 million and $1.0 million,
respectively, were declared and paid in 2000 and 2001.
The foregoing transactions do not provide or use cash and, accordingly, are
not reflected in the Consolidated Statements of Cash Flows.
F-33
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 31, 2000 and
2001 are shown below (dollars in thousands, except per share amounts):
<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(e) (714) 27,467(f) 54,711
Income (loss) from continuing
operations before income taxes.... 110,839 21,709 (3,756) 12,442 141,234
Income (loss) from continuing
operations........................ 66,423(d) 8,695 (1,244) 5,801(g) 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>
<Table>
<Caption>
2001 QUARTERS
-------------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
-------- -------- -------- -------- ---------
Revenues............................ $112,693 $106,777 $ 61,523 $ 90,559 $ 371,552
Operating income (loss)............. 2,762(a) 4,779 (38,622)(b) (62,497)(c) (93,578)
Income (loss) from continuing
operations before income taxes.... (3,188) (2,971) (47,679) (70,476) (124,314)
Net loss............................ (1,278) (5,483) (29,495) (67,851) (104,107)
Earnings per share (basic and
diluted):
Net loss.......................... $ (0.04) $ (0.17) $ (0.92) $ (2.12) $ (3.26)
</Table>
Earnings 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 earnings per share
amount.
- ---------------
(a) Includes $5.6 million, $0.10 per dilutive share after tax, of restructuring
charge.
(b) Includes $9.7 million, $0.18 per dilutive share after tax, related to
impairment of assets and $9.5 million, $0.18 per dilutive share after tax,
related to restructuring charge.
(c) Includes $59.1 million, $1.11 per dilutive share after tax, related to
impairment of assets and $3.8 million, $0.07 per dilutive share after tax,
related to restructuring charge.
(d) Includes $110.2 million, $2.08 per dilutive share after tax, related to gain
on sale of 2.0 million shares of INT Media common stock.
F-34
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) Includes $1.0 million, $0.02 per dilutive share after tax, related to
impairment of assets.
(f) Includes $2.1 million, $0.04 per dilutive share after tax, related to
impairment of Internet assets.
(g) Includes $9.5 million, $0.18 per dilutive share after tax, related to
writedown of Internet investments.
Quarterly results of operations by segment for the years ended December 31,
2000 and 2001 are shown below (in thousands):
<Table>
<Caption>
2000 QUARTERS
--------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- -------- ------- -------- --------
REVENUE
Industry........................ $31,869 $ 36,184 $31,547 $ 42,645 $142,245
Technology...................... 25,110 63,201 24,357 92,712 205,380
Lifestyle....................... 13,889 3,573 10,198 2,461 30,121
Other........................... 4,957 6,100 10,618 5,150 26,825
------- -------- ------- -------- --------
Total............................. $75,825 $109,058 $76,720 $142,968 $404,571
======= ======== ======= ======== ========
ADJUSTED EBITDA
Industry........................ $ 5,368 $ 8,416 $ 5,671 $ 9,284 $ 28,739
Technology...................... 2,648 31,447 (1,180) 36,737 69,652
Lifestyle....................... 8,670 (2,111) 4,183 (3,247) 7,495
Other........................... 1,211 1,878 3,848 589 7,526
------- -------- ------- -------- --------
Total............................. $17,897 $ 39,630 $12,522 $ 43,363 $113,412
======= ======== ======= ======== ========
</Table>
Segment revenues, which are all realized from external customers, equal
Penton's consolidated revenues. The following is a reconciliation of Penton's
total segment adjusted EBITDA to consolidated income (loss) before taxes (in
thousands):
<Table>
<Caption>
2000 QUARTERS
-------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- ------- ------- ------- --------
CONSOLIDATED INCOME (LOSS) BEFORE
TAXES:
Total segment adjusted EBITDA...... $ 17,897 $39,630 $12,522 $43,363 $113,412
Depreciation and amortization...... (7,653) (7,376) (7,851) (10,551) (33,431)
Asset writedowns and impairments... -- (1,051) -- (11,585) (12,636)
Gain on sale of investments........ 110,210 -- -- -- 110,210
Interest expense, net of interest
earned........................... (2,735) (2,441) (3,129) (5,828) (14,133)
Miscellaneous, net................. (20) (424) 87 293 (64)
Corporate costs.................... (6,860) (6,629) (5,385) (3,250) (22,124)
-------- ------- ------- ------- --------
Consolidated income (loss) before
taxes............................ $110,839 $21,709 $(3,756) $12,442 $141,234
======== ======= ======= ======= ========
</Table>
F-35
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 QUARTERS
--------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- ------- ------- --------
REVENUE
Industry........................ $ 31,382 $ 37,240 $26,899 $28,810 $124,331
Technology...................... 61,839 61,522 25,536 48,031 196,928
Lifestyle....................... 14,429 3,711 3,920 7,833 29,893
Other........................... 5,043 4,304 5,168 5,885 20,400
-------- -------- ------- ------- --------
Total............................. $112,693 $106,777 $61,523 $90,559 $371,552
======== ======== ======= ======= ========
ADJUSTED EBITDA
Industry........................ $ 4,704 $ 7,251 $ 2,343 $ 3,145 $ 17,443
Technology...................... 15,161 14,215 (5,647) 10,784 34,513
Lifestyle....................... 8,384 (608) (151) 2,189 9,814
Other........................... 1,115 884 1,305 1,471 4,775
-------- -------- ------- ------- --------
Total............................. $ 29,364 $ 21,742 $(2,150) $17,589 $ 66,545
======== ======== ======= ======= ========
</Table>
Segment revenues, which are all realized from external customers, equal
Penton's consolidated revenues. The following is a reconciliation of Penton's
total segment adjusted EBITDA to consolidated income (loss) before taxes (in
thousands):
<Table>
<Caption>
2001 QUARTERS
---------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- -------- -------- ---------
CONSOLIDATED INCOME (LOSS) BEFORE TAXES:
Total segment adjusted EBITDA..... $29,364 $21,742 $ (2,150) $ 17,589 $ 66,545
Depreciation and amortization..... (11,579) (11,135) (11,211) (11,567) (45,492)
Restructuring charge.............. (5,567) -- (9,468) (3,755) (18,790)
Asset writedowns and
impairments..................... -- -- (9,663) (59,902) (69,565)
Writedown of internet
investments..................... -- -- -- 824 824
Interest expense, net of interest
earned.......................... (6,001) (6,249) (8,263) (8,208) (28,721)
Miscellaneous, net................ 51 (1,501) (794) (595) (2,839)
Corporate costs................... (9,456) (5,828) (6,130) (4,862) (26,276)
------- ------- -------- -------- ---------
Consolidated income (loss) before
taxes........................... $(3,188) $(2,971) $(47,679) $(70,476) $(124,314)
======= ======= ======== ======== =========
</Table>
NOTE 19 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidating balance sheets as
of December 31, 2001 and 2000 and condensed consolidating statements of
operations and condensed consolidating statements of cash flows for the years
ended December 31, 2001, 2000 and 1999. In the following schedules, "Parent
Company" refers to the combined 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-36
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS
AS OF DECEMBER 31, 2001
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........... $ 14,518 $ 1,993 $ 3,680 $ -- $ 20,191
Accounts and notes receivable,
net.............................. 32,973 93,247 12,232 (82,000) 56,452
Income tax receivable............... 14,750 -- -- -- 14,750
Inventories......................... 1,090 248 13 -- 1,351
Deferred tax asset.................. 4,683 1,962 -- -- 6,645
Prepayments, deposits and other..... 3,893 3,961 -- -- 7,854
-------- -------- ------- --------- --------
71,907 101,411 15,925 (82,000) 107,243
-------- -------- ------- --------- --------
Property, plant and equipment,
net.............................. 22,563 4,694 2,919 -- 30,176
Goodwill, net....................... 124,828 331,570 36,743 -- 493,141
Other intangibles, net.............. 13,624 40,684 2,492 -- 56,800
Deferred tax asset.................. 16,462 (8,994) -- -- 7,468
Investment in subsidiaries.......... 221,915 146,235 -- (368,150) --
Investments......................... -- 5,649 -- -- 5,649
-------- -------- ------- --------- --------
399,392 519,838 42,154 (368,150) 593,234
-------- -------- ------- --------- --------
$471,299 $621,249 $58,079 $(450,150) $700,477
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Senior debt facility................ $ 16,489 $ -- $ -- $ -- $ 16,489
Note payable........................ -- -- 2,804 -- 2,804
Accounts payable and accrued
expenses......................... 38,969 (1,580) 9,656 -- 47,045
Accrued compensation and benefits... 10,562 1,226 623 -- 12,411
Unearned income..................... 15,339 16,723 4,877 -- 36,939
-------- -------- ------- --------- --------
81,359 16,369 17,960 -- 115,688
-------- -------- ------- --------- --------
Long-term liabilities and deferred
credits:
Senior debt facility................ 164,098 -- -- -- 164,098
Senior subordinated notes........... 180,957 -- -- -- 180,957
Note payable........................ 82,000 -- 417 (82,000) 417
Net deferred pension credits........ 15,140 -- -- -- 15,140
Intercompany advances............... (310,773) 266,714 44,059 -- --
Other............................... 2,097 384 1,166 -- 3,647
-------- -------- ------- --------- --------
133,519 267,098 45,642 (82,000) 364,259
-------- -------- ------- --------- --------
Stockholders' equity:
Common stock........................ 227,564 355,888 1,465 (357,353) 227,564
Retained earnings................... 41,251 (18,914) (4,816) (10,797) 6,724
Notes receivable
officers/directors............... (10,824) -- -- -- (10,824)
Accumulated other comprehensive
income........................... (1,570) 808 (2,172) -- (2,934)
-------- -------- ------- --------- --------
256,421 337,782 (5,523) (368,150) 220,530
-------- -------- ------- --------- --------
$471,299 $621,249 $58,079 $(450,150) $700,477
======== ======== ======= ========= ========
</Table>
F-37
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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...... 222,801 144,235 -- (367,036) --
Investments..................... -- 17,725 -- -- 17,725
-------- -------- ------- --------- --------
419,795 598,971 32,718 (369,514) 681,970
-------- -------- ------- --------- --------
$469,764 $711,453 $51,097 $(450,557) $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
Note payable.................... 80,000 -- -- (80,000) --
Net deferred pension credits.... 15,241 -- -- -- 15,241
Deferred tax liability.......... -- 8,456 -- (2,478) 5,978
Intercompany advances........... (304,754) 269,182 35,572 -- --
Other........................... 2,549 25 (29) -- 2,545
-------- -------- ------- --------- --------
83,911 277,663 35,543 (82,478) 314,639
-------- -------- ------- --------- --------
Stockholders' equity:
Common stock.................... 226,764 353,889 2,350 (356,239) 226,764
Retained earnings............... 93,406 32,637 (2,501) (10,797) 112,745
Notes receivable
officers/directors........... (10,207) -- -- -- (10,207)
Accumulated other comprehensive
income....................... (86) 8,007 (654) -- 7,267
-------- -------- ------- --------- --------
309,877 394,533 (805) (367,036) 336,569
-------- -------- ------- --------- --------
$469,764 $711,453 $51,097 $(450,557) $781,757
======== ======== ======= ========= ========
</Table>
F-38
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES.......................... $195,126 $130,454 $45,972 $ -- $ 371,552
-------- -------- ------- ------- ---------
OPERATING EXPENSES:
Editorial, production and
circulation.................. 91,665 45,663 16,051 -- 153,379
Selling, general and
administrative............... 97,834 57,521 22,549 -- 177,904
Depreciation and amortization... 15,723 26,899 2,870 -- 45,492
Impairment of other assets...... 14,164 53,259 2,142 -- 69,565
Restructuring charges........... 6,097 10,169 2,524 -- 18,790
-------- -------- ------- ------- ---------
225,483 193,511 46,136 -- 465,130
-------- -------- ------- ------- ---------
OPERATING INCOME (LOSS)........... (30,357) (63,057) (164) -- (93,578)
-------- -------- ------- ------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net of income
earned....................... (32,794) 4,530 (457) -- (28,721)
Writedown of Internet
investments.................. -- -- 824 -- 824
Miscellaneous, net.............. (1,285) -- (1,554) -- (2,839)
-------- -------- ------- ------- ---------
(34,079) 4,530 (1,187) -- (30,736)
-------- -------- ------- ------- ---------
LOSS BEFORE INCOME TAXES.......... (64,436) (58,527) (1,351) -- (124,314)
PROVISION (BENEFIT) FOR INCOME
TAXES........................... (14,195) (6,976) 964 -- (20,207)
-------- -------- ------- ------- ---------
NET LOSS.......................... $(50,241) $(51,551) $(2,315) $ -- $(104,107)
======== ======== ======= ======= =========
</Table>
F-39
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
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... 12,500 18,795 2,136 -- 33,431
Restructuring charges........... -- 1,051 -- -- 1,051
Impairment of other assets...... 2,095 -- -- -- 2,095
-------- -------- ------- ------- --------
210,719 114,957 24,184 -- 349,860
-------- -------- ------- ------- --------
OPERATING INCOME.................. 9,214 41,283 4,214 -- 54,711
-------- -------- ------- ------- --------
OTHER INCOME (EXPENSE):
Interest expense, net of income
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 BEFORE INCOME TAXES........ 92,968 44,000 4,266 -- 141,234
PROVISION FOR INCOME TAXES........ 30,496 28,238 2,825 -- 61,559
-------- -------- ------- ------- --------
INCOME FROM CONTINUING
OPERATIONS...................... 62,472 15,762 1,441 -- 79,675
DISCONTINUED OPERATIONS:
Loss from discontinued
operations, net.............. (85) -- -- -- (85)
-------- -------- ------- ------- --------
NET INCOME........................ $ 62,387 $ 15,762 $ 1,441 $ -- $ 79,590
======== ======== ======= ======= ========
</Table>
F-40
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
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 income
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 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-41
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2001
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES........... $ (25,529) $ (699) $ 4,842 $ 1,043 $ (20,343)
--------- ------- ------- ------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........... (3,735) (2,153) (1,714) -- (7,602)
Acquisitions, including
earnouts paid, net of cash
acquired.................... (12,806) (3,833) (3,214) -- (19,853)
--------- ------- ------- ------- ---------
Net cash used for investing
activities................ (16,541) (5,986) (4,928) -- (27,455)
--------- ------- ------- ------- ---------
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.................... (166,538) -- -- -- (166,538)
Repayment of notes payable..... -- -- (201) -- (201)
Employee stock purchase plan
payments.................... (350) -- (3) -- (353)
Proceeds from deferred shares
and options exercised....... 1,153 -- -- -- 1,153
Payment of financing costs..... (1,657) -- -- -- (1,657)
Dividends paid................. (1,914) -- -- -- (1,914)
--------- ------- ------- ------- ---------
Net cash provided by
financing activities... 56,530 -- (204) -- 56,326
--------- ------- ------- ------- ---------
Effect of exchange rate.......... 58 -- -- -- 58
--------- ------- ------- ------- ---------
Net increase (decrease) in
cash and equivalents... 14,518 (6,685) (290) 1,043 8,586
Cash and equivalents at beginning
of period...................... -- 8,678 3,970 (1,043) 11,605
--------- ------- ------- ------- ---------
Cash and equivalents at end of
period......................... $ 14,518 $ 1,993 $ 3,680 $ -- $ 20,191
========= ======= ======= ======= =========
</Table>
F-42
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
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, including
earnouts paid, net of cash
acquired.................... (192,119) (2,633) (6,244) -- (200,996)
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 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
Repayment of senior debt
facility.................... (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-43
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENTON MEDIA, INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
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 (USED FOR)
OPERATING ACTIVITIES........... $ 28,317 $ 3,160 $2,880 $-- $ 34,357
--------- ------- ------ -- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........... (4,602) (890) (392) -- (5,884)
Acquisitions, including
earnouts paid, net of cash
acquired.................... (54,432) (2,983) -- -- (57,415)
Proceeds from sale of INT Media
Group Inc. 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
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>
NOTE 20 -- SUBSEQUENT EVENTS
In January 2002, we sold our remaining 11.8% ownership interest, or
approximately 2,973,383 shares, in INT Media for approximately $5.8 million.
On March 19, 2002, simultaneously with the payment discussed below, Penton
amended its credit facility. If Penton were required to file its compliance
certificate prior to the amendment of the credit facility, the Company would not
have been in compliance with its financial covenants. The amended and restated
facility provides for the following: (i) the revolving credit facility was
permanently reduced to $40.0 million from $185.0 million; (ii) Penton was
relieved of its financial covenants at December 31, 2001 and March 31,
F-44
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2002; (iii) Penton obtained revised financial covenant requirements after March
31, 2002. For example, our leverage ratio and fixed charge ratio are not
applicable until after June 30, 2003 and September 30, 2003, respectively; (iv)
the revolver is limited to $15.0 million until the leverage ratio is less than
5.0x or the term loans have been prepaid in full. An additional $10.0 million
will become available in the event that not less than $10.0 million is raised
from an equity issuance and the proceeds are used to prepay the term loans. Upon
receipt of the second-quarter compliance certificate, an additional $5.0 million
will become available; (v) in order to access the revolver, the Company must not
have more than $7.5 million of cash and cash equivalents available and must be
in compliance with the loan documents; and (vi) the amendment also increased the
interest rate on the revolver as well as the term A and term B loans, placed
additional restrictions on certain payments, limited additional debt and
contingent obligations, required additional collateral, limited additional
acquisitions and investments, limited our ability to sell assets and limited
capital expenditures.
On March 10, 2002, Penton entered into an agreement, which was subsequently
amended and restated on March 18, 2002, with a group of investors led by ABRY
Mezzanine Partners, L.P. to sell 50,000 shares of a new series of convertible
preferred stock and warrants to purchase 1.6 million shares of the Company's
common stock for $50.0 million. Pursuant to this agreement, Penton received
gross proceeds of $40.0 million from the sale of 40,000 shares of preferred
stock and warrants to purchase 1.28 million shares of the Company's common stock
on March 19, 2002. Penton expects to close the remaining $10.0 million within 30
days of the initial closing.
Significant terms of the new preferred stock are as follows: (i) holders of
the preferred shares will have a liquidation preference over holders of common
stock; (ii) the initial liquidation value per share will be $1,000. If the
preferred stock is not converted or redeemed prior to the sixth anniversary of
the date of issuance, the liquidation value will increase to $4,570 per share if
stockholder approval has been obtained on certain matters. If the stockholder
approval has not been obtained, the liquidation value will increase to $9,140
per share; (iii) dividends accrue at an annual rate of 7% from issuance until
year six unless stockholder approval is obtained on certain matters, at which
time the rate will decrease to 5% per annum. If the stockholder approval is
obtained within six months of the date of issuance, the rate will decrease
retroactive to the date of issuance. After the sixth anniversary, dividends
accrue at an annual rate of 15%. Upon certain triggering events, the dividend
rate may increase by one percentage point per quarter up to a maximum increase
of five percentage points; (iv) the dividends are payable semi-annually in cash
only if declared by the Company's board of directors and approved by no less
than 75% of the convertible preferred stock then outstanding. The provisions of
the Company's debt instruments limit our ability to pay dividends in cash, and
the Company has no present intention to pay dividends in cash; (v) shares of
preferred stock will be convertible at any time at each investor's option into a
number of shares of the Company's common stock equal to the liquidation value
plus accrued but unpaid dividends, divided by the conversion price. The
conversion price will initially be $7.61, and is subject to certain
anti-dilution and other adjustments. Subject to certain restrictions, the
Company has the option to convert the preferred stock at any time; (vi) if
stockholder approval of certain matters is not obtained by June 28, 2002, the
conversion price will automatically be reduced by 20%. Thereafter, until such
approval is obtained, every 90 days the conversion price will be reduced by 20%
of the conversion price then in effect. In no event will the conversion price
reduction related to the failure to timely obtain stockholder approval exceed
50% of the conversion price that would have been in effect had the Company
obtained stockholder approval. Upon the receipt of stockholder approval, the
conversion price will be readjusted as if no adjustments had occurred for
failure to timely obtain stockholder approval; (vii) if the Company fails to
comply with specific covenants contained in the purchase agreement, the
conversion price will be reduced by $0.76 (adjusted for stock splits and similar
transactions). The conversion price will readjust to what it would have been
absent such breach once the breach is cured; (viii) the Company may redeem the
preferred stock at any time, in whole or in part, provided that the redemption
price is equivalent to the amount the holders would receive on an as-converted
basis using a
F-45
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
trailing 30-day period and subject to certain minimum share prices based on the
year redeemed; (iv) the preferred stock initially entitles the holders to three
seats on our board of directors. Upon the occurrence of certain triggering
events, an example of which would include a default resulting in acceleration of
indebtedness where the principal amount exceeds $5.0 million or final judgments
of money aggregating more than $1.0 million are entered against the Company and
are not discharged, dismissed, or stayed pending appeal within 90 days, the
holders may appoint up to one less than a minimum majority of the Company's
board of directors or a minimum majority upon the occurrence of certain events
of bankruptcy or insolvency; (x) the holders of the convertible preferred stock
are entitled to vote on all matters submitted to a vote of the Company's common
stockholders; (xi) the terms of the convertible preferred stock subjects the
Company to various covenants, which among other things, limits the Company's
ability to sell assets, make any restricted payments or restricted investments,
enter into various agreements and grant certain options; (xii) warrants will be
issued to purchase an additional 0.32 million shares of the Company's common
stock. All warrants will have an initial exercise price of $7.61 per share,
subject to certain anti-dilution and other adjustments that mirror those
applicable to the convertible preferred stock. The warrants are immediately
exercisable and expire 10 years after issuance. The Company is currently
studying the accounting for this transaction, including the provisions of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities".
Net proceeds from the sale of the preferred stock, along with the net
proceeds of $5.8 million from the Company's recent sale of our INT Media Group,
Inc. common stock and cash on hand from the Company's $12.2 million tax refund,
will be used to repay $48.0 million of amounts outstanding under the Company's
term loans.
F-46
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2002 2001
-------- ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 22,589 $ 20,191
Accounts and notes receivable, less allowance for doubtful
accounts of $8,948 and $10,976 in 2002 and 2001,
respectively........................................... 45,211 56,452
Income taxes receivable................................... 10,464 14,750
Inventories............................................... 698 1,351
Deferred tax assets....................................... 6,645 6,645
Prepayments, deposits and other........................... 10,624 7,854
-------- --------
96,231 107,243
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land, buildings and improvements.......................... 8,864 8,846
Machinery and equipment................................... 62,352 62,056
-------- --------
71,216 70,902
Less: accumulated depreciation............................ 43,850 40,726
-------- --------
27,366 30,176
-------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of $76,517 in 2002
and 2001, respectively................................. 494,347 493,141
Other intangibles, less accumulated amortization of
$25,203 and $21,384 in 2002 and 2001, respectively..... 58,273 56,800
Deferred tax assets....................................... 8,006 7,468
Investments............................................... -- 5,649
-------- --------
560,626 563,058
-------- --------
$684,223 $700,477
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2002 2001
----------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior secured credit facility............................ $ -- $ 16,489
Note payable.............................................. -- 2,804
Accounts payable.......................................... 7,978 12,094
Income taxes payable...................................... 2,826 3,674
Accrued earnouts.......................................... 5,565 6,572
Accrued compensation and benefits......................... 13,869 12,411
Other accrued expenses.................................... 29,928 24,705
Unearned income, principally trade show and conference
deposits............................................... 25,782 36,939
-------- --------
85,948 115,688
-------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior secured credit facility............................ -- 164,098
Senior secured notes, net of discount..................... 156,743 --
Senior subordinated notes, net of discount................ 171,296 180,957
Note payable.............................................. 417 417
Net deferred pension credits.............................. 14,765 15,140
Other..................................................... 3,514 3,647
-------- --------
346,735 364,259
-------- --------
Mandatorily redeemable convertible preferred stock; par
value $0.01 per share; 50,000 shares issued and
outstanding; redeemable at $1,000 per share............... 44,861 --
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.01 per share; 1,950,000
shares authorized; none issued or outstanding.......... -- --
Common stock, par value $0.01 per share; 155,000,000
shares authorized; 31,867,825 shares issued and
outstanding at June 30, 2002 (net of 52,332 treasury
shares) and 31,895,621 shares issued and outstanding at
December 31, 2001...................................... 318 319
Capital in excess of par value............................ 228,263 227,245
Retained earnings (deficit)............................... (9,567) 6,724
Notes receivable officers/directors....................... (9,703) (10,824)
Accumulated other comprehensive loss...................... (2,632) (2,934)
-------- --------
206,679 220,530
-------- --------
$684,223 $700,477
======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-48
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED; DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
2002 2001 2002 2001
------- -------- -------- --------
REVENUES............................................. $66,009 $106,777 $129,184 $219,470
------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation.............. 28,804 43,171 54,657 84,012
Selling, general and administrative................ 33,259 47,692 65,906 99,636
Restructuring charge............................... 7,769 -- 7,506 5,567
Impairment of assets............................... 136 -- 136 --
Depreciation and amortization...................... 5,684 11,135 10,140 22,714
------- -------- -------- --------
75,652 101,998 138,345 211,929
------- -------- -------- --------
OPERATING INCOME (LOSS).............................. (9,643) 4,779 (9,161) 7,541
------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense................................... (9,646) (6,611) (18,920) (13,069)
Interest income.................................... 242 362 460 819
Gain on sale of investments........................ -- -- 1,491 --
Miscellaneous, net................................. (202) (1,501) (341) (1,450)
------- -------- -------- --------
(9,606) (7,750) (17,310) (13,700)
------- -------- -------- --------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM...... (19,249) (2,971) (26,471) (6,159)
PROVISION (BENEFIT) FOR INCOME TAXES................. (7,191) 2,512 (10,014) 602
------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM....................... (12,058) (5,483) (16,457) (6,761)
EXTRAORDINARY ITEM, NET OF TAXES..................... -- -- 166 --
------- -------- -------- --------
NET LOSS............................................. (12,058) (5,483) (16,291) (6,761)
AMORTIZATION OF DEEMED DIVIDEND AND ACCRETION OF
PREFERRED STOCK.................................... (44,498) -- (44,861) --
------- -------- -------- --------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS........... $56,556 $ (5,483) $(61,152) $ (6,761)
======= ======== ======== ========
NET LOSS PER COMMON SHARE -- BASIC AND DILUTED
Loss from operations............................... $ (1.77) $ (0.17) $ (1.91) $ (0.21)
Extraordinary item, net of taxes................... -- -- -- --
------- -------- -------- --------
Net loss per common share.......................... $ (1.77) $ (0.17) $ (1.91) $ (0.21)
======= ======== ======== ========
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and diluted.................................. 32,033 31,930 32,018 31,904
======= ======== ======== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-49
PENTON MEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
-------------------------
2002 2001
----------- -----------
(DOLLARS IN THOUSANDS)
NET CASH USED FOR OPERATING ACTIVITIES...................... $ (2,408) $ (15,016)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,773) (5,448)
Acquisitions, including earnouts paid, net of cash
acquired............................................... (1,486) (20,260)
Proceeds from sale of INT Media Group, Inc. common
stock.................................................. 5,801 --
--------- ---------
Net cash provided by (used for) investing activities... 2,542 (25,708)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock and warrants,
net of issue costs..................................... 46,111 --
Proceeds from issuance of senior subordinated notes....... -- 180,836
Proceeds from issuance of senior secured notes............ 156,717 --
Purchase of $10.0 million of senior subordinated notes.... (8,375) --
Repayment of senior secured credit facility............... (180,587) (139,875)
Proceeds from senior secured credit facility.............. -- 45,000
Payment of short term note payable........................ (2,804) --
Payments for employee stock purchase plan................. (376) (139)
Proceeds from deferred shares and options exercised....... -- 1,049
Payment of financing fees................................. (9,189) (85)
Proceeds from repayment of officers/directors loans....... 703 --
Dividends paid............................................ -- (1,912)
--------- ---------
Net cash provided by financing activities.............. 2,200 84,874
--------- ---------
Effect of exchange rate changes on cash..................... 64 (86)
--------- ---------
Net increase in cash and cash equivalents.............. 2,398 44,064
Cash and cash equivalents at beginning of period............ 20,191 11,605
--------- ---------
Cash and cash equivalents at end of period.................. $ 22,589 $ 55,669
========= =========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-50
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF 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 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, 2001.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2001 financial statements
to conform to the 2002 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 -- GOODWILL AND OTHER INTANGIBLES
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer are to be amortized, but instead tested for impairment,
at least annually. SFAS 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and be reviewed for impairment pursuant to the
provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets."
The Company adopted SFAS 142 effective January 1, 2002. Pursuant to SFAS
142, the Company no longer amortizes goodwill. All other intangibles are
considered to have definite lives, which have been reassessed by the Company as
of January 1, 2002. Penton completed its initial assessment of goodwill
impairment in the second quarter of 2002. The assessment indicates that there is
the potential for a goodwill impairment charge related to certain of the
Company's technology properties, which have an aggregate goodwill net book value
of $337.0 million. Preliminary valuations show that the carrying value of these
technology properties is in excess of their fair value by a range of
approximately $140.0 million to approximately $160.0 million. These technology
properties are part of our Technology Media segment. Consequently, there is the
possibility for a material, non-cash impairment charge in the fourth quarter of
2002. Once final measurement of the goodwill impairment has been completed, the
charge will be recorded as the cumulative effect of an accounting change as of
January 1, 2002. The Company expects to complete the impairment measurement
process in the fourth quarter of 2002.
F-51
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The following pro forma financial information compares the Company's net
loss for the three months and six months ended June 30, 2002 and 2001,
respectively, had the provisions of SFAS 142 been applied on January 1, 2001
(amounts in thousands, except per share data):
<Table>
<Caption>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
2002 2001 2002 2001
-------- ------- -------- -------
Net loss.............................................. $(12,058) $(5,483) $(16,291) $(6,761)
Goodwill amortization, net of tax..................... -- 4,675 -- 8,364
-------- ------- -------- -------
Adjusted net income (loss)............................ (12,058) (808) (16,291) 1,603
Amortization of deemed dividend and accretion of
preferred stock..................................... (44,498) -- (44,861) --
-------- ------- -------- -------
Adjusted net income (loss) applicable to common
stockholders........................................ $(56,556) $ (808) $(61,152) $ 1,603
======== ======= ======== =======
Basic and diluted earnings per share:
Reported net loss................................... $ (0.38) $ (0.17) $ (0.51) $ (0.21)
Goodwill amortization, net of tax................... -- 0.14 -- 0.26
Amortization of deemed dividend and accretion....... (1.39) -- (1.40) --
-------- ------- -------- -------
Adjusted net income (loss) applicable to common
stockholders................................... $ (1.77) $ (0.03) $ (1.91) $ 0.05
======== ======= ======== =======
Weighted-average shares outstanding:
Basic.......................................... 32,033 31,930 32,018 31,904
======== ======= ======== =======
Diluted........................................ 32,033 31,930 32,018 31,975
======== ======= ======== =======
</Table>
Identifiable intangible assets, exclusive of goodwill, as of June 30, 2002,
are recorded in Other Intangibles in the Consolidated Balance Sheets and are
comprised of:
<Table>
<Caption>
GROSS NET
CARRYING ACCUMULATED BOOK
VALUE AMORTIZATION VALUE
-------- ------------ -------
Trade names........................................... $14,240 $ (4,930) $ 9,310
Mailing/exhibitor lists............................... 40,204 (12,997) 27,207
Advertiser relationships.............................. 7,200 (1,804) 5,396
Acquisition costs..................................... 5,053 (2,545) 2,508
Subscriber relationships.............................. 2,100 (357) 1,743
Sponsor relationships................................. 2,112 (792) 1,320
Noncompete agreements................................. 1,436 (1,004) 432
------- -------- -------
Balance at June 30, 2002............................ $72,345 $(24,429) $47,916
======= ======== =======
</Table>
F-52
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Total amortization expense for identifiable intangible assets was $5.8
million and $3.4 million for the six months ended June 30, 2002 and 2001,
respectively. Amortization expense for these intangibles is estimated for the
current year and each of the five succeeding years as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- -------
2002........................................................ $10,679
2003........................................................ $ 8,992
2004........................................................ $ 6,244
2005........................................................ $ 5,332
2006........................................................ $ 4,861
2007........................................................ $ 3,744
</Table>
NOTE 3 -- 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 was
approximately $11.5 million.
At June 30, 2002, Penton had $5.6 million accrued for contingent
consideration. Of the amount accrued, approximately $1.5 million is payable in
shares of common stock with the balance payable in cash. Subsequent to June 30,
2002, the Company issued the shares of common stock and paid $4.1 million in
cash to settle its contingent liability. Cash of $1.2 million was paid in the
first half of 2002 for contingent considerations.
At June 30, 2002, the remaining maximum potential liability for future
contingent consideration is approximately $56.5 million. Contingent
considerations are payable based on achieving specified performance goals, such
as reaching certain revenue or EBITDA levels. The earnout period for $37.2
million of the total contingent consideration expires at December 31, 2002;
$15.4 million expires at January 31, 2003; and $3.9 million expires at December
31, 2003. Contingent payments earned are recorded as additional goodwill,
pursuant to the provisions of EITF 95-8, "Accounting for Contingent
Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase
Business Combination," and tested for impairment under SFAS 142.
NOTE 4 -- INVESTMENTS
In January 2002, Penton sold its remaining 11.8% ownership interest, or
2,973,383 shares, in INT Media Group, Inc. for approximately $5.8 million in
cash, and recognized a gain of approximately $1.5 million.
NOTE 5 -- DEBT
SENIOR SECURED NOTES
In March 2002, Penton issued $157.5 million of 11 7/8% senior secured notes
(the "Secured Notes") due in 2007. Interest is payable on the Secured Notes
semi-annually on April 1 and October 1. The Secured Notes are fully and
unconditionally, jointly and severally guaranteed on a senior basis by all of
the assets of Penton's domestic subsidiaries, which are 100% owned by the
Company, and also the stock of certain subsidiaries. Condensed consolidating
financial information is presented in Note 13 -- Guarantor and Non-Guarantor
Subsidiaries. Penton may redeem the Secured Notes, in whole or in part, during
the periods October 1, 2005 through September 30, 2006 and October 1, 2006 and
thereafter at redemption prices of 105.9375% and 100.0000% of the principal
amount, respectively, together with accrued and unpaid interest.
F-53
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
In addition, at any time prior to October 1, 2005, up to 35% of the aggregate
principal amount of the Secured Notes may be redeemed at Penton's option, within
90 days of certain public equity offerings of its common stock, at a redemption
price equal to 111.875% of the principal amount, together with accrued and
unpaid interest.
The Secured Notes were offered at a discount of $0.8 million, which is
being amortized, using the interest method, over the term of the Secured Notes.
Amortization of the discount was $0.03 million for the six months ended June 30,
2002. Costs representing underwriting fees and other professional fees of $6.6
million are being amortized, using the effective interest method, over the term
of the Secured Notes. Net proceeds of $150.1 million were used to pay down $83.6
million of Penton's term loan A facility and $49.0 million of its term loan B
facility, and to repurchase $10.0 million of the Company's 10 3/8% senior
subordinated notes for $8.3 million. The remaining net proceeds of $9.2 million
were used for general corporate purposes. The Secured Notes rank senior in right
to all of Penton's subordinated indebtedness, including the 10 3/8% senior
subordinated notes due in 2011, and equal in right of payment with all of the
Company's other senior indebtedness, which is approximately $0.4 million at June
30, 2002. The Secured Notes contain covenants that will, among other things,
limit the Company's ability to pay dividends, incur additional debt, sell
assets, and enter into mergers or consolidations. Our ability to obtain
dividends from our subsidiaries is only restricted if we are in default under
our debt arrangement or if we have exceeded our limitation of additional
indebtedness, as specified in such agreement.
SENIOR SUBORDINATED NOTES
In June 2001, Penton issued $185.0 million of 10 3/8% senior subordinated
notes (the "Subordinated Notes") due in 2011. Interest is payable on the
Subordinated Notes semi-annually on June 15 and December 15. The Subordinated
Notes are fully and unconditionally, jointly and severally guaranteed, on a
senior subordinated basis, by the assets of the Company's 100% owned domestic
subsidiaries. Condensed consolidating financial information is presented in Note
13 -- Guarantor and Non-Guarantor Subsidiaries. The notes may be redeemed in
whole or in part on or after June 15, 2006. In addition, the Company may redeem
up to 35% of the aggregate principal amount of the Subordinated Notes before
June 15, 2004 with the proceeds of certain equity offerings. The Subordinated
Notes were offered at a discount of $4.2 million, which is being amortized using
the interest method, over the term of the Subordinated Notes. Amortization of
the discount was $0.1 million for the six months ended June 30, 2002. Costs
representing underwriting fees and other professional fees of $1.7 million are
being amortized over the term of the Subordinated Notes. Net proceeds of $180.2
million were used to pay down $136.0 million under the revolving credit
facility, $12.8 million of term loan A and $7.2 million of term loan B. The
remaining net proceeds of $24.2 million were used for general corporate
purposes. The Subordinated 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
Subordinated 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, and enter into mergers or consolidations. Our
ability to obtain dividends from our subsidiaries is only restricted if we are
in default under our debt arrangement or if we have exceeded our limitation of
additional indebtedness, as specified in such agreement.
In March 2002, the Company repurchased $10.0 million of the Subordinated
Notes with $8.7 million of the proceeds from the Secured Note offering,
resulting in an extraordinary gain of $0.8 million ($0.03 per diluted share),
net of $0.6 million in taxes.
F-54
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SENIOR SECURED CREDIT FACILITY
In March 2002, Penton amended and restated its senior credit facility and
repaid in full its term loan A and term loan B facilities from the proceeds
received from the sale of preferred shares (see Note 6 -- Redeemable Convertible
Preferred Stock), proceeds received from the sale of INT Media Group, Inc.
common stock (see Note 4 -- Investments), cash on hand from a tax refund of
approximately $12.2 million, and the issuance of $157.5 million in Secured Notes
as mentioned above. The amended and restated credit agreement provides for a
revolving credit facility of up to a maximum of $40.0 million. Availability
under the revolving credit facility is determined by a borrowing base that is
limited to 80% of eligible receivables. In order to access the revolver, Penton
must not have more than $7.5 million of cash and cash equivalents available,
must be in compliance with the loan documents and must submit a borrowing base
certificate immediately prior to each extension of credit showing compliance
with the borrowing base. Penton is required to pay-down the revolver in the
event that it has loans outstanding in excess of the borrowing base, or it has
more than $7.5 million in cash and cash equivalents at the end of any month. The
amended and restated credit facility has no financial covenants. In connection
with the amendment and restatement of the credit facility, the interest rate on
the revolving credit facility was increased. In addition, further restrictions
were placed on Penton's ability to make certain restricted payments, to make
capital expenditures in excess of certain amounts, to incur additional debt and
contingent obligations, to make acquisitions and investments, and to sell
assets.
The revolving credit facility bears interest, at Penton's option, at either
The Bank of New York's prime rate or at LIBOR, plus, in each case, an additional
margin ranging from 2.75% to 4.25% based on Penton's consolidated leverage
ratio, defined as the ratio of total debt to total adjusted EBITDA. At June 30,
2002, based upon the calculation of the borrowing base, $23.0 million was
available under the revolving credit facility, however, no amounts were
outstanding. The commitment under the revolving credit facility decreases by 15%
in 2003, 30% in 2004, 35% in 2005 and 20% in 2006. 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.
The repayment of the term loans resulted in an extraordinary charge of $0.7
million ($0.02 per diluted share), net of $0.5 million in taxes, relating to the
write-off of unamortized deferred finance costs.
Cash paid for interest for the six months ended June 30, 2002 and 2001 was
$11.3 million and $9.0 million, respectively.
NOTE PAYABLE
The note payable at June 30, 2002 represents indebtedness resulting from
the acquisition of Hillgate Communications Ltd. in February 2001. In May 2002,
loan note A in the amount of $2.8 million was paid in full. Loan note B in the
amount of $0.4 million bears interest at 0.5% and matures in July 2004. However,
the holders of loan note B have the option to demand payment anytime after April
30, 2004.
NOTE 6 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
On March 19, 2002, the Company issued 40,000 shares of its Series B
Convertible Preferred Stock, par value $0.01 per share (the "preferred stock"),
and warrants (the "warrants") to purchase 1,280,000 shares of Penton's common
stock, par value $0.01 per share, for $40.0 million in a private placement to
institutional investors and affiliated entities. On March 28, 2002, the Company
issued an additional 10,000 shares of preferred stock, par value $0.01 per
share, and warrants to purchase an additional 320,000 shares of Penton's common
stock, par value $0.01 per share, for $10.0 million to the same group of
investors. The net proceeds
F-55
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
from the sale of the preferred stock and warrants were used to repay the term
loan indebtedness under Penton's senior credit facility (see Note 5 -- Debt).
The net proceeds of $46.1 million from the issuance of the preferred stock
and warrants, net of issue costs of $3.8 million, were allocated to the
preferred stock and warrants based on the relative fair values of each security
as of the respective commitment dates noted above. Approximately $4.0 million of
the net proceeds were allocated to the warrants and were recorded in additional
paid in capital resulting in a discount to the preferred stock. The fair value
of the warrants were determined using the Black-Scholes pricing model.
The balance of the net proceeds, of approximately $42.1 million, were
allocated to the preferred stock, which because of the mandatory redemption date
and other redemption provisions, were classified outside of permanent equity.
Pursuant to the provisions of EITF 98-5, "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios" and EITF 00-27, "Application of Issue 98-5 to Certain Convertible
Instruments," the entire amount of $42.1 million was initially recorded as a
beneficial conversion feature in Capital in Excess of Par Value resulting in an
additional discount to the preferred stock. The amount of the beneficial
conversion feature was determined pursuant to Issue 2 of EITF 00-27. As such,
the most beneficial "accounting conversion price" at the issue date of the
preferred shares was compared to the closing market price of the stock on that
date and the intrinsic spread was multiplied by the number of most beneficial
shares that the preferred shares can be converted into. This beneficial
conversion feature was being recognized, using the interest method, as a deemed
dividend to the preferred stockholders and an increase in the carrying value of
the preferred stock from the issuance date to the 10 year mandatory redemption
date.
The preferred stock was also initially being accreted to its maximum
redemption amount possible pursuant to Topic D-98, "Classification and
Measurement of Redeemable Securities" using the interest method from the
issuance date to the 10 year mandatory redemption date.
In April 2002, the Company reached an agreement with the preferred
stockholders to eliminate the scheduled ten year redemption date of the
preferred stock and on May 31, 2002, the stockholders approved an amendment to
remove the scheduled redemption feature. In exchange for removing the scheduled
redemption date, the Company agreed to grant the holders of the preferred stock
the right to require Penton to seek a buyer for substantially all of our assets
or issued and outstanding capital stock beginning on March 19, 2008. The Company
sought the amendment to eliminate the requirement to accrete the preferred stock
to the maximum possible redemption amount by such date. However, it did not seek
to eliminate the preferred stockholders' right to require the Company to redeem
the security upon the occurrence of certain contingent events, including a
change in control or liquidation, dissolution or winding up of Penton. To the
extent that redemption of the preferred stock becomes probable in the future
pursuant to a contingent redemption provision of the preferred stock, accretion
to the maximum redemption amount will be required at such time.
Prior to the stockholders approval to remove the scheduled redemption date,
the Company was required to accrete a portion of the maximum redemption amount.
For the six months ended June 30, 2002, approximately $2.2 million was accreted,
using the interest method. In addition, certain features of the preferred stock
had to be accounted for as embedded derivatives, which required mark to market
accounting that could have potentially resulted in significant swings in net
income and earnings per share. The preferred shares agreement has a number of
conversion and redemption provisions which represented derivatives under FAS No.
133, prior to the elimination of the mandatory redemption date. The Company
determined that certain of these derivatives do not qualify for scope exemption
and are not clearly and closely related to the host contract. As such these
embedded derivatives are required to be bifurcated and recorded at fair value.
The fair value of these derivatives were calculated using the Black Scholes
methodology.
F-56
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
As a result of stockholder approval on May 31, 2002, accretion is no longer
required and the $42.1 million of unamortized beneficial conversion feature was
recognized immediately as a charge to capital in excess of par and as a
reduction of income available to common stockholders in the Consolidated
Statements of Operations. In addition, mark to market accounting for the
embedded derivatives is no longer required subsequent to May 31, 2002. Pursuant
to FAS 133 "Accounting for Derivative Instruments and Hedging Activities", the
elimination of the mandatory redemption feature made the preferred shares
agreement more akin to an equity instrument than a debt instrument.
Consequently, the embedded derivatives noted above, which related to the
conversion or redemption options, either qualified for a scope exemption or did
not constitute a derivative pursuant to FAS 133. Therefore, the elimination of
the mandatory redemption feature also eliminated the requirement to mark to
market these derivatives.
The elimination of the mandatory redemption date does not alter the
mezzanine classification of the preferred shares in the balance sheet, because
of the existence of other redemption provisions in the preferred shares
agreement, such as the optional redemption in the event of a change in control
by the holder of the preferred shares. Dividends on the preferred stock will
continue to be accrued and will be reflected as a reduction in earnings per
share available to common stockholders.
The following is a description of the material terms of the preferred stock
and warrants reflecting the effects of the stockholder approval of the
transaction and the elimination of the mandatory redemption date:
Liquidation Preference
The preferred stock has preferences over the common stock in the event of
liquidation, dissolution, winding up, or change in control. Upon the occurrence
of any such event, the preferred stockholder will be entitled to be paid in
cash, subject to the satisfaction of Penton's obligations under the indentures
governing our 10 3/8% Senior Subordinated Notes and 11 7/8% Senior Secured
Notes.
The initial liquidation value of the preferred stock is $1,000 per share.
If the preferred stock is not converted or redeemed prior to March 19, 2008, the
liquidation value will increase to $4,570 per share. The liquidation preference
is the liquidation value plus accrued and unpaid dividends.
Dividends
From the date of issuance until March 19, 2008, the dividends on the
preferred stock will accrue daily on the sum of the then-applicable liquidation
preference and the accrued dividends thereon at an annual rate of 5% per annum.
From and after March 19, 2008, the dividends will accrue solely from and
including such date at a rate of 15% per annum. At June 30, 2002, preferred
dividends of $0.7 million were accrued for ($0.02 per diluted share).
Dividends are payable semi-annually in cash only if declared by Penton's
board of directors and approved by holders of no less than 75% of the preferred
stock then outstanding. The provisions of Penton's debt instruments limit its
ability to pay dividends in cash, and the Company has no present intention to
either declare or pay cash dividends on the preferred stock.
Upon the occurrence of certain triggering events, the dividend rate
increases by one percentage point, with additional one-percentage-point
increases per quarter up to a maximum increase of five percentage points.
Conversion Provisions
Each share of preferred stock is convertible, at any time, subject to
certain restrictions, at the holder's and Penton's option, into a number of
shares of Penton's common stock, computed by multiplying the
F-57
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
number of shares of preferred stock to be converted by the liquidation value,
plus accrued but unpaid dividends, divided by the conversion price. The
conversion price for the preferred stock initially will be $7.61 per share,
subject to certain anti-dilution adjustments. Among others, the restrictions
include the market price of the common shares being equal to or greater than the
applicable share minimum noted below.
Company's Redemption Provisions
The Company can redeem the preferred stock at any time, in whole or in
part, at a cash redemption price equal to the product of the number of shares of
common stock into which the preferred shares can be converted, without actually
requiring such conversion, and the greater of the volume weighted-average
closing share price of Penton's common stock for the preceding 30 trading days,
or the applicable minimum share price derived from the following schedule (as
may be adjusted for stock splits and similar transactions):
<Table>
<Caption>
If being redeemed prior to the third anniversary............ $15.18
If being redeemed after the third, but before the fourth
anniversary............................................... $17.51
If being redeemed after the fourth, but before the fifth
anniversary............................................... $19.31
If being redeemed after the fifth, but before the sixth
anniversary............................................... $23.26
</Table>
Holder's Redemption Provisions
The preferred stockholders' have the right to require the Company to redeem
the security upon the occurrence of certain contingent events, including a
change in control or liquidation, dissolution or winding up of Penton.
Conversion Prices
The initial conversion price is $7.61 per share (subject to certain
anti-dilution adjustments) until the sixth anniversary of issuance, at which
time the price may be adjusted to the lesser of (a) the conversion price in
effect on the sixth anniversary, or (b) the greater of 90% of the market price
of the Company's common stock on the conversion date or $4.50.
If Penton fails to comply with specific covenants contained in the purchase
agreement, the conversion price of the preferred stock will be reduced by $0.76
(adjusted for stock splits and similar transactions) until such failure is no
longer in existence, every 90 days the conversion price shall be reduced by
$0.76 up to a maximum reduction of $3.80 (adjusted for stock splits and similar
transactions). The conversion price will adjust to what it would have been
absent such breach (to the extent of any shares of preferred stock still
outstanding) once the breach is cured. No such reduction to the conversion price
will be made at any time that representatives of the investors constitute a
majority of the board of directors. In addition, if Penton's leverage ratio (as
defined in the purchase agreement) exceeds 7.5 to 1.0 for any quarterly period
beginning on December 31, 2002, and such leverage ratio remains in excess of 7.5
to 1.0 for a period of 90 days, the conversion price of the preferred stock will
be reduced by $0.76 (adjusted for stock splits and similar transactions).
Thereafter, until the leverage ratio reduces below 7.5 to 1.0, every 90 days the
conversion price will be reduced by another $0.76 (adjusted for stock splits and
similar transactions), subject to a maximum reduction not to exceed $3.80
(adjusted for stock splits and similar transactions). The conversion price will
adjust to what it would have been absent such event (to the extent of any shares
of preferred stock still outstanding) once the leverage ratio reduces below 7.5
to 1.0. No such reduction to the conversion price will be made at any time that
representatives of the investors constitute a majority of the board of
directors.
F-58
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Board Representation
The preferred stock entitles the holders thereof initially to three board
seats. However, at such time as the holders of preferred stock cease to hold
shares of preferred stock having an aggregate liquidation preference of at least
$25 million, they will lose the right to appoint the director for one of these
board seats. On March 19, 2008, the holders of a majority of the preferred stock
then outstanding, if any, will be entitled to appoint one less than a minimum
majority of the board of directors. At such time as the holders of preferred
stock cease to hold shares of preferred stock having an aggregate liquidation
preference of at least $10 million, and such holders' beneficial ownership of
Penton's preferred stock and common stock constitutes less than 5% of the
aggregate voting power of the Company's voting securities, the holders of
preferred stock will no longer have the right to appoint any directors to the
board of directors.
In addition, upon the occurrence of certain triggering events, the holders
of a majority of the preferred stock may appoint a minimum majority of Penton's
board of directors. At such time as the holders of preferred stock cease to hold
shares of preferred stock having an aggregate liquidation preference of at least
$10 million and such holders' beneficial ownership of Penton's preferred stock
and common stock constitutes less than 5% of the aggregate voting power of the
Company's voting securities, the holders of preferred stock will no longer have
the right to appoint additional directors upon these events.
Penton has also granted the holders of the preferred stock the right to
have representatives attend meetings of the board of directors after such time
as they are no longer entitled to appoint any members to the board of directors
and until such time as they no longer own any preferred stock, warrants or
shares of common stock issued upon conversion of the preferred stock and
exercise of the warrants.
Voting Rights
The holders of the preferred stock are entitled to vote on all matters
submitted to a vote of Penton's stockholders, voting as a single class with the
common stockholders on an as-converted basis. In addition, Penton may not,
without the affirmative vote of the holders of not less than 75% of the
preferred stock then outstanding, declare and pay dividends, impact the existing
classes of capital stock, and increase the size of the board, among other
conditions.
Covenants
The terms of the preferred stock have several financial and non-financial
covenants. As of June 30, 2002, Penton was in compliance with all such
covenants.
Sales Rights
The terms of the preferred stock require that Penton maintain a leverage
ratio, defined as debt less cash balances in excess of $5.0 million plus the
accreted value of the preferred stock, to EBITDA of 7.5 to 1.0 for the 12 month
period ending on the last day of December, March, June, and September of each
year beginning with the period ending on December 31, 2002. If Penton is in
violation of this covenant for four consecutive fiscal quarters, then the
holders of a majority of the preferred stock have the right to cause the Company
to seek a buyer for all of its assets or all of its issued and outstanding
capital stock. The holders of preferred stock will not have this right if their
representatives constitute a majority of the board of directors.
In exchange for removing the scheduled redemption date, the Company agreed
to grant the holders of the preferred stock the right to require us to seek a
buyer for substantially all of our assets or issued and outstanding capital
stock beginning on March 19, 2008. The holders of the preferred stock will not
have this right if less than 3,500 shares of preferred stock (as adjusted for
stock splits and similar transactions) are then outstanding.
F-59
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Warrants
The initial exercise price of the warrants is $7.61 per share. The warrants
are subject to anti-dilution and other adjustments that mirror those applicable
to the preferred stock. The warrants are immediately exercisable and expire 10
years after issuance.
NOTE 7 -- EARNINGS PER SHARE
Earnings per share have been computed pursuant to the provisions of SFAS
No. 128, "Earnings Per Share." Computations of basic and diluted earnings per
share for the three months and six months ended June 30, 2002 and 2001 are as
follows (in thousands, except per share amounts):
<Table>
<Caption>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
2002 2001 2002 2001
-------- ------- -------- -------
Net loss applicable to common stockholders............ $(56,556) $(5,483) $(61,152) $(6,761)
======== ======= ======== =======
Number of shares:
Weighted average shares outstanding -- basic and
diluted.......................................... 32,033 31,930 32,018 31,904
======== ======= ======== =======
Per share amount:
Loss from operations -- basic and diluted........... $ (1.77) $ (0.17) $ (1.91) $ (0.21)
======== ======= ======== =======
</Table>
The preferred stock is a participating security, such that in the event a
dividend is declared or paid on the common stock, the Company must
simultaneously declare and pay a dividend on the preferred stock as if the
preferred stock had been converted into common stock. Topic D-95, "Effect of
Participating Convertible Securities on the Computation of Basic Earnings per
Share" requires that the preferred stock be included in the computation of basic
earnings per share if the effect of inclusion is dilutive. The Company's
accounting policy requires the use of the two-class method for its participating
securities for earnings per share calculations. For the six months ended June
30, 2002, preferred stock was excluded from the calculation of basic earnings
per share as the result was not dilutive. The preferred stock has been
considered in the diluted earnings per share calculation under the
"if-converted" method.
Due to the net loss applicable to common stockholders for the six months
ended June 30, 2002 and 2001, 2,669,655 stock options, 665,272 performance
shares, 824,879 deferred shares, 59,340 restricted stock units, 527,951
contingent shares, 1,600,000 warrants and 50,000 redeemable preferred shares
were excluded from the calculation of diluted earnings per share, as the result
would have been anti-dilutive.
NOTE 8 -- COMMON STOCK AND COMMON STOCK AWARD PROGRAMS
In May 2002, the stockholders approved an amendment to increase the number
of authorized shares from 60 million to 155 million.
STOCKHOLDERS RIGHTS AGREEMENT
The Company has a Stockholders Rights Agreement (the "Rights Agreement") to
protect stockholders rights in the event of a proposed takeover of the Company.
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% 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.
F-60
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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 common stock. Under this
option, Penton 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. In March 2002, the Rights Agreement was amended by the board of
directors to permit the sale of convertible preferred stock (see Note 6
- -Redeemable Convertible Preferred Stock) and in July 2002, the Rights Agreement
was amended by the board of directors to change the expiration date of the
rights under the Rights Agreement to be effective at the close of business at
Penton's 2003 annual meeting of stockholders, unless the Rights Agreement is
approved by the stockholders at such annual meeting. (see Note 16 -- Subsequent
Events). The Rights Agreement has no impact on the consolidated financial
statements or earnings per share.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan which allows employees the
opportunity to purchase shares of Penton at a discount. The plan 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
The Company has 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. The
discount is recorded as compensation expense over the minimum vesting period, of
which, $0.04 million and $0.07 million, respectively were recognized as expense
for the six months ended June 30, 2002 and 2001. In February 2002 and 2001,
21,976 and 31,942 RSUs were granted at a fair market value of $7.38 and $25.10
per share, respectively. At June 30, 2002, 59,340 RSUs were outstanding. During
the first six months of 2002, 15,436 shares of the Company's common stock were
issued under this plan.
EXECUTIVE LOAN PROGRAM
The Company has an 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 December 2001, the
loan notes were amended to cease interest from being charged as well as to
extend the maturity date from the fifth anniversary of the first loan date to
six months following the seventh anniversary of the first loan date. No payments
are required until maturity, at which time all outstanding amounts are due.
At June 30, 2002, the outstanding loan balance under the Executive Loan
Program was approximately $9.7 million (including $1.0 million of accrued
interest). During the second quarter of 2002, executive loans of $1.1 million
(including $0.1 million of accrued interest) were repaid. The loan balance is
classified in the Stockholders' Equity section of the Consolidated Balance
Sheets as Notes Receivable Officers/Directors.
F-61
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
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
The Company has stock option plans under which employees and directors may
be granted options to purchase shares of the Company's common stock. 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.
As of June 30, 2002, 2,669,655 stock options were outstanding under the
1998 Equity and Performance Incentive Plan and the 1998 Director Stock Option
Plan. Options granted under the plans 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.
In July 2002, Penton filed a Tender Offer Statement related to the exchange
by eligible employees of outstanding options to purchase shares of Penton's
common stock issued under the Penton Media, Inc. 1998 Equity and Performance
Incentive Plan (the "Option Plan") with exercise prices greater than or equal to
$16.225 per share for new options to purchase shares of common stock to be
issued under the Option Plan ("New Options"). New Options will be granted on or
promptly after the first business day that is at least six months and one day
after the eligible options tendered pursuant to the offer are cancelled. The
exercise price of the New Options shall be the fair value of our common stock on
the grant date. Each eligible employee will receive a New Option to acquire one
share of Penton's common stock for every two shares of Penton's common stock
subject to an eligible option. The offer to exchange options under the Tender
Offer expires on August 22, 2002, unless the period is extended. (See Note
16 -- Subsequent Events).
DEFERRED SHARES
The Company's long-term incentive plan also provides for the award of
deferred shares. At June 30, 2002, 824,879 deferred shares were outstanding. Of
the shares outstanding at June 30, 2002, 768,630 shares vest one-fourth on each
three-month anniversary following the date of grant, 47,553 shares vest on the
third anniversary of the grant date and the remaining 8,696 shares vest at the
rate of 20% per year over a five-year period from date of grant. In the first
six months of 2002, 9,100 fully vested deferred shares were issued for common
stock of Penton. Compensation expense is being recognized over the related
vesting period based on the fair value of the shares on the date of grant. For
the six months ended June 30, 2002 and 2001, approximately $1.8 million and $0.2
million, respectively, were charged to expense under this plan.
PERFORMANCE SHARES
In February 2002, the board of directors approved a grant of 495,000
performance shares to certain key executives, subject to the attainment of
certain performance goals over a three-year period from January 1, 2002 through
December 31, 2004. Each grantee is eligible to receive between 50% and 150% of
the granted shares. At June 30, 665,272 performance shares are outstanding.
Performance shares are not issuable until earned. Compensation expense for
performance shares is recorded over the performance period based on an estimate
at the end of each reporting period. The estimate takes into account the
probable number of shares that will be earned by the grantee and the share price
of our
F-62
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
common stock at the end of the performance period. For the six months ended June
30, 2002 and 2001, approximately $(0.2) million and $1.2 million, respectively,
were charged (credited) to expense for these shares. No performance shares have
been issued pursuant to the plan during the six months ended June 30, 2002.
TREASURY STOCK
In the second quarter 2002, one executive returned 52,332 shares to the
Company to pay down a portion of his executive loan balance. These treasury
stock were recorded at $0.4 million as a decrease in additional paid in capital.
NOTE 9 -- COMPREHENSIVE LOSS
Total comprehensive loss for the three months and six months ended June 30,
2002 and 2001 was $12.1 million, $5.0 million, $16.0 million and $13.1 million,
respectively.
<Table>
<Caption>
NOTES ACCUMULATED
CAPITAL IN RETAINED RECEIVABLE OTHER
COMMON EXCESS OF EARNINGS OFFICERS/ COMPREHENSIVE
STOCK PAR VALUE (DEFICIT) DIRECTORS INCOME/(LOSS) TOTAL
------ ---------- --------- ---------- ------------- --------
Balance at December 31,
2001...................... $319 $227,245 $ 6,724 $(10,824) $(2,934) $220,530
---- -------- -------- -------- ------- --------
Comprehensive loss:
Net loss.................. -- -- (16,291) -- -- (16,291)
Other comprehensive loss:
Reclassification
adjustment for
realized gain on
securities sold...... -- -- -- -- (808) (808)
Reclassification
adjustment of net
loss on cash flow
hedge
discontinuation... -- -- -- -- 1,438 1,438
Foreign currency
translation
adjustment........... -- -- -- -- (328) (328)
--------
Comprehensive loss........ (15,989)
--------
Issuance of common stock:
Deferred shares and stock
options................ -- 533 -- 31 -- 564
Employee stock purchase
plan................... -- (376) -- -- -- (376)
Repayment of executive
loans..................... -- -- -- 703 -- 703
Purchase of treasury
stock..................... (1) (386) -- 387 -- --
Issuance of 50,000 shares of
preferred Stock and
subsequent recognition of
Warrants issued with
preferred stock........... -- 4,003 -- -- -- 4,003
Amortization of deemed
dividend and accretion of
preferred stock........... -- (2,756) -- -- -- (2,756)
---- -------- -------- -------- ------- --------
Balance at June 30, 2002.... $318 $228,263 $ (9,567) $ (9,703) $(2,632) $206,679
==== ======== ======== ======== ======= ========
</Table>
F-63
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 10 -- HEDGING ACTIVITIES
RISK MANAGEMENT
In the ordinary course of business, the Company is exposed to fluctuations
in interest rates and foreign currency rates. The Company maintains assets and
operations in Europe and Asia, and as a result, may be exposed to fluctuations
in currency rates relative to these markets. Penton, however, does not manage
this risk using derivative instruments.
The Company was exposed to interest rate risk due to the variable interest
rates of its senior secured credit facility. In March 2002, the Company paid
down term loans A and B of the credit facility with certain debt and equity
offerings (see Note 5 -- Debt). As a result, at June 30, 2002, the Company has
no variable-interest rate debt outstanding.
The Company is also exposed to changes in the fair value of its fixed-rate
senior secured notes and senior subordinated notes. As of June 30, 2002, the
Company did not manage this risk using derivative instruments.
CASH FLOW HEDGES
In March 2002, the Company discontinued hedge accounting for its cash flow
hedges as the Company paid down its outstanding variable rate debt. The entire
net deferred loss on cash flow hedges of $1.4 million recorded in Other
Comprehensive Income was reclassified to earnings.
Management has decided to continue to hold the derivative instruments until
their maturity, and will carry the derivatives at their fair market value on the
balance sheet, recognizing changes in the fair value in current period earnings.
As of June 30, 2002, the Company recognized a net loss of $1.1 million related
to such derivative instruments.
At June 30, 2002, the Company had the following interest rate instruments
in effect (in thousands):
<Table>
<Caption>
NOTIONAL FIXED
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...................................... $17,916 5.95% 9/99-10/02
Interest rate cap....................................... $26,875 8.50% 10/99-10/02
</Table>
At June 30, 2002, the interest rate instruments had a negative fair value
of $1.7 million, which is recorded as a liability in Other Accrued Expenses on
the Consolidated 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 weighted average implied forward variable
interest rate is approximately 6.19% for 2002.
NOTE 11 -- RESTRUCTURING CHARGES
SECOND QUARTER 2002 CHARGE
In the second quarter 2002, Penton recorded a restructuring charge of $7.8
million ($4.7 million after tax, or $0.15 per diluted share). The charge
included $4.4 million of employee termination benefits related to a reduction of
128 positions, including 112 U.S. employees, with the remainder primarily in the
U.K.
F-64
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Employee termination benefits include payments for severance, costs of
outplacement services and continued benefits.
In addition to termination benefits, the second quarter charge included
$2.7 million related to exit costs associated with the closing of five existing
office locations under long term leases expiring through 2010 and $0.6 million
related to other contractual obligations. Charges for other contractual
obligations include costs associated with the cancellation of a trade show
venue.
FIRST QUARTER 2002 CHARGE
The restructuring charge credit of $0.3 million ($0.2 million after tax, or
$0.1 per diluted share) as of March 31, 2002, comprises approximately $1.3
million of additional employee termination benefits accrued in the first quarter
of 2002, offset by the reversal of approximately $1.6 million related to lease
reserves established in the third quarter of 2001 for Penton's New York, NY and
Burlingame, CA, offices, for long-term leases which the Company was able to
sublease. Personnel costs of $1.4 million are associated with the elimination of
approximately 50 positions in the U.S. Personnel costs include payments for
severance, costs of outplacement services and a provision for continued benefits
to personnel. The New York and Burlingame office closure costs totaling $3.4
million were charged in the second half of 2001. At that time, no assumptions
for subleases were made by the Company, due to the inherent limitations in
estimating the future trends of the real estate marketplace, the economic
conditions present in New York City at the time, and the remote probability of a
successful sublease. However, in March 2002, due to continuing efforts by the
Company, it finalized a contract to sublease its New York office space for the
remainder of the lease term, or approximately 7.25 years. In addition, in April
2002, Penton subleased its Burlingame office for the remainder of the lease
term, or approximately 3.8 years. Penton remains ultimately responsible for the
payment of both of these leases.
2001 CHARGE
In February 2001, Penton announced a restructuring program with the intent
of discontinuing certain Internet operations that had not demonstrated revenue
growth, customer acceptance and near-term opportunity for profit. The charge of
$5.6 million ($3.3 million after tax, or $0.10 per share on a diluted basis)
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, including the reduction of
approximately 60 employees at Healthwell.com as well as a reduction of workforce
related to a number of other Internet initiatives throughout Penton; and exit
costs associated with existing office spaces under lease and other contractual
obligations. In the third-quarter of 2001, the Company determined that some
first-quarter restructuring initiatives would not require the level of spending
that had been originally estimated. Based on the Company's third-quarter
estimates, approximately $1.0 million was reversed from the first-quarter charge
and the total amount of the charge was adjusted to $4.6 million ($2.7 million
after tax, or $0.09 per share on a basic and diluted basis). The remaining costs
incurred in connection with the first-quarter restructuring plan have been paid.
In the second half of 2001, the Company implemented a number of expense
reduction and restructuring initiatives to more closely align its cost structure
with the business environment. Restructuring charges of $9.5 million ($5.7
million after tax, or $0.18 per share on a diluted basis), net of the $1.0
million reversal noted above in the third quarter and $3.7 million ($2.3 million
after tax, or $0.07 per share on a diluted basis) in the fourth quarter resulted
primarily from strategic decisions to restructure a number of businesses and
support departments, including reducing Penton's overhead infrastructure by
consolidating and closing several branch offices, centralizing information
technology and outsourcing certain corporate functions. Of the total charges,
$4.7 million relates to employee termination benefits for the elimination of
nearly 340 positions,
F-65
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
of which 294 terminations and $2.7 million in payments had been completed by
year end. Approximately 84% of the positions eliminated or to be eliminated are
in the U.S., with the remaining positions predominantly in the United Kingdom
and Germany. The remaining $8.5 million of the restructuring charges relates to
the closing of more than 20 Penton offices worldwide, and includes costs
associated with existing office spaces under lease and other contractual
obligations.
The following table summarizes the restructuring and impairment charges,
the amounts paid and the ending accrual balances for the period ended June 30,
2002 (in thousands):
<Table>
<Caption>
FIRST SECOND
ACCRUAL QUARTER QUARTER CASH ACCRUAL
DESCRIPTION 12/31/01 CHARGES CHARGES PAYMENTS 6/30/02
- ----------- -------- ------- ------- -------- -------
Severance, outplacement and other personnel
costs........................................ $ 2,115 $1,382 $4,437 $(4,215) $ 3,719
Facility closing costs......................... 9,134 (1,645) 2,722 (1,342) 8,869
Other exit costs............................... 383 -- 610 (295) 698
------- ------ ------ ------- -------
Total.......................................... $11,632 $ (263) $7,769 $(5,852) $13,286
======= ====== ====== ======= =======
</Table>
The majority of the severance costs are expected to be paid by the end of
September 2002, while the balance of facility costs, which include long-term
leases, is expected to be paid through 2013.
NOTE 12 -- SEGMENT INFORMATION
Penton has four segments which derive their revenues from the production of
trade shows, publications and online media products, including Web sites serving
customers in 12 distinct industry sectors. Penton measures segment profitability
using adjusted EBITDA. Adjusted EBITDA is defined as net income (loss) before
interest, taxes, depreciation and amortization, non-cash compensation and
unusual items. Adjusted EBITDA for segments also excludes corporate-level costs.
Corporate-level costs include costs for centralized functions, such as finance,
accounting and information systems, which are not allocated to each segment.
Summary information by segment for the six months ended June 30, 2002 and
2001 is as follows (in thousands):
<Table>
<Caption>
INDUSTRY TECHNOLOGY LIFESTYLE
MEDIA MEDIA MEDIA OTHER TOTAL
-------- ---------- --------- ------ --------
2002
Revenues.................................. $49,210 $ 52,273 $18,755 $8,946 $129,184
Adjusted EBITDA........................... $ 7,595 $ 2,040 $ 7,927 $2,278 $ 19,840
2001
Revenues.................................. $68,622 $123,361 $18,140 $9,347 $219,470
Adjusted EBITDA........................... $12,676 $ 28,655 $ 7,776 $1,998 $ 51,105
</Table>
F-66
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Segment revenues, all of which are realized from external customers, equal
Penton's consolidated revenues. The following is a reconciliation of Penton's
total segment adjusted EBITDA to consolidated loss before income taxes and
extraordinary item (in thousands):
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
------------------
2002 2001
-------- -------
Total segment adjusted EBITDA............................... $ 19,840 $51,105
Depreciation and amortization............................... (10,140) (22,714)
Restructuring charge........................................ (7,506) (5,567)
Impairment of assets........................................ (136) --
Non-cash compensation....................................... (1,544) (1,445)
Gain on sale of investments................................. 1,491 --
Interest expense............................................ (18,920) (13,069)
Interest income............................................. 460 819
Miscellaneous, net.......................................... (341) (1,450)
Corporate costs............................................. (9,675) (13,838)
-------- -------
Consolidated loss before income taxes and extraordinary
item...................................................... $(26,471) $(6,159)
======== =======
</Table>
NOTE 13 -- GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The following schedules set forth condensed consolidating balance sheets as
of June 30, 2002 and December 31, 2001, and condensed consolidating statements
of operations and condensed consolidating statements of cash flows for the six
months ended June 30, 2002 and 2001. In the following schedules, "Parent" refers
to the combined 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" represents the
adjustments necessary to (a) eliminate intercompany transactions and (b)
eliminate the investments in Penton's subsidiaries.
F-67
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, 2002
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 18,581 $ 286 $ 3,722 $ -- $ 22,589
Accounts and notes receivable,
net............................. 147,355 (7,265) (12,879) (82,000) 45,211
Income taxes receivable............ 10,464 -- -- -- 10,464
Inventories........................ 374 316 8 -- 698
Deferred tax asset................. 4,716 1,962 (33) -- 6,645
Prepayments, deposits and other.... 2,758 2,796 5,070 -- 10,624
-------- -------- -------- --------- --------
184,248 (1,905) (4,112) (82,000) 96,231
-------- -------- -------- --------- --------
Property, plant and equipment,
net............................. 20,090 4,764 2,512 -- 27,366
Goodwill, net...................... 123,645 333,181 37,521 -- 494,347
Other intangibles, net............. 19,621 36,691 1,961 -- 58,273
Deferred tax asset................. 6,961 1,045 -- -- 8,006
Investments........................ 221,902 146,303 -- (368,205) --
-------- -------- -------- --------- --------
392,219 521,984 41,994 (368,205) 587,992
-------- -------- -------- --------- --------
$576,467 $520,079 $ 37,882 $(450,205) $684,223
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 7,032 $ 16 $ 930 $ -- $ 7,978
Income taxes payable............... 887 1,764 175 -- 2,826
Accrued earnouts................... 1,547 -- 4,018 -- 5,565
Accrued compensation and
benefits........................ 11,772 1,253 844 -- 13,869
Other Accrued Expenses............. 30,527 (5,788) 5,189 -- 29,928
Unearned income.................... 10,903 9,815 5,064 -- 25,782
-------- -------- -------- --------- --------
62,668 7,060 16,220 -- 85,948
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES AND DEFERRED
CREDITS:
Senior secured notes, net of
discount........................ 92,477 64,266 -- -- 156,743
Senior subordinated notes, net of
discount........................ 101,064 70,232 -- -- 171,296
Note payable....................... 82,000 -- 417 (82,000) 417
Net deferred pension credits....... 14,765 -- -- -- 14,765
Deferred tax liability............. (9,501) 9,501 -- -- --
Intercompany advances.............. (57,382) 44,967 12,415 -- --
Other.............................. 1,905 397 1,212 -- 3,514
-------- -------- -------- --------- --------
225,328 189,363 14,044 (82,000) 346,735
-------- -------- -------- --------- --------
Mandatorily redeemable convertible
preferred stock.................... 44,861 -- -- -- 44,861
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock....................... 219,355 350,020 16,614 (357,408) 228,581
Retained earnings (deficit)........ 34,168 (26,364) (6,574) (10,797) (9,567)
Notes receivable
officers/directors.............. (9,703) -- -- -- (9,703)
Accumulated other comprehensive
loss............................ (210) -- (2,422) -- (2,632)
-------- -------- -------- --------- --------
243,610 323,656 7,618 (368,205) 206,679
-------- -------- -------- --------- --------
$576,467 $520,079 $ 37,882 $(450,205) $684,223
======== ======== ======== ========= ========
</Table>
F-68
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, 2001
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 14,518 $ 1,993 $ 3,680 $ -- $ 20,191
Accounts and notes receivable,
net............................. 32,973 93,247 12,232 (82,000) 56,452
Income tax receivable.............. 14,750 -- -- -- 14,750
Inventories........................ 1,090 248 13 -- 1,351
Deferred tax asset................. 4,683 1,962 -- -- 6,645
Prepayments, deposits and other.... 3,893 3,961 -- -- 7,854
-------- -------- ------- --------- --------
71,907 101,411 15,925 (82,000) 107,243
-------- -------- ------- --------- --------
Property, plant and equipment,
net............................. 22,563 4,694 2,919 -- 30,176
Goodwill, net...................... 124,828 331,570 36,743 -- 493,141
Other intangibles, net............. 13,624 40,684 2,492 -- 56,800
Deferred tax asset................. 16,462 (8,994) -- -- 7,468
Investment in subsidiaries......... 221,915 146,235 -- (368,150) --
Investments........................ -- 5,649 -- -- 5,649
-------- -------- ------- --------- --------
399,392 519,838 42,154 (368,150) 593,234
-------- -------- ------- --------- --------
$471,299 $621,249 $58,079 $(450,150) $700,477
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior secured credit facility..... $ 16,489 $ -- $ -- $ -- $ 16,489
Note payable....................... -- -- 2,804 -- 2,804
Accounts payable and accrued
expenses........................ 38,969 (1,580) 9,656 -- 47,045
Accrued compensation and
benefits........................ 10,562 1,226 623 -- 12,411
Unearned income.................... 15,339 16,723 4,877 -- 36,939
-------- -------- ------- --------- --------
81,359 16,369 17,960 -- 115,688
-------- -------- ------- --------- --------
LONG-TERM LIABILITIES AND DEFERRED
CREDITS:
Senior secured credit facility..... 164,098 -- -- -- 164,098
Senior subordinated notes, net of
discount........................ 180,957 -- -- -- 180,957
Note payable....................... 82,000 -- 417 (82,000) 417
Net deferred pension credits....... 15,140 -- -- -- 15,140
Intercompany advances.............. (310,773) 266,714 44,059 -- --
Other.............................. 2,097 384 1,166 -- 3,647
-------- -------- ------- --------- --------
133,519 267,098 45,642 (82,000) 364,259
-------- -------- ------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock....................... 227,564 355,888 1,465 (357,353) 227,564
Retained earnings (deficit)........ 41,251 (18,914) (4,816) (10,797) 6,724
Notes receivable
officers/directors.............. (10,824) -- -- -- (10,824)
Accumulated other comprehensive
income (loss)................... (1,570) 808 (2,172) -- (2,934)
-------- -------- ------- --------- --------
256,421 337,782 (5,523) (368,150) 220,530
-------- -------- ------- --------- --------
$471,299 $621,249 $58,079 $(450,150) $700,477
======== ======== ======= ========= ========
</Table>
F-69
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 OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
REVENUES.......................... $83,977 $33,896 $11,311 $-- $129,184
------- ------- ------- -- --------
OPERATING EXPENSES:
Editorial, production and
circulation.................. 35,268 14,936 4,453 -- 54,657
Selling, general and
administrative............... 38,675 20,011 7,220 -- 65,906
Restructuring charges........... 6,047 317 1,142 -- 7,506
Impairment of assets............ -- -- 136 -- 136
Depreciation and amortization... 4,688 4,706 746 -- 10,140
------- ------- ------- -- --------
84,678 39,970 13,697 -- 138,345
------- ------- ------- -- --------
OPERATING LOSS.................... (701) (6,074) (2,386) -- (9,161)
------- ------- ------- -- --------
OTHER INCOME (EXPENSE):
Interest expense................ (11,100) (7,713) (107) -- (18,920)
Interest income................. (1,015) 1,516 (41) -- 460
Gain on sale of investments..... 1,491 -- -- -- 1,491
Miscellaneous, net.............. (363) -- 22 -- (341)
------- ------- ------- -- --------
(10,987) (6,197) (126) -- (17,310)
------- ------- ------- -- --------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM.............. (11,688) (12,271) (2,512) -- (26,471)
BENEFIT FOR INCOME TAXES.......... (4,438) (4,822) (754) -- (10,014)
------- ------- ------- -- --------
LOSS BEFORE EXTRAORDINARY ITEM.... (7,250) (7,449) (1,758) -- (16,457)
EXTRAORDINARY ITEM, NET OF
TAXES........................... 166 -- -- -- 166
------- ------- ------- -- --------
NET LOSS.......................... $(7,084) $(7,449) $(1,758) $-- $(16,291)
======= ======= ======= == ========
</Table>
F-70
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 OPERATIONS
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
Restructuring charges.......... 5,567 -- -- -- 5,567
Depreciation and
amortization................ 19,356 3,055 303 -- 22,714
-------- ------- ------- -- --------
128,854 61,514 21,561 -- 211,929
-------- ------- ------- -- --------
OPERATING INCOME (LOSS).......... (15,923) 16,385 7,079 -- 7,541
-------- ------- ------- -- --------
OTHER INCOME (EXPENSE):
Interest expense............... (12,907) (62) (100) -- (13,069)
Interest income................ (1,721) 2,633 (93) 819
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-71
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, 2002
<Table>
<Caption>
GUARANTOR NON-GUARANTOR PENTON
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES........... $ 1,086 $(7,393) $3,899 $-- $ (2,408)
--------- ------- ------ -- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures........... (1,412) (91) (270) -- (1,773)
Acquisitions, including
earnouts paid, net of cash
acquired.................... (687) (24) (775) -- (1,486)
Proceeds from sale of INT Media
Group, Inc. stock........... -- 5,801 -- -- 5,801
--------- ------- ------ -- ---------
Net cash provided by (used
for) investing
activities................ (2,099) 5,686 (1,045) -- 2,542
--------- ------- ------ -- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
mandatorily redeemable
convertible preferred
stock....................... 46,111 -- -- -- 46,111
Proceeds from senior secured
notes....................... 156,717 -- -- -- 156,717
Purchase of senior subordinated
notes....................... (8,375) -- -- -- (8,375)
Repayment of senior credit
facility.................... (180,587) -- -- -- (180,587)
Payment of short term note
payable..................... -- -- (2,804) -- (2,804)
Employee stock purchase plan... (368) -- (8) -- (376)
Proceeds from repayment of
officers/ directors loans... 703 -- -- -- 703
Payment of financing costs..... (9,189) -- -- -- (9,189)
--------- ------- ------ -- ---------
Net cash provided by (used
for) financing
activities................ 5,012 -- (2,812) -- 2,200
--------- ------- ------ -- ---------
Effect of exchange rate.......... 64 -- -- -- 64
--------- ------- ------ -- ---------
Net increase (decrease) in
cash and equivalents...... 4,063 (1,707) 42 -- 2,398
Cash and equivalents at beginning
of period...................... 14,518 1,993 3,680 -- 20,191
--------- ------- ------ -- ---------
Cash and equivalents at end of
period......................... $ 18,581 $ 286 $3,722 $-- $ 22,589
========= ======= ====== == =========
</Table>
F-72
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, including earnouts
paid, net of cash acquired... (14,839) (2,442) (2,979) -- (20,260)
-------- ------ ------ ------ --------
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-73
PENTON MEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE 14 -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
The following transactions did not provide for or require the use of cash
and, accordingly, are not reflected in the Consolidated Statements of Cash
Flows.
For the six months ended June 30, 2002, Penton issued 15,436 common shares
under the Management Stock Purchase Plan, and 9,100 shares under the Deferred
Shares Plan to several officers and other key employees. In addition, one
executive returned 52,332 shares to the Company to pay down a portion of his
executive loan balance. The returned shares were recorded as treasury stock.
Furthermore, in the second quarter 2002, Penton recorded amortization of deemed
dividend and accretion on preferred stock of $44.9 million.
For the six months ended June 30, 2001, Penton marked to market its
investment in INT Media Group, Inc. stock by approximately $7.6 million, and
declared dividends of $1.0 million. In addition, Penton acquired Hillgate
Communications Ltd. for approximately $4.1 million, of which $3.5 million was in
the form of notes payable.
NOTE 15 -- INCOME TAXES
As of June 30, 2002, the Company has a net deferred tax asset balance of
$14.7 million. Realization of the net deferred balance is dependent on
generating sufficient taxable income in the U.S. Although realization is not
assured, the Company believes that it is more likely than not that the net
deferred tax asset will be realized. The amount of the net deferred tax asset
considered realizable, however, could be reduced in the near term if current
estimates of the timing and amount of future taxable income are significantly
revised.
NOTE 16 -- SUBSEQUENT EVENTS
On July 26, 2002, Penton filed a Tender Offer Statement to exchange options
to purchase shares of Penton's common stock issued under the Penton Media, Inc.
1998 Equity and Performance Incentive Plan (the "Option Plan") with exercise
prices greater than or equal to $16.225 per share for new options to purchase
shares of common stock to be issued under the Option Plan ("New Options"). New
Options will be granted on or promptly after the first business day that is at
least six months and one day after the eligible options tendered pursuant to the
offer are cancelled. The exercise price of the New Options shall be the fair
value of our common stock on the grant date. Each eligible employee will receive
a New Option to acquire one share of Penton's common stock for every two shares
of Penton's common stock subject to an eligible option. The offer to exchange
options under the Tender Offer expires on August 22, 2002, unless the period is
extended.
Effective July 31, 2002, Penton's Rights Agreement was amended by the board
of directors to change the expiration date of the rights under the Rights
Agreement to be effective at the close of business at Penton's 2003 annual
meeting of stockholders, unless the Rights Agreement is approved by the
stockholders at such annual meeting.
F-74
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Penton Media, Inc.,
In our opinion, the accompanying balance sheets and the related statements
of operations, shareholders' equity and cash flows present fairly, in all
material respects, the financial position of Donohue Meehan Publishing Company,
(a wholly owned subsidiary of Penton Media, Inc.) at December 31, 2001 and 2000
and the results of its operations, shareholders' equity and its cash flows for
each of the three years in the period ended December 31, 2001, 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
June 25, 2002
F-75
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
-----------------------
2001 2000
--------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 420 $ 468
Accounts receivable, less allowance for doubtful accounts
of $233 and $170 in 2001 and 2000, respectively......... 1,378 2,226
Income taxes receivable................................... 5 62
Deferred tax asset........................................ 75 47
Prepayments, deposits and other........................... 74 59
------- -------
Total current assets.................................... 1,952 2,862
------- -------
Property, plant and equipment:
Leasehold improvements.................................... 27 27
Machinery and equipment................................... 480 434
------- -------
507 461
Less: accumulated depreciation............................ (285) (259)
------- -------
222 202
------- -------
Other assets:
Goodwill, less accumulated amortization of $2,988 and
$2,060 in 2001 and 2000, respectively................... 32,706 33,634
Other intangibles, less accumulated amortization of $969
and $678 in 2001 and 2000, respectively................. 1,158 1,418
Deferred tax asset........................................ 15 19
------- -------
Total assets (pledged for Parent Company Debt - see Note
7)..................................................... $36,053 $38,135
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term portion of Parent Company debt................. $ 468 $ 370
Accounts payable.......................................... 126 134
Accrued earnouts.......................................... -- 100
Accrued compensation and benefits......................... 109 102
Other accrued expenses.................................... 148 84
Unearned income, principally trade show and conference
deposits................................................ 373 216
------- -------
Total current liabilities............................... 1,224 1,006
------- -------
Long-term liabilities and deferred credits:
Long-term portion of Parent Company debt.................. 8,211 6,601
Net deferred pension credits.............................. 114 68
Due to Parent Company..................................... 879 3,957
------- -------
Total liabilities....................................... 10,428 11,632
------- -------
Commitments and Contingencies (Note 9)
Stockholder's equity:
Common stock, $0.01, par value............................ 15 15
Capital in excess of par value............................ 25,422 25,422
Retained earnings......................................... 188 1,066
------- -------
Total stockholder's equity.............................. 25,625 26,503
------- -------
Total liabilities and stockholder's equity.............. $36,053 $38,135
======= =======
</Table>
The accompanying notes are an integral part of these financial statements.
F-76
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
(DOLLARS IN THOUSANDS)
Revenues.................................................... $9,177 $9,860 $9,833
Operating expenses:
Editorial, production and circulation..................... 3,268 3,020 2,840
Selling, general and administrative (including $0.6
million, $0.5 million and $0.6 million in 2001, 2000
and 1999, respectively of Parent Company
allocations)........................................... 4,773 3,844 3,042
Depreciation and amortization............................. 1,282 1,231 1,282
------ ------ ------
9,323 8,095 7,164
------ ------ ------
Operating income (loss)..................................... (146) 1,765 2,669
Interest expense related to Parent Company debt............. (549) (621) (1,185)
------ ------ ------
Income (loss) before income taxes........................... (695) 1,144 1,484
Provision for income taxes.................................. 183 855 995
------ ------ ------
Net income (loss)........................................... $ (878) $ 289 $ 489
====== ====== ======
</Table>
The accompanying notes are an integral part of these financial statements.
F-77
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (878) $ 289 $ 489
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization........................ 1,282 1,231 1,282
Deferred income taxes................................ (24) (36) 6
Provision for losses on accounts receivable.......... 204 127 30
Changes in working capital assets and liabilities:
Accounts receivable.................................. 644 (831) (242)
Income taxes receivable.............................. 57 (661) 584
Accounts payable and accrued expenses................ 89 (1,114) 122
Unearned income...................................... 157 45 (5)
Other changes, net................................... 18 8 33
------- ------- -------
Net cash (used for) provided by operating
activities...................................... 1,549 (942) 2,299
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (102) (134) (65)
Acquisitions, including earnouts paid, net of cash
acquired............................................... (100) (1,651) (2,044)
------- ------- -------
Net cash used for investing activities............ (202) (1,785) (2,109)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of lease obligations............................ (25) (43) (69)
Fund transfers (to) from Parent Company, net.............. (3,078) 3,368 (1,118)
Proceeds (repayments) of Parent Company debt, net......... 1,708 (603) 177
------- ------- -------
Net cash provided by (used for) financing
activities...................................... (1,395) 2,722 (1,010)
------- ------- -------
Net decrease in cash and equivalents.............. (48) (5) (820)
Cash and cash equivalents at beginning of period............ 468 473 1,293
------- ------- -------
Cash and cash equivalents at end of period.................. $ 420 $ 468 $ 473
======= ======= =======
</Table>
The accompanying notes are an integral part of these financial statements.
F-78
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
<Table>
<Caption>
CAPITAL IN
COMMON EXCESS OF RETAINED
STOCK PAR VALUE EARNINGS TOTAL
------ ---------- -------- -------
Balance at December 31, 1998........................... $15 $25,422 $ 288 $25,725
Net income............................................. -- -- 489 489
--- ------- ------ -------
Balance at December 31, 1999........................... $15 $25,422 $ 777 $26,214
--- ------- ------ -------
Net income............................................. -- -- 289 289
--- ------- ------ -------
Balance at December 31, 2000........................... $15 $25,422 $1,066 $26,503
--- ------- ------ -------
Net loss............................................... -- -- (878) (878)
--- ------- ------ -------
Balance at December 31, 2001........................... $15 $25,422 $ 188 $25,625
=== ======= ====== =======
</Table>
The accompanying notes are an integral part of these financial statements.
F-79
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS
Donohue Meehan Publishing Company ("DM Publishing" or "the Company") is a
wholly owned subsidiary of Penton Media, Inc. ("Penton" or "Parent"). The
Company produces market-focused magazines, tradeshows and conferences and
websites serving the retail, baking and convenience store markets. The Company's
principal revenues are derived from advertising. The Company has offices located
in Des Plaines, Illinois, Bensalem, Pennsylvania and Jacksonville, Florida.
NOTE 2 -- ACQUISITION BY PENTON
Concurrent with the spinoff of Penton from Pittway Corporation on August 7,
1998, Penton entered into an agreement to acquire the stock of DM Publishing for
$7.0 million in cash, 1,541,638 shares of Penton stock, and contingent earnouts
up to an additional $4.0 million in cash based on DM Publishing reaching certain
pre-tax income levels in 1998 and 1999.
The transaction was accounted for using the purchase method of accounting,
and accordingly, the operating results of DM Publishing have been included in
Penton's consolidated financial statements since the date of acquisition. The
excess of the aggregate purchase price over the fair value of net assets
acquired of approximately $32.4 million was recorded on the books of DM
Publishing and is being amortized over 40 years. Cash paid in 2000 and 1999 for
contingent consideration, pursuant to the purchase agreement, were $1.0 million
and $2.0 million, respectively. Contingent payments earned are recorded as
additional goodwill, pursuant to the provisions of EITF 95-8, "Accounting for
Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a
Purchase Business Combination", which is being amortized over the remaining life
of the goodwill.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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. See Note 7 -- Related Party
Transactions, for a discussion of the Company's participation in Penton's
centralized cash management system.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company 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
Leasehold improvements................... Estimated useful lives or lease term,
whichever is shorter
</Table>
Depreciation expense amounted to approximately $0.07 million, $0.06 million
and $0.2 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
F-80
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 are amortized using the straight-line
method over periods ranging from 15 to 40 years.
Other intangibles consisting of non-compete agreements, customer mailing
lists and exhibitor lists, are being amortized using the straight-line method
over their estimated useful lives, ranging from three to seven years.
Amortization expense amounted to approximately $1.2 million, $1.2 million
and $1.1 million for the years ended December 31, 2001, 2000 and 1999,
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
the 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
also evaluates the recoverability of enterprise-level goodwill and intangible
assets by estimating the future discounted cash flows to which the goodwill
relates.
REVENUE RECOGNITION
Advertising revenues from DM Publishing trade magazines are recognized in
the month the publications are mailed. Amounts received in advance of trade
shows and conferences are deferred and 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, as services are
generally provided ratably over the length of the contract.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are expensed as incurred. These costs
amounted to $0.08 million, $0.1 million and $0.02 million in 2001, 2000 and
1999, 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.
F-81
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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"). The Company 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"). The Company's adoption of
this Statement, on January 1, 2001, did not have a material impact on the
Company's financial position, results of operations or cash flows.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 requires that all business combinations be accounted
for under the purchase method of accounting. In addition, this Statement
addresses financial accounting and reporting for goodwill and other intangible
assets acquired in a business combination at acquisition. The Statement also
provides criteria for the separate recognition of intangible assets acquired in
a business combination. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001. This Statement did not have a material impact on
the Company's financial position, results of operations or cash flows.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 addresses financial accounting and reporting for
intangible assets acquired individually or with a group of other assets at
acquisition. SFAS No. 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 No. 142 also addresses accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. We anticipate that the adoption
of this Statement will lead to the elimination of approximately $0.9 million of
goodwill amortization in 2002. The Company is in the process of evaluating the
impact of the other provisions of this Statement.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement, which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," provides a single accounting model for
long-lived assets to be disposed of. Although retaining many of the fundamental
recognition and measurement provisions of SFAS No. 121, there are a number of
changes including the removal of goodwill from its scope. The Statement also
retains the basic provision of ABP Opinion No. 30. However, for long-lived
assets held-for-sale, this Statement introduces the "components of an entity"
(rather than a segment of a business) approach to determine discontinued
operations. A "component of an entity" has clearly distinguishable operating and
financial reporting practices. The Company does not expect this Statement to
have a material effect on the Company's financial position, results of
operations or cash flows.
NOTE 4 -- ACQUISITIONS
In July 2000, the Company 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 $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.
F-82
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In February 2000, the Company acquired the assets of Profit.Net, Inc. for
$0.4 million in cash and contingent payments of up to $0.1 million based on
achieving specified performance goals, such as reaching certain revenue or
EBITDA levels. 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 15 years. The assets of Profit.Net, Inc. include BAKERY-NET.com, a Web site
for the commercial baking market. The full earnout of $0.1 million was paid in
2001, and recorded as additional goodwill pursuant to the provisions of EITF
95-8 "Accounting for Contingent Consideration Paid to the Shareholders of an
Acquired Enterprise in a Purchase Business Combination", which is being
amortized over the remaining life of the goodwill.
The following pro forma financial information compares the Company's net
income (loss) for the years ended December 31, 2001, 2000 and 1999 had the
provisions of SFAS 142 been applied on January 1, of each applicable year
(amounts in thousands):
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------
2001 2000 1999
------- ------ ------
Net income (loss)........................................... $(878) $289 $489
Goodwill amortization, net of tax........................... 556 532 499
----- ---- ----
Adjusted net income (loss).................................. $(322) $821 $988
===== ==== ====
</Table>
NOTE 5 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma financial information for the year ended
December 31, 2000 assumes that the 2000 acquisitions occurred as of January 1,
2000, 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 any synergies and
cost reduction initiatives directly related to the acquisitions.
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:
<Table>
<Caption>
YEAR ENDED
DECEMBER 31, 2000
-----------------
Pro forma revenues.......................................... $10,205
=======
Pro forma net income........................................ $ 307
=======
</Table>
The pro forma information above does not include the operations of
Profit.Net, Inc., as the historical information is immaterial.
NOTE 6 -- EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN
The employees of DM Publishing are covered by Penton's non-contributory
retirement plan. Benefits are based on years of service (as Penton employees)
and annual compensation as defined by each plan.
F-83
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of DM Publishing's
allocation of the plan and amounts recognized in the Balance Sheets (in
thousands):
<Table>
<Caption>
2001 2000
----- ----
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, January 1............................. $ 167 $ 74
Service cost........................................... 110 82
Interest cost.......................................... 21 13
Actuarial (gain) loss.................................. 6 (2)
----- ----
Benefit obligation, December 31........................... $ 304 $167
===== ====
CHANGE IN FAIR VALUE OF PLAN ASSETS
Fair value of plan assets, January 1...................... $ 189 $ 81
Actual return on plan assets........................... 7 20
Adjustment for allocation methodology.................. 121 88
----- ----
Fair value of plan assets, December 31.................... $ 317 $189
===== ====
FUNDED STATUS OF THE PLAN
Projected benefit obligation less than fair value of
assets, December 31.................................... $ 13 $ 22
Unrecognized actuarial gain............................... (127) (90)
----- ----
Net deferred pension credits.............................. $(114) $(68)
===== ====
AMOUNTS RECOGNIZED IN THE BALANCE SHEETS
Accrued benefit cost, December 31......................... $(114) $(68)
===== ====
ASSUMPTIONS AS OF DECEMBER 31
Discount rates:
Pre-retirement......................................... 7.25% 7.50%
Post-retirement........................................ 6.25% 6.50%
Expected return on plan assets............................ 9.00% 9.00%
Weighted-average salary increase rate..................... 4.00% 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>
2001 2000 1999
---- ----- -----
NET PERIODIC COST
Service cost.............................................. $110 $ 82 $ 76
Interest cost............................................. 21 13 5
Expected return on assets................................. (17) (8) --
Amortization of:
Actuarial gain......................................... (7) (3) --
---- ----- -----
Total net pension expense................................... $107 $ 84 $ 81
---- ----- -----
</Table>
F-84
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 2000 1999
---- ----- -----
ASSUMPTIONS AS TO PERIODIC PENSION COST
Discount rate
Pre-retirement......................................... 7.50% 8.00% 7.75%
Post-retirement........................................ 6.50% 7.00% 6.75%
Expected return on plan assets............................ 9.00% 9.00% 9.00%
Weighted-average salary increase rate..................... 5.00% 5.00% 5.00%
</Table>
DM Publishing employees became participants in Penton's retirement plan as
of January 1, 1999. The amounts presented above for fair value of assets,
unrecognized actuarial gain, and amortization of actuarial gain were allocated,
based on projected benefit obligations (PBO) at the end of each respective year.
Interest costs, assets and expected return on assets were allocated based on
beginning of the year PBO. The above allocations were made by comparing the
respective allocation basis for each item related to DM Publishing employees
compared to total Penton employees.
The employees of DM Publishing also participate in the Penton Media, Inc.
Retirement Savings Plan (the "401(k) Plan"). 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 contribution to the 401(k) Plan
for the years ended December 31, 2001, 2000 and 1999 were $0.1 million, $0.05
million and $0.04 million, respectively. Effective January 1, 2002, Penton
temporarily suspended the 50% Company match.
As discussed below under employee benefit program allocations, Penton
charges DM Publishing a monthly fee based on its payroll costs to cover its
portion of the costs of providing the employee benefit plans.
NOTE 7 -- RELATED PARTY TRANSACTIONS
MANAGEMENT SERVICES ALLOCATION
Included in the Statements of Operations, as operating expenses for each of
the periods presented, is an allocation of Parent Company corporate expenses
related to management services which benefit DM Publishing. In the opinion of
management, all allocations have been made on a reasonable basis. However, the
allocation is not necessarily indicative of the level of expenses that might
have been incurred had the Company operated as a separate company. Generally,
amounts allocated to DM Publishing are based upon a percentage of DM Publishing
revenues to total Penton revenues or a percentage of DM Publishing payroll
expenses as a percentage of total Penton payroll expenses. The aggregated
allocated costs totaled $0.6 million, $0.5 million and $0.6 million for the
years ended December 31, 2001, 2000 and 1999, respectively, which are recorded
as part of Selling, General and Administrative costs on the Statements of
Operations. Corporate expenses include such costs as corporate salaries,
facility costs, legal and professional fees, insurance, corporate communication
costs, public company costs, payroll service cost, tax service costs and costs
related to information technology services.
Penton processes and pays substantially all invoices related to the
Company; provides credit and collection services for all Company receivables;
and processes the Company's payroll requirements, including writing checks,
making income tax payments, filing all necessary returns; and pays all sales and
use taxes. Amounts paid or collected on behalf of DM Publishing are processed
through Penton's centralized cash management system. The net balance due to or
from Penton resulting from the above transactions is reflected as "Due to (from)
Parent Company" in the Balance Sheets. No interest income or expense is imputed
on any intercompany balances.
F-85
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE BENEFIT PROGRAM ALLOCATION
The employees of DM Publishing are covered by all of Penton's benefit plans
including stock option and other equity-based plans, group medical coverage,
group life and disability insurance, and Penton's non-contributory retirement
plan and 401(k) Plan (See Note 6 -- Employee Benefit Plans). In addition to
payroll, Penton pays all payroll related costs on behalf of DM Publishing
employees including FICA, medicare, state and federal unemployment taxes and
workers compensation premiums. Benefit costs are allocated to DM Publishing
based on a percentage of DM Publishing total payroll costs to total Penton
payroll costs. For the years ended December 31, 2001, 2000 and 1999, the
percentage used for benefit costs allocations were 18%, 21% and 13.5%,
respectively, and amounted to $0.5 million, $0.5 million and $0.2 million,
respectively. Allocated benefits are classified in the Statements of Operations
in the same manner as their related payroll costs. The benefit allocation
percentage is reviewed annually based on actual costs. This historical
percentage is applied to the succeeding year.
In January 2000, Penton established the Employee Stock Purchase Plan with
the intent of aligning the interests of Penton employees, including DM
Publishing employees, with those of its shareholders by allowing employees the
opportunity to purchase shares of Penton at 85% of the lower of the market price
at the beginning or end of each quarter. Compensation costs related to this plan
are included in the allocation noted above.
In January 2000, Penton established the Management Stock Purchase Plan for
designated officers and other key employees, including certain DM Publishing
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. For the periods
presented, no DM Publishing employees have participated in the plan, however,
corporate level compensation costs related to this plan are included in the
allocation noted above.
CORPORATE DEBT ALLOCATION
Debt Allocation
The allocation of Parent Company debt and debt issue costs to DM Publishing
is based on the percentage of DM Publishing EBITDA to total Penton EBITDA, less
management's best estimate of the Parent Company debt already reflected in the
intercompany balance between DM Publishing and Penton. Management's analysis of
the Parent Company debt reflected in the intercompany account included
adjustments for certain items to develop a best approximation of the cash
requirements of DM Publishing. EBITDA is defined as net income before interest,
taxes, and depreciation and amortization. At December 31, 2001, 2000 and 1999
approximately $8.7 million, $7.0 million and $11.4 million, respectively were
allocated to DM Publishing of total Penton outstanding debt of $364.8 million,
$302.1 million and $215.0 million, respectively. In addition, approximately $0.5
million, $0.6 million and $1.2 million were allocated for interest and debt
issue costs.
Penton depends on a portion of DM Publishing cash flows to service its
debt. The Subordinated Notes are due June 15, 2011 and require interest payments
semi-annually in June and December of each year. The Secured Notes (See Note 11
- - Subsequent Events) are due in 2007 and require interest payments semi-
annually in April and October of each year. Pursuant to these debt agreements,
currently, there is no restrictions on dividends or cash transfers from DM
Publishing to Penton.
F-86
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Senior Subordinated Notes
In June 2001, Penton issued $185.0 million of 10 3/8% senior subordinated
notes (the "Subordinated Notes") due June 15, 2011. The Subordinated Notes are
guaranteed, on a senior subordinated basis, by Penton's domestic subsidiaries,
including DM Publishing, and may be redeemed on or after June 15, 2006. In
addition, Penton may redeem up to 35% of the aggregate principal amount of the
Subordinated Notes before June 15, 2004 with the proceeds of certain equity
offerings. The net proceeds of $180.2 million were used to pay down the $136.0
million outstanding balance of the revolving credit facility, $12.8 million of
the term loan A facility and $7.2 million of the term loan B facility (See
Senior Secured Credit Facility below). The remaining proceeds were used for
general corporate purposes. The Subordinated Notes are Penton's unsecured senior
subordinated obligations, subordinated in right of payment to all existing and
future senior indebtedness, including the senior secured credit facility and the
11 7/8% senior secured notes discussed in Note 11 -- Subsequent Events. The
Subordinated Notes are jointly and severally, irrevocably and unconditionally
guaranteed on a senior subordinated basis by each of Penton's present and future
domestic subsidiaries, including DM Publishing. The indenture governing the
Subordinated Notes contains covenants that, among other things, restrict Penton
and Penton subsidiaries' ability to borrow money; pay dividends on or repurchase
capital stock; make investments; enter into agreements that restrict Penton
subsidiaries from paying dividends or other distributions, making loans or
otherwise transferring assets to Penton or to any Penton subsidiary; create
liens on assets; engage in transactions with affiliates; sell assets, including
capital stock of Penton subsidiaries; and merge, consolidate or sell all or
substantially all of Penton's assets and the assets of Penton subsidiaries.
Senior Secured Credit Facility
Penton maintained a credit agreement ("Credit Facility") with several banks
under which it may borrow up to $340.0 million. The agreement provided 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 Facility to give it 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 could not be increased on more
than three separate occasions, and any increase had to take place by September
30, 2001. Concurrent with the closing of the amendment, Penton obtained
committed financing in the amount of $60.0 million of the $100.0 million under
the revolver, thereby increasing the total availability under the revolver to
$185.0 million. The option to increase term loan A, term loan B and/or the
revolver by an additional $40.0 million by September 30, 2001 was not exercised
by Penton. At December 31, 2001, Penton had no amounts outstanding under the
revolving credit facility, $113.8 million outstanding under term loan A and
$66.7 million outstanding under term loan B.
The Credit Facility was collateralized by all tangible and intangible
assets of Penton, including the equity interests in all of its U.S.
subsidiaries, including DM Publishing, and not less than 65% of the equity
interests of any of its foreign subsidiaries. Under the terms of the agreement,
Penton was required to maintain certain financial ratios and other financial
conditions. The agreement also prohibited Penton from incurring certain
additional indebtedness, limited certain investments, advances or loans, and
restricted substantial asset sales and cash dividends.
In March 2002, Penton amended its Credit Facility (see Note 11 --
Subsequent Events) and paid off its term loan A and term loan B facilities with
the proceeds received from the sale of preferred shares of approximately $46.2
million, proceeds received from the sale of INT Media Group, Inc. common stock
of approximately $5.8 million, cash on hand from a tax refund of approximately
$12.2 million, and the issuance of $157.5 million in secured notes. Had Penton
been required to file its compliance certificate prior to the amendment of the
Credit Facility, it would not have been in compliance with its financial
covenants. The
F-87
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amended and restated facility provides for a maximum revolving credit facility
of $40.0 million, which is limited to 80% of eligible receivables, including DM
Publishing receivables. The commitment under the revolving credit facility
decreases by 15% in 2003, 30% in 2004, 35% in 2005 and 20% in 2006. In order to
access the revolver, Penton must not have more than $7.5 million of cash and
cash equivalents available, must be in compliance with the loan documents and
must submit a borrowing base certificate immediately prior to each extension of
credit. In addition, Penton is required to prepay the revolver in the event that
it is overextended on its eligible receivables, or it has more than $7.5 million
in cash and cash equivalents at the end of any month. The amended agreement has
no financial covenants; however, the amendment increases the interest rate on
the revolver, places additional restrictions on certain payments, limits
additional debt and contingent obligations, requires additional collateral,
restricts additional acquisitions and investments, limits Penton's ability to
sell assets, and limits capital expenditures.
As of December 31, 2001, the scheduled principal payments of the term A and
B loans for the next five years and thereafter were as follows (in thousands):
<Table>
<Caption>
YEAR AMOUNT
- ---- --------
2002........................................................ $ 16,489
2003........................................................ 22,813
2004........................................................ 29,138
2005........................................................ 32,300
2006........................................................ 47,998
Thereafter.................................................. 31,849
--------
$180,587
========
</Table>
NOTE 8 -- INCOME TAXES
All income (loss) before income taxes is generated from U.S. sources.
The provision for income taxes in the statements of operations is as
follows (in thousands):
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Current:
Federal................................................... $166 $807 $861
State and local........................................... 41 84 128
---- ---- ----
207 891 989
---- ---- ----
Deferred:
Federal................................................... (21) (31) 5
State and local........................................... (3) (5) 1
---- ---- ----
(24) (36) 6
---- ---- ----
$183 $855 $995
==== ==== ====
</Table>
F-88
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the actual income tax provision 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>
2001 2000 1999
----- ---- ----
Income tax provision (benefit) at statutory rate............ $(243) $401 $519
Tax effect of:
State income taxes, net of federal benefit................ 24 49 84
Non-deductible goodwill................................... 388 393 383
Non-deductible expenses................................... 14 12 9
----- ---- ----
Actual income tax provision................................. $ 183 $855 $995
===== ==== ====
Effective income tax rate................................... (26.4)% 74.7% 67.0%
===== ==== ====
</Table>
The components of deferred tax assets and liabilities at December 31, 2001,
2000 and 1999 are as follows:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Deferred tax assets:
Deferred pension credits.................................. $ 46 $27 $13
Accrued vacation.......................................... 15 13 3
Bad debts................................................. 59 34 10
Depreciation.............................................. 4
---- --- ---
Total deferred tax assets.............................. $120 $74 $30
---- --- ---
Deferred tax liabilities:
Depreciation.............................................. (12) (2) --
Amortization.............................................. (18) (6) --
---- --- ---
Total deferred tax liabilities......................... (30) (8) --
---- --- ---
Net deferred tax asset...................................... $ 90 $66 $30
==== === ===
</Table>
These balances are allocated between current deferred tax assets and
long-term deferred tax assets in the accompanying balance sheet.
For 2000 and 1999, cash paid by DM Publishing for income taxes was $0.2
million and $0.1 million respectively. No amounts were paid in 2001. The amount
of income tax payable reflected in the intercompany account (taxes paid by
Penton on behalf of DM Publishing) for the years ended December 31, 2001, 2000
and 1999 are $0.2 million, $0.8 million and $0.6 million, respectively.
DM Publishing is a wholly-owned subsidiary of an affiliated group and is
included in a consolidated federal income tax return with Penton Media, Inc.
According to Penton's policy, each member's tax provision is determined as if
each member filed a separate tax return. As such, deferred taxes are recorded at
the separate company level and any current federal and state (except for
separate state filings) income taxes payable are recorded as a
payable/receivable to/from Penton through the intercompany accounts.
F-89
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
LEASES
Donohue Meehan 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, 2001 (in
thousands):
<Table>
<Caption>
YEARS ENDING
DECEMBER 31,
------------
2002........................................................ $205
2003........................................................ 184
2004........................................................ 172
2005........................................................ 128
2006........................................................ 132
Thereafter.................................................. 66
----
$887
====
</Table>
Future minimum lease payments under capital leases are $0.03 million for
the year ended December 31, 2002.
For the years ended December 31, 2001, 2000 and 1999, the total rent
expense (including taxes, insurance and maintenance when included in the rent)
incurred by the Company was approximately $0.2 million, $0.1 million and $0.08
million, respectively.
LEGAL PROCEEDINGS
In the normal course of business, DM Publishing may be 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 the Company'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 10 -- STOCK OPTIONS
Certain executives and employees of DM Publishing have received stock
options under Penton's 1998 Equity and 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.
The following table presents a summary of DM Publishing's stock option
activity and related information for the years ended 1999, 2000 and 2001 (in
thousands, except per share amounts):
<Table>
<Caption>
NUMBER OF WEIGHTED
OPTIONS AVERAGE PRICE
--------- -------------
Balance, December 31, 1998.................................. 25 $16.23
---
Granted..................................................... 12 $21.50
Exercised................................................... -- --
Canceled.................................................... -- --
---
</Table>
F-90
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
NUMBER OF WEIGHTED
OPTIONS AVERAGE PRICE
--------- -------------
Balance, December 31, 1999.................................. 37 $18.01
---
Granted..................................................... 12 $22.94
Exercised................................................... -- --
Canceled.................................................... -- --
---
Balance, December 31, 2000.................................. 49 $19.22
---
Granted..................................................... 63 $11.02
Exercised................................................... -- --
Canceled.................................................... -- --
---
Balance, December 31, 2001.................................. 112 $14.62
===
</Table>
The following table summarizes information about stock options outstanding
at December 31, 2001 (in thousands, except number of years and per share
amounts):
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE OPTIONS AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE DECEMBER 31, 2001 PRICE
--------------- --------- ----------- --------- ----------------- ---------
$16.23-24.25........... 64 7.6 years $20.36 25 $16.23
$ 6.89- 6.89........... 48 9.9 years $ 6.89 -- --
</Table>
ACCOUNTING FOR STOCK-BASED COMPENSATION
DM Publishing accounts for stock options under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and not
under the fair value method as provided by Financial Accounting Standard No.
123, "Accounting and Disclosure of Stock-Based Compensation" ("FAS 123").
Pro forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had accounted for
its employee stock options under FAS 123. The weighted-average fair value of
options granted in 2001, 2000 and 1999 was $5.42, $10.85 and $10.38,
respectively. 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 2001, 2000 and 1999:
<Table>
<Caption>
2001 2000 1999
------- ------- -------
Risk-free interest rate................................... 4.03% 5.06% 6.20%
Dividend yields........................................... 0.0% 0.40% 0.50%
Expected volatility....................................... 59.4% 55.93% 61.25%
Expected life............................................. 4 years 4 years 4 years
</Table>
F-91
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair values of the options granted at the grant dates,
consistent with FAS 123, the Company's net income (loss) would have been as
follows (dollars in thousands):
<Table>
<Caption>
2001 2000 1999
----- ---- ----
Net income (loss)
As reported............................................... $(878) $289 $489
Pro forma................................................. $(938) $203 $384
</Table>
NOTE 11 -- SUBSEQUENT EVENTS
The following subsequent events are relevant as DM Publishing guarantees
the related debt instruments.
In March 2002, Penton issued $157.5 million of 11 7/8% senior secured notes
(the "Secured Notes") due in 2007 to qualified institutional buyers pursuant to
Rule 144A of the Securities Act of 1933, as amended. The Secured Notes are fully
and unconditionally guaranteed on a senior basis by all of Penton's domestic
subsidiaries, including DM Publishing. Penton may redeem the Secured Notes, in
whole or in part, during the periods October 1, 2005 through September 30, 2006
and October 1, 2006 and thereafter at redemption prices of 105.9375% and
100.0000% of the principal amount, respectively, together with accrued and
unpaid interest. In addition, at any time prior to October 1, 2005, up to 35% of
the aggregate principal amount of the Secured Notes may be redeemed at Penton's
option, within 90 days of certain public equity offerings of its common stock,
at a redemption price equal to 111.875% of the principal amount, together with
accrued and unpaid interest.
Net proceeds of $150.9 million were used to pay down $83.6 million of term
loan A and $49.0 million of term loan B, and $8.7 million to repurchase $10.0
million of our Subordinated Notes. The remaining net proceeds of $9.6 million
were used for Penton's general corporate purposes. The Senior Notes rank senior
in right to all of our senior subordinated indebtedness, including Penton's
Subordinated Notes due in 2011, and equal in right of payment with all of our
other senior indebtedness, which is approximately $3.2 million at December 31,
2001. The guarantees are senior secured obligations of each of Penton's
subsidiary guarantors and rank senior in right of payment to all subordinated
indebtedness of the subsidiary guarantors, including the guarantees of Penton's
Subordinated Notes, and equal in right of payment with all of Penton's senior
indebtedness. The notes and guarantees are secured by a lien on substantially
all of our assets and those of Penton's subsidiary guarantors, other than
specified excluded assets. Excluded assets consist of, among other things, the
capital stock of Duke Communications International, Inc. and Internet World
Media, Inc., the capital stock of our foreign subsidiaries directly owned by us
or the subsidiary guarantors which exceed 65% of the outstanding capital stock
or equity interest of such foreign subsidiaries, and all of the capital of
Penton's other foreign subsidiaries. The Senior Notes contain covenants that
will, among other things, limit Penton's and Penton's subsidiaries' ability to
pay dividends; redeem capital stock; incur additional debt; enter into
agreements that restrict Penton's subsidiaries from paying dividends or other
distributions, making loans or otherwise transferring assets to Penton or to any
Penton subsidiary; sell assets; and enter into mergers or consolidations.
In March 2002, Penton amended its Credit Facility and paid off its term
loan A and term loan B facilities from the proceeds received from the sale of
preferred shares (as discussed below), proceeds received from the sale of INT
Media Group, Inc. common stock of approximately $5.8 million, cash on hand from
a tax refund of approximately $12.2 million, and the issuance of the $157.5
million in Secured Notes. If Penton were required to file its compliance
certificate prior to the amendment of the Credit Facility, it would not have
been in compliance with its financial covenants. The amended and restated
facility provides for a maximum revolving credit facility of $40.0 million,
which is limited to 80% of eligible receivables, including
F-92
DONOHUE MEEHAN PUBLISHING COMPANY
(A WHOLLY OWNED SUBSIDIARY OF PENTON MEDIA, INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DM Publishing receivables. The commitment under the revolving credit facility
decreases by 15% in 2003, 30% in 2004, 35% in 2005 and 20% in 2006. In order to
access the revolver, Penton must not have more than $7.5 million of cash and
cash equivalents available, must be in compliance with the loan documents and
must submit a borrowing base certificate immediately prior to each extension of
credit. In addition, Penton is required to prepay the revolver in the event that
it is overextended on its eligible receivables, or it has more than $7.5 million
in cash and cash equivalents at the end of any month. The amended agreement has
no financial covenants; however, the amendment increases the interest rate on
the revolver, places additional restrictions on certain payments, limits
additional debt and contingent obligations, requires additional collateral,
restricts additional acquisitions and investments, limits Penton's ability to
sell assets, and limits capital expenditures.
In March, 2002, the Penton issued 50,000 shares of its Series B Convertible
Preferred Stock, par value $0.01 per share (the "preferred stock"), and warrants
(the "warrants") to purchase 1.6 million shares of Penton's common stock, par
value $0.01 per share, for $50.0 million in a private placement to institutional
investors and affiliated entities. The net proceeds from the sale of the
preferred stock and warrants were used to repay the term loan indebtedness under
Penton's Credit Facility, as discussed above.
F-93
$157,500,000
PENTON MEDIA, INC.
11 7/8% SENIOR SECURED NOTES DUE 2007
PROSPECTUS
, 2002
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Penton Media, Inc.'s certificate of incorporation provides that, to the
fullest extent permitted by the DGCL as the same exists or may hereafter be
amended, no director of Penton Media, Inc. shall be liable to it or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of this provision will not adversely affect any right
or protection of a director of Penton Media, Inc. existing at the time of that
repeal or modification.
INDEMNIFICATION AND INSURANCE
Section 145 of the DGCL contains provisions permitting (and, in some
situations, requiring) Delaware corporations such as Penton Media, Inc. to
provide indemnification to their officers and directors for losses and
litigation expense incurred in connection with, among other things, their
service to the corporation in those capacities. Penton Media, Inc.'s certificate
of incorporation contains provisions requiring indemnification by Penton Media,
Inc. of its directors, officers, and employees to the fullest extent permitted
by law. Among other things, these provisions provide that Penton Media, Inc. is
required to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative (including
any action by or in the right of Penton Media, Inc.) (a "Proceeding") by reason
of the fact that such person is or was a director, officer, or employee of
Penton Media, Inc., or is or was serving at the request of Penton Media, Inc. as
a director, officer or employee of another corporation, partnership, joint
venture, trust, or other enterprise (including service with respect to any
employee benefit plan) against expenses (including attorneys' fees), judgments,
fines, ERISA excise taxes, penalties, and amounts paid in settlement actually
and reasonably incurred by such person in connection with such Proceeding to the
fullest extent permitted by the DGCL, as the same exists or may be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits Penton Media, Inc. to provide broader indemnification rights than such
law permitted Penton Media, Inc. to provide prior to such amendment). These
provisions also provide for the advance payment of fees and expenses reasonably
incurred by the director, officer, or employee in defense of any such
Proceeding, subject to reimbursement by the director, officer, or employee if it
is ultimately determined that such director, officer, or employee is not
entitled to be indemnified by Penton Media, Inc. In addition, the Certificate of
Incorporation authorizes Penton Media, Inc. to purchase insurance for its
directors, officers, and employees insuring them against certain risks as to
which Penton Media, Inc. may be unable lawfully to indemnify them. Penton Media,
Inc. maintains insurance coverage for its directors, officers and employees as
well as insurance coverage to reimburse Penton Media, Inc. for potential costs
of its corporate indemnification of directors, officers and employees.
ITEM 21. EXHIBITS
The following is a list of all exhibits filed as a part of this
registration statement on Form S-4.
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
4.1** Indenture, dated as of March 28, 2002, by and among Penton
Media, Inc., the Subsidiary Guarantors named therein and
U.S. Bank National Association, as Trustee
4.2** Registration Rights Agreement, dated as of March 28, 2002,
by and among Penton Media, Inc., the Guarantors named
therein and Credit Suisse First Boston Corporation
4.3** Pledge and Security Agreement, dated as of March 28, 2002,
by and among Penton Media, Inc., the Subsidiary Guarantors
named therein and U.S. Bank National Association, as Trustee
4.4** Intercreditor Agreement, dated as of March 28, 2002, by and
between U.S. Bank National Association and The Bank of New
York
5.1* Opinion of Jones, Day, Reavis & Pogue
12.1* Ratio of Earnings to Fixed Charges
23.1* Consent of PricewaterhouseCoopers LLP
</Table>
II-1
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
23.2* Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
24.1** Powers of attorney
25.1** Statement of Eligibility under the Trust Indenture Act of
1939 on Form T-1
99.1** Letter of Transmittal
99.2** Notice of Guaranteed Delivery
99.3** Letter to Participants
99.4** Letter regarding Exchange Offer
</Table>
- ---------------
* Filed herewith.
** Previously filed.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that paragraphs (1)(i) and (1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post effective amendment by
those paragraphs is contained in periodic reports filed with or
furnished to the SEC by the registrant pursuant to Sections 13 or 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
SEC such indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment no. 1 to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, in the State of Ohio, on August 30, 2002.
Penton Media, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Senior Vice President, Interim
Chief Financial Officer and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Chief Executive Officer and August 30, 2002
------------------------------------------------ Director
Thomas L. Kemp (Principal Executive Officer)
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Vice President and Controller August 30, 2002
------------------------------------------------ (Principal Accounting Officer)
Jocelyn A. Bradford
Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
Director August 30, 2002
------------------------------------------------
David B. Nussbaum
* Director August 30, 2002
------------------------------------------------
Paul W. Brown
* Director August 30, 2002
------------------------------------------------
R. Douglas Greene
Director August 30, 2002
------------------------------------------------
John J. Meehan
* Director August 30, 2002
------------------------------------------------
Edward J. Schwartz
* Director August 30, 2002
------------------------------------------------
William B. Summers
* Director August 30, 2002
------------------------------------------------
Daniel C. Budde
</Table>
II-4
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* Director August 30, 2002
------------------------------------------------
Peni Garber
* Director August 30, 2002
------------------------------------------------
Hannah C. Stone
* Director August 30, 2002
------------------------------------------------
King Harris
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Penton Media, Inc. and
previously filed as Exhibit 24.1 on behalf of Penton Media, Inc. and each such
person.
By: /s/ PRESTON L. VICE
-----------------------------------------------
Preston L. Vice
Attorney-in-Fact
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Stardust.com
has duly caused this amendment no. 1 to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on August 30, 2002.
Stardust.com
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Carl Pugh
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Director August 30, 2002
------------------------------------------------
Thomas L. Kemp
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
* Director August 30, 2002
------------------------------------------------
David B. Nussbaum
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Stardust.com and
previously filed as Exhibit 24.1 on behalf of Stardust.com and each such
person.
By: /s/ PRESTON L. VICE
-----------------------------------------------
Preston L. Vice
Attorney-in-Fact
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PTS Delaware,
Inc. has duly caused this amendment no. 1 to registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on August 30, 2002.
PTS Delaware, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Daniel J. Ramella
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of PTS Delaware, Inc. and
previously filed as Exhibit 24.1 on behalf of PTS Delaware, Inc. and each such
person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Internet World
Media, Inc. has duly caused this amendment no. 1 to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Cleveland, State of Ohio, on August 30, 2002.
Internet World Media, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Thomas L. Kemp
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ and Director (Principal Financial
Preston L. Vice Officer)
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Internet World Media,
Inc. and previously filed as Exhibit 24.1 on behalf of Internet World Media,
Inc. and each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Streaming
Media, Inc. has duly caused this amendment no. 1 to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Cleveland, State of Ohio, on August 30, 2002.
Streaming Media, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
David B. Nussbaum
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Director August 30, 2002
------------------------------------------------
Thomas L. Kemp
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Streaming Media, Inc.
and previously filed as Exhibit 24.1 on behalf of Streaming Media, Inc. and
each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Tech
Conferences, Inc. has duly caused this amendment no. 1 to registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cleveland, State of Ohio, on August 30, 2002.
Tech Conferences, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Shirley Brothers
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Director August 30, 2002
------------------------------------------------
Thomas L. Kemp
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Tech Conferences, Inc.
and previously filed as Exhibit 24.1 on behalf of Tech Conferences, Inc. and
each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Healthwell.com,
Inc. has duly caused this amendment no. 1 to registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Cleveland, State of Ohio, on August 30, 2002.
Healthwell.com, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Darrell C. Denny
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Director August 30, 2002
------------------------------------------------
Thomas L. Kemp
* Director August 30, 2002
------------------------------------------------
David B. Nussbaum
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Healthwell.com, Inc. and
previously filed as Exhibit 24.1 on behalf of Healthwell.com, Inc. and each
such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Donohue Meehan
Publishing Company has duly caused this amendment no. 1 to registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cleveland, State of Ohio, on August 30, 2002.
Donohue Meehan Publishing Company
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
William C. Donohue
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Director August 30, 2002
------------------------------------------------
Thomas L. Kemp
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
* Director August 30, 2002
------------------------------------------------
John J. Meehan
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Donohue Meehan
Publishing Company and previously filed as Exhibit 24.1 on behalf of Donohue
Meehan Publishing Company and each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Duke
Investments, Inc. has duly caused this amendment no. 1 to registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cleveland, State of Ohio, on August 30, 2002.
Duke Investments, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Title: Interim Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
David B. Nussbaum
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Director August 30, 2002
------------------------------------------------
Thomas L. Kemp
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Duke Investments, Inc.
and previously filed as Exhibit 24.1 on behalf of Duke Investments, Inc. and
each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Duke
Communications International, Inc. has duly caused this amendment no. 1 to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio, on August 30, 2002.
Duke Communications International,
Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Mark Smith
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Director August 30, 2002
------------------------------------------------
Thomas L. Kemp
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
* Director August 30, 2002
------------------------------------------------
David B. Nussbaum
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Duke Communications
International, Inc. and previously filed as Exhibit 24.1 on behalf of Duke
Communications International, Inc. and each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, One, Inc. has
duly caused this amendment no. 1 to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cleveland,
State of Ohio, on August 30, 2002.
One, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Thomas L. Kemp
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ and Director (Principal Financial
Preston L. Vice Officer)
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of One, Inc. and previously
filed as Exhibit 24.1 on behalf of One, Inc. and each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Boardwatch,
Incorporated has duly caused this amendment no. 1 to registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cleveland, State of Ohio, on August 30, 2002.
Boardwatch, Incorporated
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Thomas L. Kemp
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ and Director (Principal Financial
Preston L. Vice Officer)
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Boardwatch, Incorporated
and previously filed as Exhibit 24.1 on behalf of Boardwatch, Incorporated and
each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Penton
Internet, Inc. has duly caused this amendment no. 1 to registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Cleveland, State of Ohio, on August 30, 2002.
Penton Internet, Inc.
By: /s/ PRESTON L. VICE
------------------------------------
Name: Preston L. Vice
Title: Interim Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities and on the dates as indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
* President and Director August 30, 2002
------------------------------------------------ (Principal Executive Officer)
Thomas L. Kemp
/s/ PRESTON L. VICE Interim Chief Financial Officer August 30, 2002
------------------------------------------------ (Principal Financial Officer)
Preston L. Vice
* Director August 30, 2002
------------------------------------------------
Daniel J. Ramella
</Table>
* The undersigned by signing his name hereto does sign and execute this
amendment no. 1 to registration statement pursuant to the Powers of Attorney
executed by the above-named directors and officers of Penton Internet, Inc.
and previously filed as Exhibit 24.1 on behalf of Penton Internet, Inc. and
each such person.
By: /s/ PRESTON L. VICE
----------------------------------
Preston L. Vice
Attorney-in-Fact
II-17
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
4.1** Indenture, dated as of March 28, 2002, by and among Penton
Media, Inc., the Subsidiary Guarantors named therein and
U.S. Bank National Association, as Trustee
4.2** Registration Rights Agreement, dated as of March 28, 2002,
by and among Penton Media, Inc., the Guarantors named
therein and Credit Suisse First Boston Corporation
4.3** Pledge and Security Agreement, dated as of March 28, 2002,
by and among Penton Media, Inc., the Subsidiary Guarantors
named therein and U.S. Bank National Association, as Trustee
4.4** Intercreditor Agreement, dated as of March 28, 2002, by and
between U.S. Bank National Association and The Bank of New
York
5.1* Opinion of Jones, Day, Reavis & Pogue
12.1* Ratio of Earnings to Fixed Charges
23.1* Consent of PricewaterhouseCoopers LLP
23.2* Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
24.1** Powers of attorney
25.1** Statement of Eligibility under the Trust Indenture Act of
1939 on Form T-1
99.1** Letter of Transmittal
99.2** Notice of Guaranteed Delivery
99.3** Letter to Participants
99.4** Letter regarding Exchange Offer
</Table>
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* Filed herewith.
** Previously filed.
II-18