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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
under
The Securities Act of 1933
------------------------
PENTON MEDIA, INC.
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 36-2875386 2721
(State or Other Jurisdiction of (I.R.S. Employer (Primary Standard Industrial
Incorporation or Organization) Identification Number) Classification Code Number)
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1100 SUPERIOR AVENUE
CLEVELAND, OHIO 44114
TELEPHONE: (216) 696-7000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
PRESTON L. VICE, SENIOR VICE PRESIDENT
1100 SUPERIOR AVENUE
CLEVELAND, OHIO 44114
TELEPHONE: (216) 696-7000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------
Copies to:
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CHRISTOPHER M. KELLY BRIAN D. HOGAN
JONES, DAY, REAVIS & POGUE KIRKLAND & ELLIS
NORTH POINT, 901 LAKESIDE AVENUE 200 EAST RANDOLPH DRIVE
CLEVELAND, OHIO 44114 CHICAGO, ILLINOIS 60601
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER SHARE OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share......................... 21,500,000 shares N/A N/A $21,226.14(1)
================================================================================================================================
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(1) Based on the book value of $71,953,000 of the Registrant computed as of
March 31, 1998.
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 15, 1998
LOGO
PENTON MEDIA, INC.
COMMON STOCK
DISTRIBUTED TO STOCKHOLDERS OF PITTWAY CORPORATION
This Prospectus is being furnished in connection with the distribution (the
"Stock Distribution") to stockholders of Pittway Corporation, a Delaware
corporation ("Pittway"), of common stock, par value $.01 per share ("Common
Stock"), of Penton Media, Inc., a Delaware corporation formerly known as Penton
Publishing, Inc. ("Penton" or the "Company").
The shares of Common Stock will be distributed on the basis of one share of
Common Stock for each share of Pittway stock, without distinction between
classes, to holders of record of Pittway common stock and Pittway class A stock
at the close of business on , 1998 (the "Record Date"). No
consideration will be paid by Pittway's stockholders for the Common Stock
received in the Stock Distribution.
There is not currently a public market for the Common Stock. Application
has been made to list the Common Stock on the New York Stock Exchange.
THE STOCK DISTRIBUTION IS CONDITIONED UPON THE CLOSING IMMEDIATELY
THEREAFTER OF THE ACQUISITION BY PENTON, IN EXCHANGE FOR COMMON STOCK, CASH AND
CERTAIN CONTINGENT RIGHTS, OF DONOHUE MEEHAN PUBLISHING COMPANY, AN ILLINOIS
CORPORATION ("DM PUBLISHING"). See "Introduction." The closing of the
acquisition is conditioned upon the satisfaction or waiver of various closing
conditions. See "DM Publishing Combination Agreement -- Closing Conditions." It
is anticipated that such closing and the Stock Distribution will occur on or
about , 1998. Certificates representing the shares of Common Stock
distributed in the Stock Distribution will be mailed as soon as practicable
after the closing of the acquisition. After the Stock Distribution and the
acquisition of DM Publishing, approximately 22,739,000 shares of Common Stock
will be outstanding.
RECIPIENTS OF COMMON STOCK IN THE STOCK DISTRIBUTION SHOULD NOTE THE
FACTORS DISCUSSED IN "RISK FACTORS" BEGINNING ON PAGE 17.
------------------------
NO STOCKHOLDER APPROVAL OF THE STOCK DISTRIBUTION IS REQUIRED OR SOUGHT. PITTWAY
IS NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND PITTWAY A
PROXY. YOU ARE FURTHER REQUESTED NOT TO SURRENDER ANY PITTWAY COMMON STOCK OR
CLASS A STOCK CERTIFICATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
Questions relating to the Stock Distribution should be directed to James F.
Vondrak, Secretary of Pittway Corporation, 200 South Wacker Drive, Suite 700,
Chicago, Illinois 60606-5802 (telephone: (312) 831-1070). After the Stock
Distribution, stockholders of Penton with inquiries relating to the Stock
Distribution or their ownership of Common Stock should contact Preston L. Vice,
Senior Vice President of Penton (telephone: (216) 696-7000).
The date of this Prospectus is , 1998.
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TABLE OF CONTENTS
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SUMMARY OF CERTAIN INFORMATION............. 3
FORWARD-LOOKING STATEMENTS................. 5
INTRODUCTION............................... 7
The Company.............................. 7
The Stock Distribution................... 8
THE STOCK DISTRIBUTION..................... 8
Reasons for the Stock Distribution and
the DM Publishing Combination.......... 8
Manner of the Stock Distribution......... 9
Pittway Stock Held under or Issuable
pursuant to Pittway Employee Plans..... 9
Relationship between Penton and Pittway
after the Stock Distribution........... 10
Certain Federal Income Tax Aspects of the
Stock Distribution..................... 10
DM PUBLISHING COMBINATION AGREEMENT........ 11
Closing Consideration and Contingent
Rights................................. 11
Employment Agreements.................... 12
Representations and Warranties........... 12
Indemnification and Hold Harmless
Agreements............................. 13
Certain Tax Matters...................... 15
Expenses................................. 16
Registration Rights...................... 16
Closing Conditions....................... 16
RISK FACTORS............................... 17
Factors Affecting the Common Stock....... 17
Factors Relating to Taxation............. 18
Factors Relating to Operations........... 18
Effect on the Trading Prices of Pittway
Stock.................................. 20
CAPITALIZATION............................. 21
SELECTED HISTORICAL FINANCIAL
INFORMATION.............................. 22
UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION.............................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................... 28
Overview................................. 28
Results of Operations.................... 28
Foreign Currency......................... 33
Liquidity and Capital Resources.......... 33
Seasonality.............................. 34
Inflation................................ 34
Year 2000 Issue.......................... 34
Forward-Looking Statements............... 34
BUSINESS................................... 35
Overview................................. 35
Industry................................. 36
Business Strategy........................ 38
Recent Acquisitions and Divestitures..... 39
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Sources of Revenue....................... 40
Information Products and Services........ 41
Production and Distribution.............. 49
Promotion and Marketing.................. 50
Competition.............................. 50
Trademarks and Intellectual Property
Rights................................. 50
Customers................................ 50
Environmental Matters.................... 51
Employees................................ 51
Properties............................... 51
Litigation............................... 51
MANAGEMENT................................. 52
Board of Directors....................... 52
Committees of the Board of Directors..... 54
Executive Officers....................... 54
Significant Employees.................... 56
EXECUTIVE COMPENSATION..................... 58
Compensation Tables...................... 58
Penton Compensation Plans................ 60
Employment Agreements.................... 66
CERTAIN TRANSACTIONS....................... 67
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND EXECUTIVE OFFICERS AND
DIRECTORS................................ 68
DESCRIPTION OF CAPITAL STOCK............... 71
Common Stock............................. 71
Preferred Stock.......................... 71
Listing and Trading of Common Stock...... 71
Dividends on Common Stock................ 71
Stock Distribution Agent, Transfer Agent
and Registrar.......................... 71
ANTI-TAKEOVER EFFECTS...................... 72
Business Combinations.................... 72
Classified Board of Directors............ 73
Number of Directors; Removal;
Vacancies.............................. 73
Stockholder Action; Special Meetings..... 73
Stockholder Proposals and Nominations.... 73
Amendment of Bylaws...................... 74
LIMITATIONS ON LIABILITY AND
INDEMNIFICATION OF OFFICERS AND
DIRECTORS................................ 75
Elimination of Liability in Certain
Circumstances.......................... 75
Indemnification and Insurance............ 75
1999 ANNUAL STOCKHOLDERS MEETING........... 75
LEGAL MATTERS.............................. 75
EXPERTS.................................... 76
AVAILABLE INFORMATION...................... 76
INDEX TO FINANCIAL STATEMENTS.............. F-1
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2
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SUMMARY OF CERTAIN INFORMATION
This summary is qualified by the more detailed information set forth
elsewhere in this Prospectus, which should be read in its entirety. When used
with reference to periods after the Stock Distribution (as defined below), the
terms "Penton" and the "Company" mean Penton Media, Inc. and its subsidiaries
after giving effect to the DM Publishing Combination (as defined below).
Penton's logo and certain of the titles and logos of Penton's publications and
media services referred to herein are trademarks of Penton. Each trade name,
trademark or service mark of any other company appearing in the Prospectus is
the property of its holder.
PENTON........................ Penton Media, Inc. ("Penton") is a Delaware
corporation formerly known as Penton
Publishing, Inc. Founded in 1892 by John
Augustus Penton, Penton is a leading business
media company. Penton's principal media
platforms, including magazines, trade shows and
conferences, and electronic media products,
provide proprietary information to business
users and integrated marketing solutions to
industry suppliers. Penton's publications,
trade shows and conferences, and electronic
media products currently serve the electronics,
design/engineering, manufacturing, supply
chain/aviation, mechanical
systems/construction, foodservice/hospitality,
government/compliance, and management markets,
and, upon completion of the DM Publishing
Combination, will also serve the convenience
store/baking market.
DM PUBLISHING COMBINATION..... Immediately following the Stock Distribution,
Penton will acquire Donohue Meehan Publishing
Company, an Illinois corporation ("DM
Publishing"), through a merger of DM Publishing
into a subsidiary of Penton in exchange for
common stock, par value $.01 per share ("Common
Stock"), of Penton, cash and contingent rights
to receive additional cash (and/or under
certain circumstances additional Common Stock)
(the "DM Publishing Combination"). At the
closing of the acquisition, Penton will enter
into a two-year employment agreement with each
of DM Publishing's two shareholders. See "DM
Publishing Combination Agreement."
Penton believes that the DM Publishing
Combination will benefit Penton and its
stockholders because, among other things, it
will strengthen Penton's position in publishing
for the foodservice industry. Penton also
expects to benefit from the addition to its
management of the two shareholders of DM
Publishing, who, combined, have over fifty
years of experience in publishing for that
industry.
MANAGEMENT.................... It is expected that all current senior
management of both Penton and DM Publishing,
who have extensive experience in the business
media industry, will remain with Penton after
the Stock Distribution and the DM Publishing
Combination. The current Chief Executive
Officer and the current President of Penton,
who will be serving immediately following the
Stock Distribution and the DM Publishing
Combination, have 24 and 21 years,
respectively, of experience in this industry.
The various operating unit heads of the major
Penton operations who will be serving
immediately following the Stock Distribution
and the DM Publishing Combination have, on
average, over 25 years of experience in this
industry.
For information regarding employment agreements
with certain senior management of Penton and DM
Publishing, see "DM
3
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Publishing Combination Agreement -- Employment
Agreements" and "Executive Compensation --
Employment Agreements."
STOCK DISTRIBUTION............ The distribution of Common Stock to
stockholders of Pittway.
DISTRIBUTING COMPANY.......... Pittway Corporation, a Delaware corporation
("Pittway").
STOCK DISTRIBUTION RATIO...... One share of Common Stock for each share of
Pittway common stock, and one share of Common
Stock for each share of Pittway class A stock,
held of record on the Record Date.
RECORD DATE................... Close of business on ,
1998.
STOCK DISTRIBUTION DATE....... Expected to be on or about
, 1998. On the Stock
Distribution Date, the Stock Distribution Agent
will begin distributing Common Stock
certificates to stockholders of Pittway.
Pittway stockholders will not be required to
make any payment or to take any other action in
connection with the Stock Distribution.
STOCKHOLDERS OF PITTWAY WILL CONTINUE TO OWN
THEIR PITTWAY COMMON STOCK AND PITTWAY CLASS A
STOCK AND ARE NOT REQUIRED TO, AND SHOULD NOT,
SURRENDER CERTIFICATES REPRESENTING SUCH STOCK.
See "The Stock Distribution -- Manner of the
Stock Distribution."
STOCK DISTRIBUTION AGENT...... Harris Trust and Savings Bank
P.O. Box A-3504
Chicago, Illinois 60690-3504
(312) 461-5360
SHARES OUTSTANDING............ Approximately 21,200,000 shares of Common Stock
(based on the aggregate number of shares of
common stock and class A stock of Pittway
outstanding on the Record Date) will be
distributed in the Stock Distribution.
Approximately 1,539,000 shares of Common Stock
will be distributed in connection with the DM
Publishing Combination (excluding shares that
may be contingently issuable in the year 2000).
See "DM Publishing Combination Agreement --
Closing Consideration and Contingent Rights."
Approximately 22,739,000 shares of Common Stock
will be outstanding immediately after the Stock
Distribution and the DM Publishing Combination.
At or about such time, certain debt convertible
into Common Stock and certain options to
purchase Common Stock will also be outstanding.
See "Capitalization."
CONDITION..................... THE STOCK DISTRIBUTION IS CONDITIONED UPON THE
CLOSING IMMEDIATELY THEREAFTER OF THE DM
PUBLISHING COMBINATION. SEE "INTRODUCTION." The
closing of the DM Publishing Combination is
conditioned upon the satisfaction or waiver of
various closing conditions. See "DM Publishing
Combination Agreement -- Closing Conditions."
RISK FACTORS.................. Stockholders should consider the factors
discussed under "Risk Factors."
TRADING MARKET................ Application has been made to list the Common
Stock on the New York Stock Exchange. It is not
anticipated that there will be "when issued"
trading of the Common Stock prior to the Stock
Distribution Date.
STOCK TICKER SYMBOL........... PME
4
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TRANSFER AGENT AND
REGISTRAR..................... Harris Trust and Savings Bank
P.O. Box A-3504
Chicago, Illinois 60690-3504
(312) 461-5360
FEDERAL INCOME TAX
CONSEQUENCES.................. Pittway has received a ruling from the Internal
Revenue Service that the Stock Distribution
will be tax-free to Pittway and its
stockholders for federal income tax purposes.
See "The Stock Distribution -- Certain Federal
Income Tax Aspects of the Stock Distribution."
ANTI-TAKEOVER PROVISIONS...... Certain provisions of Delaware corporation law
and of Penton's certificate of incorporation
and bylaws may have the effect of discouraging
unsolicited takeover bids from third parties.
See "Anti-Takeover Effects."
PENTON DIVIDEND POLICY........ Penton expects to pay initial quarterly
dividends in an amount of $.03 per share. The
future payment of dividends will depend on
business decisions that will be made by the
Board of Directors from time to time based upon
the results of operations and financial
condition of Penton and such other business
considerations as the Board of Directors
considers relevant.
PRINCIPAL OFFICE OF PENTON.... 1100 Superior Avenue
Cleveland, Ohio 44114
(216) 696-7000
FORWARD-LOOKING STATEMENTS
This Prospectus contains statements that constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). All statements other than statements
of historical facts included in this Prospectus are forward-looking statements.
Forward-looking statements are typically identified by the words "believe,"
"expect," "anticipate," "intend," "estimate" and similar expressions. Although
such forward-looking statements (and the assumptions upon which they are based)
reflect Penton's current reasonable judgment regarding the direction of its
business, actual results will almost always vary, sometimes materially. Penton
undertakes no obligation to release publicly any revisions to any such
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated results. The information
contained in this Prospectus, including without limitation the information under
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," identifies important factors that could affect
actual results, and Penton's forward-looking statements are expressly qualified
in their entirety by such factors.
5
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table summarizes certain financial data with respect to
Penton. The historical income statement data for each of the three years in the
period ended December 31, 1997 and balance sheet data as of December 31, 1996
and 1997 have been derived from Penton's audited annual financial statements and
notes thereto, which appear elsewhere in this Prospectus. The historical data as
of or for the three months ended March 31, 1998 and 1997 have been derived from
unaudited financial statements appearing elsewhere herein which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. The unaudited pro forma data reflect adjustments to Penton's historical
data for the year ended December 31, 1997, and the three months ended March 31,
1998, to give effect to: (i) the acquisition of Independent Exhibitions Limited,
Equity Information Exchange Limited and Service Exhibitions Limited
(collectively referred to herein as "INDEX"), which was completed on December
12, 1997, as if such acquisition had occurred on January 1, 1997 and had been
included on the basis of its twelve months ended November 30, 1997, (ii) the DM
Publishing Combination as if such acquisition had occurred on January 1, 1997,
(iii) the issuance of Common Stock pursuant to the DM Publishing Combination as
if such issuance had occurred on January 1, 1997, and (iv) other adjustments
required to reflect the combined results of operations of Penton as a separate
public company. See "Unaudited Pro Forma Combined Financial Information."
Historical and pro forma results may not be indicative of the future performance
of Penton as a separate public company. The information set forth below should
be read in conjunction with the audited and unaudited Penton historical
consolidated financial information, the unaudited pro forma combined financial
information, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," included elsewhere in this Prospectus. Historical
dividends per share have not been presented because Penton was not a public
company during the periods presented.
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HISTORICAL PRO FORMA
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HISTORICAL PRO FORMA THREE MONTHS THREE
---------------------------------------------------- ------------ ENDED MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31, ENDED
---------------------------------------------------- DECEMBER 31, ------------------- MARCH 31,
1993 1994 1995 1996 1997 1997 1997 1998(a) 1998
-------- -------- -------- -------- -------- ------------ -------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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FOR THE PERIOD:
OPERATING RESULTS
Revenues.............. $149,991 $159,284 $179,900 $188,557 $204,931 $222,957 $ 48,666 $ 52,485 $ 54,589
Operating income
(b)................. 7,063 10,290 11,947 18,499 25,297 28,407 4,857 4,665 4,976
Income from continuing
operations.......... 3,920 6,062 8,625 10,956 14,874 14,923 2,718 2,340 2,379
Income from
discontinued
operations.......... (6) 51 (48) -- -- -- -- -- --
Cumulative effect of
changes in
accounting
principles.......... (190) -- -- -- -- -- -- -- --
Net income............ 3,724 6,113 8,577 10,956 14,874 14,923 2,718 2,340 2,379
Income from continuing
operations and net
income per share,
basic and diluted
(c)................. .18 .29 .40 .52 .70 .66 .13 .11 .10
OTHER DATA
EBITDA (d)............ $ 12,208 $ 15,886 $ 17,719 $ 24,410 $ 31,848 $ 36,749 $ 6,535 $ 6,692 $ 7,217
Capital
expenditures........ 6,151 7,593 4,989 4,822 5,450 5,646 759 1,128 1,153
Depreciation and
amortization........ 5,145 5,596 5,772 5,911 6,551 8,342 1,678 2,027 2,241
AT END OF PERIOD:
Total assets of
continuing
operations............ $101,519 $105,901 $116,494 $108,799 $156,426 $177,918 $123,826 $159,094 $182,522
Investment in
discontinued
operations............ 4,818 5,241 -- -- -- -- -- -- --
Total assets............ 106,337 111,142 116,494 108,799 156,426 177,918 123,826 159,094 182,522
Goodwill and other
intangibles........... 22,954 22,784 21,916 21,940 71,822 103,361 36,837 71,673 103,212
Stockholder's equity.... 60,675 61,847 70,763 59,151 69,613 83,559 61,869 71,953 88,044
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(a) Operating results for the period were negatively impacted by period costs of
trade shows acquired in December 1997 for which revenues will not be
recognized until the trade shows are held in future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(b) Revenues less operating expenses. See Consolidated Statement of Income
included in Penton's Consolidated Financial Statements.
(c) Historical earnings per share are based on 21,200,000 shares of Common Stock
outstanding. Pro forma earnings per share are based on 22,739,000 shares,
consisting of the historical shares outstanding increased by 1,539,000
shares issuable upon completion of the DM Publishing Combination. The actual
number of shares to be issued in the Stock Distribution and the DM
Publishing Combination may differ from the amounts presented herein.
(d) Penton defines EBITDA as operating income before depreciation and
amortization. EBITDA is often used to analyze and compare companies on the
basis of operating performance and cash flow. However, EBITDA is not
adjusted for all non-cash expenses or for working capital, capital
expenditures and other investment requirements. EBITDA should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
6
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INTRODUCTION
THE COMPANY
Penton Media, Inc., a Delaware corporation formerly known as Penton
Publishing, Inc. ("Penton" or the "Company"), is a direct, wholly-owned
subsidiary of Pittway Corporation, a Delaware corporation ("Pittway"). Founded
in 1892 by John Augustus Penton, Penton is a leading business media company.
Penton's principal media platforms, including magazines, trade shows and
conferences, and electronic media products, provide proprietary information to
business users, and integrated marketing solutions to industry suppliers.
Penton's publications, trade shows and conferences, and electronic media
products serve the electronics, design/engineering, manufacturing, supply
chain/aviation, mechanical systems/construction, foodservice/hospitality,
government/compliance, and management markets, and, upon completion of the DM
Publishing Combination (as defined below), will also serve the convenience
store/baking market. Penton's diverse array of products provide
business-to-business marketers with the tools to communicate effectively with
their customers, and provide current information to the markets served. Penton
had total revenue of approximately $205 million in 1997.
Widely recognized as a publisher of high-quality business and trade
magazines, Penton has, in recent years, diversified its media platforms to
include trade shows and conferences, electronic media products (including Web
sites and CD-ROMs), custom publishing, research, databases, and information
product sales. Penton also owns a printing plant, Penton Press, which prints
nearly all of Penton's publications and approximately 50 outside publishers'
magazines, and a direct-mail and marketing services business, Curtin &
Pease/Peneco.
Penton is the fifth largest specialized business magazine publisher in the
United States, according to the American Business Press, the leading association
for the business publishing industry. Penton publishes 42 national business and
trade publications with a combined circulation of over 2.7 million subscribers
worldwide. Of the 29 Penton magazines that serve measured, competitive market
segments, 90% are ranked either first or second in their markets. Some of
Penton's leading magazine brands include Air Transport World, American
Machinist, Computer-Aided Engineering, Electronic Design, IndustryWeek, Machine
Design, Microwaves & RF, New Equipment Digest, and Wireless Systems Design.
Penton's magazines accounted for approximately 74% of Penton's total revenue in
1997.
Penton has aggressively expanded its presence in the trade show and
conference business in recent years, and currently operates 63 trade shows and
conference events. Penton acquired three trade show companies in 1997: A/E/C
SYSTEMS International ("A/E/C") was acquired in January and Independent
Exhibitions Limited, Equity Information Exchange Limited, and Service
Exhibitions Limited (collectively referred to herein as "INDEX") and Industrial
Shows of America ("ISOA") were acquired in December. Penton's trade shows
include the A/E/C SYSTEMS International Shows, Computers for Contractors,
Computers in Manufacturing, International Leisure Industry Week, the North
American Warehousing & Distribution Exposition & Conference, and the Wireless
Symposium & Exhibition. Conferences include the America's Best Plants Series and
the Global Leadership Forum. Trade shows and conferences accounted for
approximately 5% of Penton's total revenue in 1997. On a pro forma basis, had
INDEX and ISOA been acquired in January 1997, Penton's trade show and conference
revenue would have accounted for 12% of Penton's total revenue in 1997, and
Penton would have sold approximately 1.4 million net square feet of exhibit
space to over 5,500 exhibiting companies.
In addition to trade shows and conferences, electronic media products have
expanded Penton's service to its market segments. As business-to-business use of
the Internet has grown, Penton's product arrays have been expanded to include
World Wide Web sites that provide both information resources and market access
to advertisers. Electronic media products also include editorial content and
statistics, directories, and product selection information on CD-ROMs and
diskettes. In December of 1997, Penton signed a joint venture agreement with
Findlay Publishing of the United Kingdom to produce and market Design Selector
Global, a global database of component product information for mechanical,
electro-mechanical, and electronics engineers that is accessible in both CD-ROM
and Internet formats. Revenues from electronic media products accounted for less
than 1% of Penton's total revenue in 1997.
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In addition to publications, trade shows and conferences, and electronic
media, Penton's business includes marketing and business development services
such as databases, direct-mail marketing, custom communications, and research
services. These services provide integrated market access to Penton's advertiser
customers by facilitating the flow of information between them and their
customers.
THE STOCK DISTRIBUTION
On the Stock Distribution Date (as hereinafter defined), Pittway will
distribute (the "Stock Distribution") 100% of the outstanding common stock, par
value $.01 per share, of Penton ("Common Stock"), on the basis of one share of
Common Stock for each share of Pittway common stock, of the par value of $1.00
per share ("Pittway Common Stock"), and one share of Common Stock for each share
of Pittway class A stock, of the par value of $1.00 per share ("Pittway Class A
Stock," and together with Pittway Common Stock, "Pittway Stock"), to the holders
of record of Pittway Stock as of the close of business on the Record Date (as
hereinafter defined).
THE STOCK DISTRIBUTION IS CONDITIONED UPON THE CLOSING IMMEDIATELY
THEREAFTER OF THE ACQUISITION BY PENTON OF DONOHUE MEEHAN PUBLISHING COMPANY, AN
ILLINOIS CORPORATION ("DM PUBLISHING"), THROUGH THE MERGER OF DM PUBLISHING INTO
A WHOLLY-OWNED SUBSIDIARY OF PENTON ("COMBINATION SUBSIDIARY"). Such acquisition
is the subject of an agreement (the "DM Publishing Combination Agreement") among
Penton, Combination Subsidiary, Pittway, DM Publishing and William C. Donohue
and John J. Meehan, the stockholders of DM Publishing (the "DM Publishing
Shareholders"). See "DM Publishing Combination Agreement." DM Publishing
publishes three magazines in the convenience store/baking market. In connection
with the DM Publishing Combination, the DM Publishing Shareholders will receive
Common Stock constituting 6.767% of the Common Stock outstanding immediately
following the Stock Distribution and the DM Publishing Combination, $7.0 million
in cash, the right to receive up to $4.0 million of additional cash if certain
DM Publishing earnings levels are achieved during 1998 and/or 1999 and the right
to receive additional cash (and/or, in certain circumstances, additional Common
Stock) if the market price of the Common Stock during either of two reference
periods in the year 2000 is less than a specified amount. At the closing of the
DM Publishing Combination, Penton will enter into two-year employment agreements
with the DM Publishing Shareholders pursuant to which Mr. Donohue will serve as
the President and Mr. Meehan will serve as the Executive Vice President of
Combination Subsidiary, which will be renamed Donohue Meehan Publishing Company.
See "DM Publishing Combination Agreement -- Employment Agreements." The DM
Publishing Shareholders will also become members of Penton's Board of Directors
(the "Board"). The acquisition of DM Publishing is referred to herein as the "DM
Publishing Combination."
The closing of the DM Publishing Combination is conditioned upon the
satisfaction or waiver of various closing conditions. See "DM Publishing
Combination Agreement -- Closing Conditions." Certificates representing the
shares of Common Stock distributed in the Stock Distribution will be mailed as
soon as practicable after the closing of the DM Publishing Combination (the date
of distribution being referred to as the "Stock Distribution Date"). It is
anticipated that such closing and the Stock Distribution will occur on or about
, 1998.
Commencing with the Stock Distribution Date, Penton will operate as a
separate public company. Penton's principal executive offices are located at
1100 Superior Avenue, Cleveland, Ohio 44114.
THE STOCK DISTRIBUTION
Prior to the Stock Distribution, Pittway will deliver to Harris Trust and
Savings Bank (the "Stock Distribution Agent"), for delivery to Pittway's
stockholders in the manner described below, 100% of the outstanding Common
Stock.
REASONS FOR THE STOCK DISTRIBUTION AND THE DM PUBLISHING COMBINATION
Pittway believes that it is in the best interests of Pittway and its
stockholders to distribute the Common Stock to Pittway's stockholders.
Penton's business media operations are functionally dissimilar from
Pittway's other businesses, the principal one of which is the manufacture and
distribution of alarm and other security products. As a separate
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public company, Penton will be able to offer its employees incentives that are
more directly linked to the results of the business in which they work. The DM
Publishing Combination should strengthen Penton's position in publishing for the
foodservice industry. Penton also expects to benefit from the addition of the DM
Publishing Shareholders to its management.
The Stock Distribution makes possible the DM Publishing Combination. The DM
Publishing Shareholders indicated early in the negotiations of the DM Publishing
Combination Agreement that a combination of DM Publishing with Penton would not
be acceptable unless Penton were separated from Pittway's other businesses and
operated as a separate public company.
MANNER OF THE STOCK DISTRIBUTION
On the Stock Distribution Date, Pittway will transfer to the Stock
Distribution Agent all shares of Common Stock then owned by Pittway with
instructions to distribute to each holder of record of Pittway Common Stock or
Pittway Class A Stock at the close of business on , 1998
(the "Record Date") one share of Common Stock for each share of Pittway Common
Stock then held and one share of Common Stock for each share of Pittway Class A
Stock then held, and to transfer to Penton all remaining shares of Common Stock
held by the Stock Distribution Agent after the Stock Distribution has been made.
As of the Record Date, there were shares of Pittway Common Stock
outstanding held by approximately holders of record and
shares of Pittway Class A Stock outstanding held by approximately
holders of record. The Stock Distribution will not affect the
number of outstanding shares of Pittway Common Stock or Pittway Class A Stock or
any rights attached thereto.
Included among the shares of Pittway Class A Stock were approximately 6,616
shares issued in the December, 1989 merger of Pittway Corporation, a
Pennsylvania corporation ("Pennsylvania Pittway"), into Pittway (which changed
its name from Standard Shares, Inc. to Pittway Corporation in connection with
the merger) as to which the certificates continue to be held by Harris Trust and
Savings Bank, in its capacity as the successor to the merger exchange agent,
pending the surrender of the corresponding Pennsylvania Pittway stock
certificates by the holders of such certificates. Pending such surrender (or
disposition under applicable escheat laws), Harris Trust and Savings Bank, in
its capacity as the successor to the merger exchange agent, will hold the Common
Stock distributed in respect of such shares (and any dividends and other
distributions paid by Penton on such Common Stock) for the accounts of such
holders.
Holders of record of Pittway Common Stock and Pittway Class A Stock at the
close of business on the Record Date will be entitled to receive shares of
Common Stock without paying any consideration for them. HOLDERS OF PITTWAY
COMMON STOCK AND PITTWAY CLASS A STOCK WILL CONTINUE TO OWN THEIR SHARES OF
PITTWAY STOCK FOLLOWING THE STOCK DISTRIBUTION AND ARE NOT REQUIRED TO, AND
SHOULD NOT, SURRENDER THE CERTIFICATES REPRESENTING THEIR PITTWAY STOCK.
No rights of dissent or appraisal exist with regard to the Stock
Distribution under Delaware law.
Certificates representing shares of Common Stock will be mailed by the
Stock Distribution Agent to record holders of Pittway Stock commencing as soon
as practicable after the completion of the DM Publishing Combination. It is
anticipated that such mailing will commence on or about , 1998.
PITTWAY STOCK HELD UNDER OR ISSUABLE PURSUANT TO PITTWAY EMPLOYEE PLANS
Common Stock distributed in respect of Pittway Stock held in the Pittway
Corporation Blue Chip Profit Sharing and Savings Plan (the "Pittway Profit
Sharing Plan") for the accounts of participants will be delivered to the trustee
of the Pittway Profit Sharing Plan for credit to the accounts of such
participants (but purchases of Common Stock for such accounts will not be
permitted). Shares of Common Stock or other stock credited to the accounts of
participants who are employees of Penton and its subsidiaries will subsequently
be transferred to their accounts under the Penton Media, Inc. Retirement Savings
Plan. Penton may in the future require the disposition of any stock other than
Common Stock held under such plan. Pittway may in the future require the
disposition of Common Stock held under the Pittway Profit Sharing Plan for the
accounts of the remaining participants.
Holders of options to purchase Pittway Stock that are outstanding under
Pittway's 1990 Stock Awards Plan, 1996 Director Stock Option Plan or 1998
Director Stock Option Plan, but that are not exercised prior to
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the Record Date (whether because then not yet exercisable or because the holder
chooses not to exercise them) will not receive upon any exercise subsequent to
the Record Date any shares of Common Stock. Instead, the numbers of shares of
Pittway Stock subject to, and the exercise prices of, such options will be
adjusted as provided in each respective plan. However, as described under
"Executive Compensation -- Employment Agreements," Thomas L. Kemp, Penton's
Chief Executive Officer, has the right under his employment agreement with
Penton to surrender to Pittway prior to the Stock Distribution his options to
purchase Pittway Stock which are outstanding under Pittway's 1990 Stock Awards
Plan and receive from Penton following the Stock Distribution options to
purchase Common Stock under Penton's Equity Incentive Plan (as defined below).
Holders of stock appreciation rights outstanding at the Record Date under
Pittway's 1990 Stock Awards Plan will not participate in the Stock Distribution.
Instead, such stock appreciation rights, which by their terms are exercisable
solely for cash, will be adjusted as provided in such plan.
RELATIONSHIP BETWEEN PENTON AND PITTWAY AFTER THE STOCK DISTRIBUTION
Subsequent to the Stock Distribution and the DM Publishing Combination,
Penton will operate as a separate public company. Pittway will have no
continuing relationship with Penton, other than as an arm's-length supplier of
up to a specified level of assistance in connection with Penton's preparation of
its tax returns for periods ending on or prior to December 31, 1998, and in
connection with Penton's other tax matters for such periods, if so requested by
Penton. However, the indemnification obligations of each to the other under the
DM Publishing Combination Agreement will remain in effect. See "DM Publishing
Combination Agreement -- Indemnification and Hold Harmless Agreements" and " --
Certain Tax Matters." Immediately following the Stock Distribution and the DM
Publishing Combination, two of Penton's 11 directors will also be members of
Pittway's Board of Directors. See "Management -- Board of Directors."
CERTAIN FEDERAL INCOME TAX ASPECTS OF THE STOCK DISTRIBUTION
Pittway has received a ruling from the Internal Revenue Service (the "IRS")
that for federal income tax purposes (i) Pittway will not recognize gain or loss
on the Stock Distribution, (ii) Pittway stockholders will not recognize gain or
loss (and no amount will otherwise be included in their income) on their receipt
of Penton Common Stock in the Stock Distribution, (iii) the basis of the Penton
Common Stock received by each holder of Pittway Stock will be determined by
allocating such holder's tax basis in such Pittway Stock immediately before the
Stock Distribution between such Pittway Stock and Penton Common Stock based on
the relative fair market values of each immediately after the Stock
Distribution, and (iv) the holding period of the Penton Common Stock received in
the Stock Distribution will include the holding period of the Pittway Stock on
which such Penton Common Stock was distributed, provided that such Pittway Stock
is held as a capital asset on the Stock Distribution Date. As soon as
practicable after trading in Penton Common Stock has commenced, Pittway intends
to make available to its stockholders information regarding allocation of the
basis between Penton Common Stock and Pittway Stock.
The ruling addresses only the generally applicable material federal income
tax consequences of the Stock Distribution. It does not address all federal
income tax consequences that may apply to particular stockholders nor any
foreign, state or local tax consequences. Pittway's stockholders are urged to
consult their own tax advisors regarding the particular tax consequences of
their receipt of Penton Common Stock in the Stock Distribution.
The federal income tax consequences described above could be affected by
events subsequent to the Stock Distribution. See "Risk Factors -- Factors
Relating to Taxation -- Tax Aspects of the Stock Distribution."
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DM PUBLISHING COMBINATION AGREEMENT
The detailed terms of and conditions to the DM Publishing Combination are
contained in the Combination Agreement dated as of May 21, 1998 by and among
Penton, Combination Subsidiary, Pittway, DM Publishing, and the DM Publishing
Shareholders, which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part. The following summary description of the
material terms of the DM Publishing Combination Agreement is qualified in its
entirety by, and made subject to, the more complete information set forth in the
DM Publishing Combination Agreement.
The DM Publishing Combination Agreement deals primarily with four subjects:
(i) Penton's acquisition of DM Publishing; (ii) Penton's post-acquisition
employment of the DM Publishing Shareholders; (iii) the respective
representations and warranties and indemnification obligations of Penton,
Pittway, and the DM Publishing Shareholders relating to the DM Publishing
Combination; and (iv) Penton's grant of registration rights to the DM Publishing
Shareholders.
CLOSING CONSIDERATION AND CONTINGENT RIGHTS
At the closing under the DM Publishing Combination Agreement, DM Publishing
will be merged into Combination Subsidiary, a wholly-owned subsidiary of Penton,
which will thereupon change its name to Donohue Meehan Publishing Company. In
the merger, the DM Publishing Shareholders will receive (i) Common Stock
constituting 6.767% of the Common Stock outstanding immediately following the
Stock Distribution and the merger, (ii) cash in an amount equal to $7.0 million,
(iii) the right to receive additional cash in an amount up to a maximum of $4.0
million if certain DM Publishing earnings levels are achieved during 1998 and/or
1999, and (iv) the right to receive additional cash (and/or, in certain
circumstances, additional Common Stock) if the market price of the Common Stock
during either of two reference periods in the year 2000 is less than a specified
amount. Each of such contingent rights is described in greater detail below.
Contingent Right Based on Earnings. In the event Surviving Corporation's
Pre-Tax Profits (the pre-tax profits of DM Publishing and its successor in the
merger, adjusted as provided in the DM Publishing Combination Agreement) for
1998 exceed $4.0 million, the DM Publishing Shareholders, in the aggregate, will
be entitled to receive from Penton in cash an amount equal to 4 times the excess
of such Pre-Tax Profits over $4.0 million. In the event Surviving Corporation's
Pre-Tax Profits for 1999 exceed $4.0 million, the DM Publishing Shareholders, in
the aggregate, will be entitled to receive from Penton in cash an amount equal
to (i) 5 times the excess of such Pre-Tax Profits over $4.0 million, less (ii)
the amount of any payment to which the DM Publishing Shareholders, in the
aggregate, became entitled with respect to 1998. However, the total amount of
such contingent cash payments may not exceed $4.0 million. In the event of the
termination, effective as of a date prior to December 31, 1999, of either DM
Publishing Shareholder's employment by Penton without "Cause" or by either DM
Publishing Shareholder for "Good Reason" (in each case, as defined in the
employment agreements referred to below under " -- Employment Agreements"), or
in the event of Penton's liquidation effective as of a date prior to December
31, 1999, if such effective date precedes December 31, 1998, the contingent cash
payment on account of Surviving Corporation's Pre-Tax Profits for each of 1998
and 1999 will be $2.0 million and if such effective date is on or subsequent to
December 31, 1998, the contingent cash payment on account of Surviving
Corporation's Pre-Tax Profits for 1999 will be the excess of $4.0 million over
the amount of the contingent cash payment, if any, on account of Surviving
Corporation's Pre-Tax Profits for 1998. Various actions by DM Publishing's
successor in the merger prior to the close of business on December 31, 1999
require the prior written consent of the DM Publishing Shareholders.
Contingent Right Based on Market Value. In the event that the Average
Market Price (as defined in the DM Publishing Combination Agreement) of the
Common Stock during the period of 30 days following the date on which Penton
publicly releases its financial results for calendar year 1999 or the Average
Market Price of the Common Stock during the period of 30 days ending on the
second anniversary of the date of the DM Publishing Combination is less than
$29.0 million divided by the number of shares of Common Stock issued to the DM
Publishing Shareholders at the closing of the DM Publishing Combination (the
"Guaranteed Average Market Price"), Penton must, on the 15th day after such
second anniversary, pay to each DM
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Publishing Shareholder cash in an amount equal to (i) the excess of the
Guaranteed Average Market Price over the lower of such Average Market Prices
(such excess being referred to as the "Spread") multiplied by (ii) the number of
shares of Common Stock issued to such DM Publishing Shareholder at the closing
of the DM Publishing Combination (whether or not held by him at the time of
payment). However, the payment to be made with respect to any such share no
longer held by such DM Publishing Shareholder at the end of the day preceding
payment that has been sold by such DM Publishing Shareholder (or by any
transferee that acquired such share from such DM Publishing Shareholder in a
transaction not involving a sale) for a gross price equal to or exceeding the
Guaranteed Average Market Price less the Spread is limited to the excess of the
Guaranteed Average Market Price over such gross price (and thus, for example, no
payment is to be made with respect to any such share so sold for a gross price
equal to or exceeding the Guaranteed Average Market Price). If and to the extent
the total amount payable to any DM Publishing Shareholder, or to the DM
Publishing Shareholders in the aggregate, would, in the reasonable judgment of
the DM Publishing Shareholders or Penton, cause the DM Publishing Combination
not to constitute a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), then, at the election of
either of the DM Publishing Shareholders or Penton, Penton will substitute for a
portion of such cash shares of Common Stock (valued at the Average Market Price
during the second reference period) to the extent necessary to avoid such result
(except that cash will be paid in lieu of fractional shares).
EMPLOYMENT AGREEMENTS
At the closing under the DM Combination Agreement, Penton will enter into a
two-year employment agreement with each of the DM Publishing Shareholders. Each
such employment agreement will provide for an annual salary of $250,000, the
right to receive a bonus at the end of the employment term of up to $114,000
dependent on Surviving Corporation's Pre-Tax Profits for 1998 and 1999 (or a
bonus in the amount of $114,000 in the event of a termination of employment or
liquidation that gives rise to the maximum $4.0 million of contingent cash
payments to the DM Publishing Shareholders based on earnings), and participation
in Penton's standard benefits package. Each employment agreement will include
non-competition, non-solicitation, and confidentiality obligations on the part
of the DM Publishing Shareholder which generally survive its termination.
REPRESENTATIONS AND WARRANTIES
Penton makes representations and warranties in the DM Publishing
Combination Agreement to the DM Publishing Shareholders with respect to, among
other things, (i) the organization and qualification of Penton and Combination
Subsidiary, (ii) the authority of Penton and Combination Subsidiary relative to
the DM Publishing Combination Agreement and the transaction contemplated
thereby, (iii) Penton's capitalization, (iv) Penton's subsidiaries and other
equity interests, (v) certain Penton financial statements, (vi) the absence of
undisclosed liabilities, (vii) the absence of material adverse changes since
December 31, 1997 with respect to Penton, (viii) pending litigation, (ix) the
absence of claims for brokerage commissions and similar compensation in
connection with the transaction contemplated by the DM Publishing Combination
Agreement, (x) employees and retiree welfare benefit liabilities, (xi)
compliance with laws, (xii) affiliate transactions, (xiii) the tax status of the
Stock Distribution and the absence of certain plans or intentions of Penton or
Combination Subsidiary relevant to the tax status of the DM Publishing
Combination, and (xiv) Penton's conduct of business prior to the DM Publishing
Combination. Many of such representations and warranties are qualified as being
to the knowledge of certain officers of Penton and are given subject to
identified and/or materiality exceptions.
The DM Publishing Shareholders jointly and severally make representations
and warranties in the DM Publishing Combination Agreement to Penton with respect
to, among other things, (i) the organization and qualification of DM Publishing,
(ii) the authority of the DM Publishing Shareholders and DM Publishing relative
to the DM Publishing Combination Agreement and the transaction contemplated
thereby, (iii) the investment purpose of each of the DM Publishing Shareholders
in acquiring the shares of Common Stock to be issued in the DM Publishing
Combination, (iv) DM Publishing's capitalization, (v) DM Publishing's
subsidiaries and other equity interests, (vi) title to and the sufficiency of DM
Publishing's assets, (vii) certain DM Publishing financial statements, (viii)
the absence of undisclosed liabilities, (ix) the absence of material
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adverse changes since December 31, 1997 with respect to DM Publishing, (x)
pending litigation, (xi) the absence of claims for brokerage commissions and
similar compensation in connection with the transaction contemplated by the DM
Publishing Combination Agreement, (xii) employees and retiree welfare benefit
liabilities, (xiii) compliance with laws, (xiv) affiliate transactions, (xv) the
absence of certain actions or failures to act of the DM Publishing Shareholders
or DM Publishing relevant to the tax status of the DM Publishing Combination,
and (xvi) DM Publishing's conduct of business prior to the DM Publishing
Combination. Many of such representations and warranties are qualified as being
to the knowledge of the DM Publishing Shareholders after due inquiry of certain
other individuals and are given subject to identified and/or materiality
exceptions.
Pittway makes representations and warranties in the DM Publishing
Combination Agreement to Penton with respect to, among other things, (i)
Pittway's organization and qualification, (ii) Pittway's authority relative to
the DM Publishing Combination Agreement and the transaction contemplated
thereby, (iii) the absence of claims for brokerage commissions and similar
compensation in connection with the transaction contemplated by the DM
Publishing Combination Agreement, and (iv) affiliate transactions. Certain of
such representations and warranties are qualified as being to the knowledge of
certain officers of Pittway and are given subject to identified and/or
materiality exceptions.
INDEMNIFICATION AND HOLD HARMLESS AGREEMENTS
Penton Indemnification Provisions for Benefit of the DM Publishing
Shareholders. Penton agrees in the DM Publishing Combination Agreement to
indemnify, defend and hold harmless the DM Publishing Shareholders from and
against any adverse consequences asserted against or imposed upon or incurred by
either of them resulting from, relating to, or by reason of (i) any breach by
Penton of any of the representations and warranties made by Penton to the DM
Publishing Shareholders in the DM Publishing Combination Agreement or any
covenant of Penton or Combination Subsidiary in the DM Publishing Combination
Agreement or (ii) generally, any liability of any former subsidiary of Penton,
including any control group liability of Penton to the extent it is directly
attributable to any such former subsidiary.
DM Publishing Shareholder Indemnification Provisions for Benefit of Penton.
The DM Publishing Shareholders, jointly and severally, agree to indemnify,
defend and hold harmless Penton, Combination Subsidiary and their respective
directors, officers, employees and agents from and against any adverse
consequences asserted against or imposed upon or incurred by any of them
resulting from, relating to, or by reason of:
(i) any breach by the DM Publishing Shareholders of any of the
representations and warranties made by them to Penton in the DM Publishing
Combination Agreement or any covenant of any DM Publishing Shareholder or
DM Publishing in the DM Publishing Combination Agreement;
(ii) any liability of any current or former affiliate of DM
Publishing, including any control group liability of DM Publishing to the
extent it is directly attributable to any such affiliate; or
(iii) any untrue or alleged untrue statement of material fact
contained in any registration statement or filing made by Penton of the
kind described in Section 7.2(g) of the DM Publishing Combination
Agreement, or any amendment or supplement to any of the foregoing, or any
omission or alleged omission of a material fact required to be stated in
any of the foregoing or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged
untrue statement or such omission or alleged omission relates to DM
Publishing or its affiliates or the DM Publishing Shareholders or their
respective affiliates.
Pittway Indemnification Provisions for Benefit of Penton. Pittway agrees to
indemnify, defend and hold harmless Penton and its subsidiaries and their
directors, officers, employees and agents from and against any adverse
consequences asserted against or imposed upon or incurred by any of them
resulting from, relating to, or by reason of:
(i) any breach by Pittway of any of the representations and warranties
made by Pittway to Penton in the DM Publishing Combination Agreement or any
covenant of Pittway in the DM Publishing Combination Agreement;
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(ii) subject to certain exceptions, any tax liabilities of the Pittway
affiliated tax group for periods (or portions thereof) ended at the time of
or prior to the Stock Distribution which are not directly attributable to
Penton or its then or former subsidiaries, and any control group liability
arising out of events occurring or circumstances existing prior to the
Stock Distribution which is not directly attributable to Penton or its then
or former subsidiaries; or
(iii) any tax imposed on Penton or its subsidiaries resulting from the
failure, as a result of the failure of Pittway to maintain control of
Penton until the Stock Distribution as described in Section 368(c) of the
Code or of actions taken after the Stock Distribution by Pittway or any
company which after the Stock Distribution is a subsidiary of Pittway, of
the Stock Distribution to qualify as a tax-free (to Pittway and the
stockholders of Pittway) distribution under Section 355 of the Code.
Notwithstanding the foregoing or any other provision of the DM Publishing
Combination Agreement, in no event is Pittway obligated to indemnify, defend or
hold harmless, or otherwise obligated, with respect to any adverse consequences
arising out of the condition or sufficiency of the assets or stock of Penton or
any of its subsidiaries or the existence of any security interests relating
thereto.
Penton Indemnification Provisions for Benefit of Pittway. Penton agrees to
indemnify, defend and hold harmless Pittway, its post-Stock Distribution
subsidiaries, its and their directors, officers, employees and agents, and any
person who or which because of a relationship to Pittway or one of its
subsidiaries at the time of or prior to the Stock Distribution would be liable
(jointly and severally or otherwise) with respect to liabilities of Pittway or
of any subsidiary of Pittway, from and against any adverse consequences asserted
against or imposed upon or incurred by any of them resulting from, relating to,
or by reason of:
(i) any liability arising out of the operations, acts, omissions or
status of Penton or any of its subsidiaries;
(ii) any breach by Penton of any covenant of Penton in the DM
Publishing Combination Agreement; or
(iii) any untrue or allegedly untrue statement of material fact
contained in any filing of Pittway of the kind described in Section 7.2(h)
of the DM Publishing Combination Agreement, or any amendment or supplement
to any of the foregoing, or any omission or alleged omission of a material
fact required to be stated in any of the foregoing or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement or such omission or alleged omission
relates to Penton or any of its subsidiaries or their respective affiliates
(other than Pittway or any post-Stock Distribution Pittway subsidiary), or
to DM Publishing or an affiliate of DM Publishing, or to either DM
Publishing Shareholder or his affiliates, or is contained in any
information furnished in writing by Penton or a DM Publishing Shareholder
pursuant to Section 7.2(g) or (h) of the DM Publishing Combination
Agreement or is deemed approved by the DM Publishing Shareholders pursuant
to Section 7.2(i) of the DM Publishing Combination Agreement.
Notwithstanding the foregoing, in no event is Penton obligated to indemnify,
defend or hold harmless with respect to any adverse consequences from and
against which Pittway has agreed to indemnify, defend and hold harmless Penton
and its subsidiaries and its and their directors, officers, employees and agents
pursuant to Section 7.7(c) of the DM Publishing Combination Agreement or with
respect to any adverse consequences by reason of taxes which Pittway has agreed
to pay pursuant to the final sentence of Section 7.12(a) of the DM Publishing
Combination Agreement.
DM Publishing Shareholders Indemnification Provisions for Benefit of
Pittway. The DM Publishing Shareholders, jointly and severally, agree to
indemnify, defend and hold harmless Pittway and its directors, officers,
employees and agents from and against any adverse consequences asserted against
or imposed upon or incurred by any of them resulting from, relating to, or by
reason of any untrue or allegedly untrue statement of material fact contained in
any filing of Pittway of the kind described in Section 7.2(g) of the DM
Publishing Combination Agreement, or any amendment or supplement to any of the
foregoing, or any omission or alleged omission of a material fact required to be
stated in any of the foregoing or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or such omission or alleged omission relates to DM Publishing or an
affiliate of DM Publishing, or to either DM Publishing Shareholder or his
affiliates, and is contained in any information furnished in writing by a DM
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Publishing Shareholder pursuant to Section 7.2(g) of the DM Publishing
Combination Agreement or is deemed approved by the DM Publishing Shareholders
pursuant to Section 7.2(i) of the DM Publishing Combination Agreement.
Limitations on Certain Indemnification Claims. The DM Publishing
Combination Agreement provides that claims against Penton or Pittway for
indemnification for adverse consequences arising out of a breach of a
representation or warranty cannot be made after the third anniversary of the
closing of the DM Publishing Combination. The DM Publishing Combination
Agreement provides that claims for indemnification against the DM Publishing
Shareholders for adverse consequences arising out of a breach of a
representation or warranty (other than those relating to taxes) cannot be made
after the 20th day after the second anniversary of the closing of the DM
Publishing Combination. In any event, Penton generally has no obligation to
indemnify the DM Publishing Shareholders from and against any adverse
consequences resulting from any breach by it of its representations and
warranties in the DM Publishing Combination Agreement until the DM Publishing
Shareholders have suffered aggregate adverse consequences by reason of all such
breaches as to which claims for indemnification have been timely made in excess
of $500,000 (at which point Penton is obligated to indemnify the DM Publishing
Shareholders from and against the adverse consequences exceeding $500,000
resulting from all such breaches; which indemnification obligation will be
discharged in full by Penton's payment to the DM Publishing Shareholders of an
amount equal to such excess adverse consequences). The DM Publishing
Shareholders generally have no obligation to indemnify Penton from and against
any adverse consequences resulting from any breach by the DM Publishing
Shareholders of the representations and warranties made by them in the DM
Publishing Combination Agreement until Penton has suffered aggregate adverse
consequences by reason of all such breaches as to which claims for
indemnification have been timely made in excess of $500,000 (at which point the
DM Publishing Shareholders are obligated to indemnify Penton from and against
the adverse consequences exceeding $500,000 resulting from all such breaches as
to which claims for indemnification have been timely made).
CERTAIN TAX MATTERS
Penton agrees in the DM Publishing Combination Agreement not to take
(directly or indirectly), and not to permit any of its subsidiaries to take
(directly or indirectly), any action (whether prior to, at the time of or after
the Stock Distribution) which would cause the Stock Distribution not to be tax
free to Pittway, its post-Stock Distribution subsidiaries and the stockholders
of Pittway under the provisions of Section 355 of the Code.
Subject to a contingent exception, each of the DM Publishing Shareholders
agrees not to take (directly or indirectly) or fail to take (directly or
indirectly) any action (whether prior to, at the time of or after the DM
Publishing Combination) and not to permit DM Publishing to take (directly or
indirectly) or fail to take (directly or indirectly) any action prior to such
time which would cause the DM Publishing Combination (i) to give rise to any tax
to DM Publishing or its successor or (ii) not to constitute a "reorganization"
under Section 368(a) of the Code.
Subject to stated exceptions, Penton agrees that after the consummation of
the Stock Distribution it will not take (directly or indirectly) any action that
would cause the DM Publishing Combination (i) to give rise to any tax to Penton,
DM Publishing's successor or the DM Publishing Shareholders or (ii) not to
constitute a "reorganization" under Section 368(a) of the Code.
Penton agrees that after the Stock Distribution it will not take (directly
or indirectly), or permit any of its subsidiaries to take (directly or
indirectly), any action that would increase the tax liability of any of the
companies included in the Pittway affiliated group for any period ending at or
prior to or including the consummation of the Stock Distribution.
The DM Publishing Shareholders agree that after the time of the DM
Publishing Combination they will not take (directly or indirectly) any action
that would increase the tax liability of DM Publishing for any period ending at
or prior to such time.
15
<PAGE> 17
EXPENSES
The DM Publishing Combination Agreement provides that, subject to certain
exceptions described below under " -- Closing Conditions," the DM Publishing
Shareholders, jointly and severally, will bear the costs and expenses (including
legal fees and expenses) incurred by DM Publishing or the DM Publishing
Shareholders in connection with the transaction contemplated by the DM
Publishing Combination Agreement, Pittway will bear its costs and expenses
(including legal fees and expenses) incurred in connection with the DM
Publishing Combination Agreement and the transaction contemplated thereby and
Penton will bear its costs and expenses (including legal fees and expenses)
incurred in connection with the DM Publishing Combination Agreement and the
transaction contemplated thereby; except that Penton will also bear the costs
and expenses of the audit of the DM Publishing financial statements required for
the registration statement of which this Prospectus is a part.
REGISTRATION RIGHTS
In the DM Publishing Combination Agreement, Penton grants to the DM
Publishing Shareholders certain rights with respect to registration under the
Securities Act of 1933, as amended ("the Securities Act"), of the shares of
Common Stock issued to them at the closing of the DM Publishing Combination (and
any additional shares that may be issued in respect thereof in stock splits,
stock combinations or the like). Generally, the DM Publishing Shareholders have
the right to demand one registration (which must be of at least 25% of the
shares of Common Stock issued to them at the closing of the DM Publishing
Combination) at any time during the 60 days immediately following the second
anniversary of the Stock Distribution. In addition, whenever Penton proposes to
register Common Stock under the Securities Act (other than on Form S-8 or S-4 or
any similar or successor forms) within the 30 months following the consummation
of the DM Publishing Combination, Penton is required, subject to certain
limitations, to include in such registration all shares of Common Stock issued
to the DM Publishing Shareholders at the closing of the DM Publishing
Combination (and any additional shares that may be issued in respect thereof in
stock splits, stock combinations or the like) that the DM Publishing
Shareholders request to include therein. Penton has agreed to pay all
registration expenses incurred by Penton (but not by the DM Publishing
Shareholders) in connection with any such registration.
In connection with registrations of Common Stock pursuant to such
registration rights, Penton has agreed, subject to certain limitations, to
indemnify the DM Publishing Shareholders participating therein against certain
liabilities, including liabilities under the Securities Act, or to make
provision for contribution to an indemnified party if such indemnification is
unavailable; and the DM Publishing Shareholders who participate in any such
registrations have agreed, subject to certain limitations, to indemnify Penton
against certain of such liabilities and to make provision for such contribution.
CLOSING CONDITIONS
The respective obligations of Penton, Combination Subsidiary, DM
Publishing, and the DM Publishing Shareholders to effect the DM Publishing
Combination are subject to the condition that the Stock Distribution shall have
been consummated at or prior to the closing of the DM Publishing Combination. In
addition, the respective obligations of Penton, Combination Subsidiary, DM
Publishing, and the DM Publishing Shareholders to effect the DM Publishing
Combination are subject to, and the obligation of Pittway to effect the Stock
Distribution is subject to, the satisfaction or waiver at or prior to the
closing of the DM Publishing Combination of a number of customary conditions.
In the event the DM Publishing Combination fails to close, depending on the
cause of such failure, Pittway may be required to reimburse the DM Publishing
Shareholders, or the DM Publishing Shareholders may be required to reimburse
Pittway, Penton, and Combination Subsidiary, for their legal and other costs and
expenses incurred in connection with the DM Publishing Combination Agreement and
other resulting damages (including, in certain instances in which Pittway is
required to reimburse, at least $250,000 of such other damages).
16
<PAGE> 18
RISK FACTORS
FACTORS AFFECTING THE COMMON STOCK
No Prior Public Market; Possible Volatility of Stock Price. Application
has been made to list the Common Stock on the New York Stock Exchange (the
"NYSE"). However, there is no established public trading market for the Common
Stock, and there can be no assurance as to the prices at which the Common Stock
will trade after the Stock Distribution. Until an orderly market develops (which
will depend in part upon the extent to which holders of Pittway Stock conclude
that they wish to hold the Common Stock received in the Stock Distribution),
prices at which the Common Stock trades may fluctuate significantly. Trading
prices will be influenced by many factors, including the depth and liquidity of
the market for the Common Stock, quarterly variations in operating results,
announcements of new publications, acquisitions or technological innovations by
Penton or its competitors, Penton's dividend policy, the possibility of future
sales of Common Stock by Penton or its significant stockholders, the operating
and stock price performance of other companies that investors may deem
comparable to Penton, changes in financial estimates by securities analysts,
investor perception of Penton and the prospects for its businesses, and general
economic and stock market conditions.
Certain Anti-Takeover Effects. Certain provisions of Delaware corporation
law and of Penton's Restated Certificate of Incorporation and Amended and
Restated Bylaws may inhibit changes in control of Penton not approved by the
Board and may have the effect of depriving stockholders of an opportunity to
receive a premium over the prevailing market price of the Common Stock in the
event of an attempted hostile takeover. These provisions include: (i) a
classified Board, (ii) a prohibition on stockholder action through written
consents, (iii) a requirement that special meetings of stockholders be called
only by the Board, (iv) advance notice requirements for stockholder proposals
and nominations, and (v) "blank check" preferred stock. See "Anti-Takeover
Effects." The existence of these provisions may adversely affect the
marketability and market price of the Common Stock. See also "-- Factors
Relating to Taxation -- Covenants and Indemnities."
Ownership by Certain Significant Stockholders. It is projected that
immediately following the Stock Distribution and the issuance of Common Stock at
the closing of the DM Publishing Combination, members of the Harris family will
own in the aggregate approximately 23.99% of the Common Stock, each of the DM
Publishing Shareholders will own approximately 3.38% of the Common Stock, Mario
J. Gabelli and entities controlled directly or indirectly by Mr. Gabelli will
own in the aggregate approximately 13.05% of the Common Stock and Janus Capital
Corporation will own approximately 8.33% of the Common Stock. See "Stock
Ownership of Certain Beneficial Owners and Executive Officers and Directors." At
that time, certain members of the Harris family and each of the DM Publishing
Shareholders also will serve on the Board for terms that do not expire until
2000 or later. See "Management -- Board of Directors." The concentration of
voting power among these stockholders may inhibit changes in control of Penton
and may adversely affect the liquidity of the market for Common Stock.
Shares Eligible for Future Sale. After consummation of the Stock
Distribution and the DM Publishing Combination, approximately 22,739,000 shares
of Common Stock will be outstanding, substantially all of which held by persons
other than "affiliates" of Penton will be freely tradeable.
The shares of Common Stock held by "affiliates" of Penton, including the DM
Publishing Shareholders, will not be tradeable in the absence of registration
under the Securities Act or an exemption therefrom, including the exemption
contained in Rule 144 under the Securities Act. Sales of the Common Stock issued
to the DM Publishing Shareholders in connection with the DM Publishing
Combination could be effected pursuant to Rule 144 after the first anniversary
of the consummation of the DM Publishing Combination or pursuant to the
registration rights granted to the DM Publishing Shareholders under the DM
Publishing Combination Agreement. See "DM Publishing Combination
Agreement -- Registration Rights."
After consummation of the Stock Distribution, Common Stock will be issuable
if certain outstanding debt of Penton is converted into Common Stock. In
particular, notes issued in connection with the December 1997 acquisition of
INDEX may be converted, in certain circumstances, into up to UK pound sterling
3.7 million worth of Common Stock at fair market value. See "Capitalization."
17
<PAGE> 19
In addition, 2.6 million shares of Common Stock will be available for
awards under the Equity Incentive Plan and the Director Option Plan (as defined
below) after the Stock Distribution. See "Capitalization." It is anticipated
that shares issued pursuant to the Equity Incentive Plan and the Director Option
Plan will be freely transferable, except that transfers by directors and
executive officers of Penton will be subject to volume limitations under Rule
144.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options), or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock. If such sales reduce the market
price of the Common Stock, Penton's ability to raise additional capital in the
equity markets could be adversely affected.
FACTORS RELATING TO TAXATION
Tax Aspects of the Stock Distribution. Pittway has received a favorable
ruling with respect to the Stock Distribution from the IRS. Actions or events
subsequent to the Stock Distribution by Penton or Pittway should not, in and of
themselves, render the Stock Distribution taxable, but under certain
circumstances could cause the IRS to review the circumstances as of the Stock
Distribution Date. If the IRS ruling were invalidated as a result of such
review, the receipt of Common Stock in the Stock Distribution could become
taxable to the recipients as a dividend and/or a corporate level gain could be
recognized by Pittway, based on the amount by which the fair market value of the
Common Stock distributed in the Stock Distribution, excluding the value of DM
Publishing, exceeds Pittway's basis in its Penton capital stock.
Covenants and Indemnities. Penton has agreed not to take (directly or
indirectly), and not to permit any of its subsidiaries to take (directly or
indirectly), any action (whether prior to, at the time of or after the Stock
Distribution) which would cause the Stock Distribution not to be tax free to
Pittway, its post-Stock Distribution subsidiaries and the stockholders of
Pittway under the provisions of Section 355 of the Code and to indemnify Pittway
for any adverse consequences suffered by it as a result of the breach of such
obligation by Penton. See "DM Publishing Combination
Agreement -- Indemnification and Hold Harmless Agreements" and "-- Certain Tax
Matters." These agreements may inhibit changes in control of Penton for a period
of time after the Stock Distribution.
FACTORS RELATING TO OPERATIONS
No Operating History as an Independent Company. Penton does not have an
operating history as an independent public company. The operations of Penton
have been conducted under separate management, but with strategic direction and
financial and administrative service support from Pittway corporate management
and financial support from Pittway. Following the Stock Distribution, Penton may
purchase from Pittway, at an arm's-length price, up to a specified level of
assistance in connection with tax-related matters for periods ending on or prior
to December 31, 1998. Penton's management will also have the benefit of advice
from its Board that, immediately following the Stock Distribution, will include
two directors who are also directors of Pittway. After the Stock Distribution
Date, however, Penton will, for the first time, be operating as a separate
public company without financial support from Pittway and will incur the
additional expense associated with being a public company and will maintain its
own lines of credit, banking relationships, and administrative functions. While
Penton has been profitable as part of Pittway, there can be no assurance that
its profits will continue at the same level as a stand-alone company.
Dependence on and Cyclicality of Advertising Revenue. Penton's principal
source of revenue is advertising. For the year ended December 31, 1997,
approximately 76% of Penton's revenues came from advertising. Penton's
advertising revenues, as well as those of business magazines in general, are
dependent upon general economic cycles. Historically, advertising revenues
increase during economic recoveries, and decrease during both general economic
downturns and regional economic recessions. Despite the strength of the current
economy, however, business publishers are experiencing increasing pressure on
advertising rates. In the event of a general economic downturn or a recession in
the United States, Penton's advertisers may reduce their advertising budgets or
intensify their attempts to negotiate lower advertising rates. Any material
18
<PAGE> 20
decline in advertising revenue would have a material adverse effect on Penton's
business, financial condition, and results of operations.
Competition. Penton's print publications compete with those of a number of
publishers, some of whom have greater financial resources that may enhance their
ability to compete in the business magazine publishing market. Overall
competitive factors include the market's perception of the niche served by the
magazine, readers' preference for the publication's content, editorial quality,
quantity and quality of circulation, reader response to advertisers' products
and services, the effectiveness of sales teams, customer service, and
advertising rates. Penton also faces broad competition for audiences from other
business media and trade show management companies that organize trade shows and
conferences, and from both traditional publishing companies and newly emerging
content providers in the online segment of its business.
Acquisition Risks. An important part of Penton's business strategy is the
acquisition of other business media. See "Business -- Business Strategy." The
success of Penton's acquisition strategy will depend upon Penton's ability to
complete acquisitions and integrate and manage acquired businesses, realize
economies of scale and control costs. Acquisitions involve risks, including
difficulties in integrating acquired operations, diversion of management
resources and unanticipated problems and liabilities. Although management has
successfully integrated the operations of businesses acquired in the past, there
can be no assurance that Penton will be able to implement its acquisition
strategy successfully.
Depending upon the circumstances, Penton may fund a particular acquisition
through the issuance of Common Stock, with cash flow from operations, or with
borrowed funds. Acquisitions may result in potentially dilutive issuances of
equity securities, increased depreciation and amortization expense, increased
interest expense, increased financial leverage, or decreased operating income,
any of which could have a material adverse effect on Penton's operating results.
There can be no assurance that Penton will be able to complete acquisitions on
terms favorable to it or that Penton's existing financial resources, including
cash flow from operations, will be sufficient to fund such acquisitions. If
Penton does not have sufficient cash resources available to fund acquisitions,
its growth could be limited unless it is able to obtain additional capital
through subsequent debt or equity financings. There can be no assurance that
Penton will be able to obtain such financings or that, if available, such
financings will be on terms acceptable to Penton.
New Product Risks. Penton's success has depended in part upon its ability
to monitor rapidly changing market trends and to adapt its publications and
services to meet the evolving information needs of existing and emerging target
audiences. Penton's future success will depend in part on its ability to
continue offering new publications and services that successfully gain market
acceptance by addressing the needs of specific audience groups within Penton's
target markets. The process of internally researching and developing, launching,
gaining acceptance, and establishing profitability for a new publication or
service, or assimilating and marketing an acquired publication or service, is
inherently risky and costly. New publications and services generally incur
initial significant operating losses. There can be no assurance that Penton's
efforts to introduce new or assimilate acquired publications or services will be
successful or profitable. In addition, Penton has invested in, and intends to
continue to invest in, the development of certain Internet services, which are
currently generating losses. The Internet is still in the early stages of
development as a commercial medium, and there can be no assurance that these
services will be successful or profitable. Costs related to the development of
new publications and services are expensed as incurred and, accordingly,
Penton's profitability from year to year may be adversely affected by the number
and timing of new product launches.
Consolidation of Principal Vendors. Penton's principal vendors are paper
suppliers. The paper industry is currently experiencing consolidation among its
principal participants. Such consolidation may result in: (i) decreased
competition, which may lead to increased prices, interruptions, and delays in
services provided by such vendors and (ii) greater dependence on certain
vendors. Such factors could adversely affect Penton's results of operations.
Risks Associated with Trade Shows and Conferences. Obtaining desirable
dates and venues for trade show and conference events has become increasingly
competitive as the trade show industry has grown. Penton generally reserves
venues and dates; however, as is consistent with industry practice, it does not
pay for such reservations. Reservations are not binding until a contract is
signed between a facility operator and
19
<PAGE> 21
Penton, and contracts generally hold venues and dates for only one year. Should
Penton lose dates and venue for an event, the profitability and future success
of that event could be affected. In addition, circumstances beyond the control
of Penton, such as natural disasters, labor strikes, and transportation
shutdowns, could present financial risk to Penton's trade shows and conferences
and to Penton's results of operations.
Risks Associated with International Operations. Penton recently acquired
its first operations outside the United States. A component of Penton's growth
strategy is further expansion into international markets. Penton has limited
experience in developing localized versions of its publications and services and
in marketing and distributing them internationally. In addition, there are
certain risks inherent in doing business in international markets, such as 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
multinational operations, currency fluctuations, state-imposed restrictions on
the repatriation of funds, and potentially adverse tax consequences. There can
be no assurance that one or more of such factors will not have a material
adverse effect on Penton's future international operations and, consequently, on
Penton's results of operations.
Effect of Increases in Paper and Postage Costs. The price of paper is a
significant expense of Penton relating to its print products and direct-mail
solicitations, accounting for approximately 8% of total operating expenses in
1997. While paper prices have increased by an average of less than 1% annually
since 1989, paper prices have been volatile over the past several years. They
began to rise in 1994, rose significantly in 1995, dropped in 1996 and, to a
lesser extent, 1997, and have been increasing in 1998. Penton does not use
forward contracts and all of its paper supply contracts provide for price
adjustments on a quarterly basis to reflect then-prevailing market prices. As a
result, significant increases in paper prices may have an adverse effect on
Penton's future results of operations.
Postage for magazine distribution and direct-mail solicitations is also a
significant expense for Penton, which uses the United States Postal Service for
domestic distribution of all of its products and marketing materials. Postage
accounted for approximately 8% of total operating expenses in 1997. Postage
costs increase periodically and can be expected to increase in the future. The
United States Postal Service has announced a proposed 6.5% increase for
periodical class rates, which is expected to become effective in late 1998.
No assurance can be given that Penton can recoup paper or postage cost
increases by passing them through to its advertisers and, accordingly, such cost
increases could have a material adverse effect on Penton's results of
operations.
EFFECT ON THE TRADING PRICES OF PITTWAY STOCK
After the Stock Distribution, Pittway Stock will continue to be listed for
trading on the NYSE. Following the Stock Distribution, the trading prices of
Pittway Stock are expected to be lower than the trading prices of Pittway Stock
prior to the Stock Distribution. After the Stock Distribution, the aggregate
trading prices of a share of Pittway Stock and a share of Common Stock may be
less than, equal to or greater than the trading price of a share of Pittway
Stock prior to the Stock Distribution.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth, as of March 31, 1998, the historical
short-term borrowings and capitalization of Penton and DM Publishing and the pro
forma short-term borrowings and capitalization of Penton after giving effect to
the DM Publishing Combination as if it occurred at March 31, 1998. This table
should be read in conjunction with the Penton Consolidated Financial Statements
and the Notes thereto, the DM Publishing Financial Statements and the Notes
thereto, and the Unaudited Pro Forma Combined Financial Information, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
COMBINED
PRO FORMA PENTON
PENTON DM PUBLISHING ADJUSTMENTS(a) PRO FORMA
------- ------------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SHORT-TERM NOTES PAYABLE..................... $34,648 $ 90 $ 7,000 $41,738
======= ===== ======= =======
LONG-TERM CAPITAL LEASE OBLIGATIONS.......... $ -- $ 101 $ -- $ 101
EQUITY:
Preferred Stock 2,000,000 shares
authorized; none issued................. -- -- -- --
Common Stock, par value $.01 per share;
60,000,000 shares authorized; 21,200,000
shares issued and outstanding (pro
forma -- 22,739,000 shares (b))......... 212 60 (45) 227
Capital in excess of par value............. 29,630 -- 26,143 55,773
Retained earnings.......................... 42,111 (505) (9,562) 32,044
------- ----- ------- -------
Total equity....................... 71,953 (445) 16,536 88,044
------- ----- ------- -------
TOTAL LONG-TERM DEBT AND EQUITY.............. $71,953 $(344) $16,536 $88,145
======= ===== ======= =======
</TABLE>
- ---------------
(a) See Unaudited Pro Forma Combined Balance Sheet and the notes thereto.
(b) Excludes (i) shares of Common Stock that may be issued pursuant to certain
convertible notes issued in connection with the INDEX acquisition, (ii) 2.5
million shares of Common Stock reserved for issuance under the Equity
Incentive Plan, including shares issuable to Thomas L. Kemp, Penton's Chief
Executive Officer, pursuant to his employment agreement with Penton, (iii)
100,000 shares of Common Stock reserved for issuance under the Director
Option Plan, and (iv) shares that may become issuable to the DM Publishing
Shareholders subsequent to the completion of the DM Publishing Combination.
See "DM Publishing Combination Agreement -- Closing Consideration and
Contingent Rights," "Risk Factors -- Factors Affecting Common
Stock -- Shares Eligible for Future Sale," "Management -- Board of
Directors" and "Executive Compensation -- Equity Incentive Plan" and
"-- Employment Agreements." It is anticipated that options with respect to
approximately 640,000 shares of Common Stock under the Equity Incentive Plan
and 69,000 shares of Common Stock under the Director Option Plan will be
awarded as of the eighth trading day following the Stock Distribution Date
at an exercise price per share equal to the average closing price of the
Common Stock for the five trading day period ending such day and that
Deferred Shares under the Equity Incentive Plan will be awarded in lieu of
certain bonuses otherwise payable in cash in 1998. See "Executive
Compensation -- Employment Agreements."
21
<PAGE> 23
SELECTED HISTORICAL FINANCIAL INFORMATION
The following table summarizes certain financial data with respect to
Penton. The historical income statement data for each of the three years in the
period ended December 31, 1997 and balance sheet data as of December 31, 1996
and 1997 have been derived from Penton's audited annual financial statements and
notes thereto, which appear elsewhere in this Prospectus. The historical data as
of or for the three months ended March 31, 1998 and 1997 have been derived from
unaudited financial statements appearing elsewhere herein, which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. Historical results may not be indicative of the future performance of
Penton as a separate public company. The information set forth below should be
read in conjunction with the audited and unaudited Penton historical
consolidated financial information and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus. Historical dividends per share have not been presented because
Penton was not a public company during the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998(a)
--------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues.................... $149,991 $159,284 $179,900 $188,557 $204,931 $ 48,666 $ 52,485
Operating income (b)........ 7,063 10,290 11,947 18,499 25,297 4,857 4,665
Income from continuing
operations................ 3,920 6,062 8,625 10,956 14,874 2,718 2,340
Income from discontinued
operations................ (6) 51 (48) -- -- -- --
Cumulative effect of changes
in accounting
principles................ (190) -- -- -- -- -- --
Net income.................. 3,724 6,113 8,577 10,956 14,874 2,718 2,340
Income from continuing
operations and net income
per share, basic and
diluted (21,200,000 shares
outstanding).............. .18 .29 .40 .52 .70 .13 .11
OTHER DATA
EBITDA (c).................. $ 12,208 $ 15,886 $ 17,719 $ 24,410 $ 31,848 $ 6,535 $ 6,692
Capital expenditures........ 6,151 7,593 4,989 4,822 5,450 759 1,128
Depreciation and
amortization.............. 5,145 5,596 5,772 5,911 6,551 1,678 2,027
AT END OF PERIOD
Total assets of continuing
operations................ $101,519 $105,901 $116,494 $108,799 $156,426 $123,836 $159,094
Investment in discontinued
operations................ 4,818 5,241 -- -- -- -- --
Total assets................ 106,337 111,142 116,494 108,799 156,426 123,836 159,094
Goodwill and other
intangibles............... 22,954 22,784 21,916 21,940 71,822 36,837 71,673
Stockholder's equity........ 60,675 61,847 70,763 59,151 69,613 61,869 71,953
</TABLE>
- ---------------
(a) Operating results for the period were negatively impacted by period costs of
trade shows acquired in December 1997 for which revenues will not be
recognized until the trade shows are held in future periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(b) Revenues less operating expenses. See Consolidated Statement of Income
included in Penton's Consolidated Financial Statements.
(c) Penton defines EBITDA as operating income before depreciation and
amortization. EBITDA is often used to analyze and compare companies on the
basis of operating performance and cash flow. However, EBITDA is not
adjusted for all non-cash expenses or for working capital, capital
expenditures and other investment requirements. EBITDA should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
22
<PAGE> 24
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Statements of Income reflect
adjustments to Penton's historical Consolidated Statements of Income for the
year ended December 31, 1997, and the three months ended March 31, 1998, to give
effect to: (i) the acquisition of INDEX, which was completed on December 12,
1997, as if such acquisition had occurred on January 1, 1997 and had been
included on the basis of its twelve months ended November 30, 1997, (ii) the DM
Publishing Combination as if such acquisition had occurred on January 1, 1997,
(iii) the issuance of Common Stock pursuant to the DM Publishing Combination as
if such issuance had occurred on January 1, 1997, and (iv) other adjustments
required to reflect the combined results of operations of Penton as a separate
public company.
The following Unaudited Pro Forma Combined Balance Sheet as of March 31,
1998, presents the financial position of Penton assuming that the DM Publishing
Combination had been completed as of that date.
The adjustments required to reflect the transactions are set forth in the
"Pro Forma Adjustments" column.
The unaudited pro forma combined financial information should be read in
conjunction with the historical Consolidated Financial Statements of Penton and
the historical Financial Statements of INDEX and of DM Publishing, included
elsewhere in this Prospectus. All purchase price allocations for the INDEX
acquisition and the DM Publishing Combination, treated as purchase transactions,
are preliminary in nature and are subject to change within the twelve months
following each acquisition based on refinements as actual data becomes
available. The pro forma information presented is for informational purposes
only and may not necessarily reflect future results of operations or financial
position or what the results of operations or financial position would have been
had the INDEX acquisition, the Stock Distribution, and the DM Publishing
Combination actually taken place at the beginning of the periods or as of the
dates specified.
23
<PAGE> 25
PENTON MEDIA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMBINED
PENTON DM PUBLISHING PRO FORMA PENTON
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES..................................... $52,485 $2,104 $ -- $54,589
------- ------ ----- -------
OPERATING EXPENSES:
Editorial, production and circulation...... 23,322 666 -- 23,988
Selling, general and administrative........ 22,471 613 300(c) 23,384
Depreciation and amortization.............. 2,027 17 197(b) 2,241
------- ------ ----- -------
47,820 1,296 497 49,613
------- ------ ----- -------
OPERATING INCOME............................. 4,665 808 (497) 4,976
------- ------ ----- -------
OTHER INCOME (EXPENSE):
Interest expense........................... (662) (5) (114)(b) (781)
Miscellaneous, net......................... 3 10 -- 13
------- ------ ----- -------
(659) 5 (114) (768)
------- ------ ----- -------
INCOME BEFORE INCOME TAXES................... 4,006 813 (611) 4,208
------- ------ ----- -------
INCOME TAXES:
Current.................................... 1,687 -- (45)(b) 1,832
190(c)
Deferred................................... (21) -- 18(c) (3)
------- ------ ----- -------
1,666 -- 163 1,829
------- ------ ----- -------
NET INCOME................................... $ 2,340 $ 813 $(774) $ 2,379
======= ====== ===== =======
NET INCOME PER SHARE (22,739,000 SHARES
OUTSTANDING)(e)............................ $ .10
=======
</TABLE>
See Unaudited Pro Forma Combined Financial Information and accompanying Notes to
Unaudited Pro Forma Combined Financial Information.
24
<PAGE> 26
PENTON MEDIA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMBINED
PENTON COMBINED
PENTON INDEX PRO FORMA AND DM PUBLISHING PRO FORMA PENTON
HISTORICAL HISTORICAL ADJUSTMENTS INDEX HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- --------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES..................... $204,931 $8,668 $ -- $213,599 $9,358 $ -- $222,957
-------- ------ ------- -------- ------ ------- --------
OPERATING EXPENSES:
Editorial, production and
circulation.............. 94,560 3,455 -- 98,015 2,826 -- 100,841
Selling, general and
administrative........... 78,523 4,971 (103) (c) 81,354 2,894 1,119 (c) 85,367
(2,037) (c)
Depreciation and
amortization............. 6,551 26 902 (c) 7,479 75 788 (b) 8,342
-------- ------ ------- -------- ------ ------- --------
179,634 8,452 (1,238) 186,848 5,795 1,907 194,550
-------- ------ ------- -------- ------ ------- --------
OPERATING INCOME............. 25,297 216 1,238 26,751 3,563 (1,907) 28,407
-------- ------ ------- -------- ------ ------- --------
OTHER INCOME (EXPENSE):
Interest expense........... (841) -- (2,249) (c) (3,090) (21) (455) (b) (3,566)
Gain on sale of
publication.............. 1,040 -- -- 1,040 -- 1,040
Miscellaneous, net......... 10 44 -- 54 75 -- 129
-------- ------ ------- -------- ------ ------- --------
209 44 (2,249) (1,996) 54 (455) (2,397)
-------- ------ ------- -------- ------ ------- --------
INCOME BEFORE INCOME TAXES... 25,506 260 (1,011) 24,755 3,617 (2,362) 26,010
-------- ------ ------- -------- ------ ------- --------
INCOME TAXES:
Current.................... 9,754 72 (1,718) (c) 8,910 34 (179) (b) 9,628
802 (c) 863 (c)
Deferred................... 878 (23) 491 (c) 1,346 2 111 (c) 1,459
-------- ------ ------- -------- ------ ------- --------
10,632 49 (425) 10,256 36 795 11,087
-------- ------ ------- -------- ------ ------- --------
NET INCOME................... $ 14,874 $ 211 $ (586) $ 14,499 $3,581 $(3,157) $ 14,923
======== ====== ======= ======== ====== ======= ========
NET INCOME PER SHARE
(22,739,000 SHARES
OUTSTANDING)(e)............ $ .66
========
</TABLE>
See Unaudited Pro Forma Combined Financial Information and accompanying Notes to
Unaudited Pro Forma Combined Financial Information.
25
<PAGE> 27
PENTON MEDIA, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
COMBINED
PENTON DM PUBLISHING PRO FORMA PENTON
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
----------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 1,732 $1,147 $ -- $ 2,879
Accounts and notes receivable, less allowance for
doubtful accounts of $2,481....................... 32,112 1,360 -- 33,472
Inventories......................................... 3,660 -- -- 3,660
Deferred tax assets................................. 2,995 -- -- 2,995
Prepayments, deposits and other..................... 5,077 77 -- 5,154
---------- ------ ------- --------
45,576 2,584 -- 48,160
---------- ------ ------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Buildings........................................... 6,168 -- -- 6,168
Machinery and equipment............................. 61,623 535 -- 62,158
---------- ------ ------- --------
67,791 535 -- 68,326
Less: accumulated depreciation...................... 41,341 329 -- 41,670
---------- ------ ------- --------
26,450 206 -- 26,656
Land................................................ 426 -- -- 426
---------- ------ ------- --------
26,876 206 -- 27,082
---------- ------ ------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of $6,863... 65,371 -- 31,539 (a) 96,910
Other intangibles, less accumulated amortization of
$5,443............................................ 6,302 -- -- 6,302
Deferred tax assets................................. 3,951 (23) -- 3,928
Due from parent company............................. 10,880 -- (10,880) (d) --
Miscellaneous....................................... 138 2 -- 140
---------- ------ ------- --------
86,642 (21) 20,659 107,280
---------- ------ ------- --------
$ 159,094 $2,769 $20,659 $182,522
========== ====== ======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable....................................... $ 34,648 $ 90 $ 7,000 (a) $ 41,738
Accounts payable.................................... 8,691 28 -- 8,719
Accrued compensation and benefits................... 7,352 68 -- 7,420
Other accrued expenses.............................. 7,988 -- -- 7,988
Unearned income..................................... 7,929 50 -- 7,979
---------- ------ ------- --------
66,608 236 7,000 73,844
---------- ------ ------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Net deferred pension credits........................ 19,592 -- -- 19,592
Other............................................... 941 2,978 (2,877) (a) 1,042
---------- ------ ------- --------
20,533 2,978 (2,877) 20,634
---------- ------ ------- --------
STOCKHOLDER'S EQUITY:
Common stock........................................ 212 60 (45) (a) 227
Capital in excess of par value...................... 29,630 -- 26,143 (a) 55,773
Retained earnings................................... 42,111 (505) 1,318 (a) 32,044
(10,880) (d)
---------- ------ ------- --------
71,953 (445) 16,536 88,044
---------- ------ ------- --------
$ 159,094 $2,769 $20,659 $182,522
========== ====== ======= ========
</TABLE>
See Unaudited Pro Forma Combined Financial Information and accompanying Notes to
Unaudited Pro Forma Combined Financial Information.
26
<PAGE> 28
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(a) To record the DM Publishing Combination, including the issuance of 1,539,000
shares of Common Stock and $7,000,000 of notes payable. Solely for the
purpose of determining the amount of intangible assets for this pro forma
presentation, a market value of $17 per share of Common Stock was assumed.
Based on such assumed value, intangible assets, consisting preliminarily of
goodwill and trade names, amounted to $31,539,000.
(b) To reflect interest and amortization expense with respect to the debt and
intangible assets resulting from the acquisition of INDEX and the DM
Publishing Combination.
(c) To eliminate fees paid to former owners of INDEX in 1997 and deferred
compensation provisions under terminated DM Publishing agreements
($2,037,000), to record incremental general and administrative costs of
Penton as a separate public company ($1,200,000 in 1997 and $300,000 in
1998), to adjust income taxes for these expenses, and to provide income
taxes for DM Publishing as if it were a wholly-owned subsidiary of Penton
rather than a Subchapter S corporation.
(d) To reflect a dividend equal to the balance of "Due from parent company."
(e) Net income per share is calculated using 22,739,000 shares, consisting of
21,200,000 shares of Common Stock outstanding and 1,539,000 shares issuable
upon completion of the DM Publishing Combination.
27
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Set forth below is a discussion and analysis by Penton management of the
financial condition and results of operations of Penton. Such discussion and
analysis should be read in conjunction with the financial statements and the
notes thereto included elsewhere in this Prospectus.
OVERVIEW
Penton operates in three business segments: media services, printing, and
direct-mail marketing. The segments are based on Penton's internal organization
and are managed separately due to inherent differences in the nature of these
businesses.
The media services segment serves specific industries and broad markets
with integrated product offerings including trade magazines, trade shows and
conferences, directories, electronic media products (including Web sites and
CD-ROMs), custom publishing, research, databases, and information products.
Penton's publications, trade shows and conferences, and electronic media
products serve the electronics, design/engineering, manufacturing, supply
chain/aviation, mechanical systems/construction, foodservice/hospitality,
government/compliance, and management markets, and, upon completion of the DM
Publishing Combination, will also serve the convenience store/baking market.
Revenues of this segment are generated primarily from advertising, which
accounted for 76% of total revenue in 1997, 78% in 1996, and 77% in 1995. No
single advertiser comprised more than 1.4% of Penton's advertising revenue
during 1997. Penton's top 10 advertisers accounted for only 5% of total revenue
and its top 100 customers accounted for less than 18% of total revenues in 1997.
Trade show and conference revenues represented 5% of total revenues in 1997, 3%
in 1996, and 2% in 1995. The printing segment prints magazines, catalogs,
brochures, and direct-mail pieces for the media services segment and outside
commercial customers. The direct-mail marketing segment serves primarily the
pharmaceutical and business services markets with the ability to design,
produce, print, and mail direct-mail marketing campaigns. Penton management is
currently considering strategic alternatives for its direct-mail marketing
segment.
The DM Publishing Combination Agreement was signed on May 21, 1998.
In 1997, Penton acquired three trade show companies -- A/E/C, ISOA, and
INDEX -- for a combined purchase price of $48.7 million, plus contingent
payments of up to $11.6 million based on future earnings. The acquisitions were
accounted for using the purchase method of accounting and, accordingly, the
results of the acquired companies are included in Penton's Consolidated
Statement of Income since their respective dates of acquisition. These companies
will significantly expand the trade show and conference offerings of Penton's
media services segment. Also, in 1997, Penton sold Modern Office Technology
magazine for $1.0 million in cash.
In 1995, Penton sold Progressive Architecture magazine for $1.0 million in
cash and exchanged its Millimeter magazine, plus $0.9 million in cash, for EE
Product News magazine ("EEPN").
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997 (UNAUDITED)
Revenues
Total revenues, after elimination of inter-segment sales, increased $3.8
million, or 8%, from $48.7 million to $52.5 million.
Media services revenues increased $3.0 million, or 7%, to $46.6 million.
Advertising revenues from Penton's publishing operations accounted for
approximately $1.5 million of the increase, primarily as a result of the
publication of Hydraulics and Pneumatics' Fluid Power Handbook and Directory,
which is published every other year. Trade show and conference revenues
increased $1.5 million. The increase was due to the strong performance of the
Wireless Symposium & Exhibition/Portable by Design Show and inclusion for the
first time of the operations of the Service Management Europe Show acquired in
December 1997 as part of INDEX.
28
<PAGE> 30
Printing revenues increased $0.5 million, or 5%, bringing total revenue to
$9.7 million, due principally to the increase of revenues from external
customers.
Direct-mail marketing revenues increased $0.2 million, or 7%, to $2.9
million. The increase was primarily in the related printing operations,
resulting from increased volume from outside customers.
Cost of Production
Penton's total cost of production, after elimination of inter-segment
charges, grew to $23.3 million compared to $22.2 million, representing an
increase of $1.1 million, or 5%.
Media services production costs grew approximately 2%, due to the
publication of the biannual Fluid Power Handbook and Directory, which was not
published in 1997, and the addition of the Service Management Europe Show
acquired in 1997 as part of INDEX.
Cost of production for the printing segment increased approximately $0.4
million due to volume-related growth of outside business.
Direct-mail marketing cost of production increased only 3%, compared to the
7% increase in revenue, due in part to productivity improvements.
Selling, General, and Administrative
Total selling, general, and administrative expenses grew $2.6 million, or
13%, to $22.5 million.
Media services selling, general, and administrative expenses increased
approximately $2.6 million, or 14%. The increase was due to (i) sales volume
growth, (ii) added costs to support two new publications launched in the first
quarter, IW Growing Companies and Penton's Embedded Systems Development, (iii)
costs related to the biannual Fluid Power Handbook and Directory, (iv) expenses
of the Service Management Europe Show held in March 1998 for the first time
under Penton's ownership, and (v) period costs of the newly-acquired trade shows
for which revenues will not be recognized until the trade shows are held in
future periods.
Selling, general, and administrative expenses of the printing segment were
relatively flat.
Direct-mail marketing selling, general, and administrative costs increased
7%, due primarily to an increase in selling costs resulting from the growth in
revenues of its printing operations.
Depreciation and Amortization
Depreciation and amortization increased $0.3 million to $2.0 million. The
higher expense was primarily the result of the amortization of intangible assets
associated with trade shows acquired in December 1997.
Operating Income
Overall, the Company's operating income decreased $0.2 million, or 4%, to
$4.7 million from $4.9 million.
Media services operating income decreased $0.3 million, or 7%. The 1998
first quarter was negatively impacted by the added period costs of trade shows
acquired in 1997, start-up costs associated with the two magazine launches, and
higher amortization expense as noted above.
Operating income of the printing segment increased $0.1 million, due to
volume-related growth in outside customer sales.
The direct-mail marketing operations recorded an operating loss of $0.2
million compared to an operating loss of $0.3 million. The improvement was
largely due to the increase in revenue of this segment's printing operations.
Interest Expense
Interest expense increased $0.5 million, due to additional borrowings to
finance the trade shows acquired in December 1997.
29
<PAGE> 31
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Revenues
Total revenues, after elimination of inter-segment sales, increased $16.3
million, or 9%, from $188.6 million to $204.9 million.
Media services revenues increased $14.5 million, or 9%, to a total of
$181.1 million. Revenues from publishing operations accounted for $9.1 million
of the improvement, due primarily to increased advertising revenues. Advertising
revenues grew 7%, resulting from a 2% growth in page volume and an overall
improvement of 4% in yield per page. In addition, Penton benefited from the
introduction of four publications launched during 1997. Trade show and
conference revenues increased $5.4 million or 100% to $10.8 million due to the
inclusion of a full year of operations of the A/E/C trade shows, acquired in
January 1997.
Revenues from the printing segment increased $1.1 million, or 3%, to $39.0
million. The increase in this segment was principally due to the addition of
several new third party customers, which accounted for a 19% increase in outside
revenue. The media services segment continued to be the printing segment's
principal customer, accounting for $28.6 million of its revenue compared to
$29.0 million.
Direct-mail marketing revenues increased $0.2 million, or 1%, due to a
strong performance from its related printing operation, which experienced a 25%
or $1.8 million increase in revenue from outside customers, and the continued
growth of this segment's advertising agency business. However, the increases
were offset by a decline in revenues of the direct marketing medical group. This
group's revenues declined for the second year in a row as customers continued to
shift their focus from direct marketing of pharmaceutical programs to broader
consumer-oriented mass media advertising. In 1996, management undertook a number
of initiatives to reposition and redirect its business and launched an
advertising agency group to offset the revenue decline of its direct marketing
medical group. The advertising agency group experienced a 39% or $0.4 million
increase in revenue during 1997.
Operating Expense
Operating expenses for Penton, after elimination of inter-segment charges,
increased $9.5 million, or 6%, from $170.1 million to $179.6 million.
Cost of Production
Media services cost of production increased $1.5 million, or 2%, to $80.4
million, due primarily to additional costs related to the inclusion of a full
year's operations of A/E/C, new product launches during the year, and
volume-related growth. These increases were partially offset by savings
resulting from productivity improvements and lower paper costs. As a result, the
ratio of production costs to revenues improved 3%.
Printing costs of production increased $0.6 million, or 2%, to $3.5
million, which was primarily attributable to the increase in volume of outside
sales.
Direct-mail marketing cost of production increased $0.4 million, or 5%, to
$9.3 million. The increase was primarily attributable to the growth of printing
and advertising agency group sales volume offset by a reduction in costs
attributable to lower sales volume of the direct marketing medical group. In
addition, overall costs were negatively impacted by the expensing of development
costs associated with a physicians retraining program launched in 1996.
Selling, General, and Administrative Expense
Selling, general, and administrative costs of media services increased $5.3
million, or 8%. The increase was due principally to an increase in selling costs
resulting from the growth in revenues, inclusion of a full year's operations of
the A/E/C trade shows, and additions of staff to support new product launches.
Selling, general, and administrative expenses of the printing segment
increased $0.2 million, or 11%, primarily from selling costs associated with the
increase in sales volume.
Direct-mail marketing selling, general, and administrative costs increased
$0.4 million as a result of increased selling costs associated with higher sales
volume and an expanded number of customer presentations and related promotion
costs.
30
<PAGE> 32
Depreciation and Amortization
Depreciation and amortization expense increased $0.6 million to $6.5
million. The higher expense was primarily the result of capital equipment
additions and increased amortization of intangible assets associated with the
A/E/C trade show, acquired in January 1997.
Operating Income
Overall, Penton's operating income increased $6.8 million, or 37%, to $25.3
million compared to $18.5 million. Operating income as a percentage of revenue
increased to 12% from 10%, reflecting the benefits achieved from increased
revenue, favorable shifts in product mix including the addition of the A/E/C
trade shows, and improved productivity.
Media services operating income increased $7.2 million, or 41%, to $24.9
million. In 1995, the Company implemented a number of programs to improve
productivity, reduce costs, and streamline operations. These efforts continued
in 1996 and into 1997, resulting in operating savings. When combined with the
favorable impact of revenue growth, productivity improvement and reduced paper
costs, operating income improved from 11% of total media services revenue to
14%.
Operating income from the printing segment improved 21% to $1.5 million.
The increase was primarily due to sales volume increases coupled with the
benefits of reduced paper costs.
Direct-mail marketing operating losses increased $0.6 million to $1.1
million from $0.5 million, which was due principally to the decrease in revenue
of the direct marketing medical group and the expensing of development costs
associated with a physicians retraining program.
Other Income (Expense)
In 1997, other income (expense) included a $1.0 million gain on the sale of
Modern Office Technology magazine offset by $0.8 million of interest expense
incurred as a result of borrowings used to finance acquisitions.
Effective Tax Rates
The effective tax rates were 41.7% and 40.7% in 1997 and 1996,
respectively. An analysis of Penton's effective tax rate appears in Note 7 to
Penton's Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Revenue
Total revenues, after elimination of inter-segment sales, increased $8.7
million, or 5%, from $179.9 million to $188.6 million.
Media services revenues increased $8.3 million, or 5%, to a total of $166.6
million. Revenues from publishing operations accounted for $6.6 million of the
improvement and were primarily attributable to increased advertising revenue.
This increase was offset by a reduction in revenue of approximately $4.2 million
due to the sale of Progressive Architecture magazine in December 1995.
Advertising revenue grew $8.3 million, or 6%, due to a 2% gain in advertising
pages and a 4% increase in yield per page. In addition, 1996 included the
revenue from Penton's biannual directory, Hydraulics and Pneumatics' Fluid Power
Handbook and Directory, which was not published in 1995. Trade show and
conference revenues increased $1.7 million, or 46%, due to the overall growth of
Penton's existing trade show and conference business as well as the introduction
of the HVAC Comfortech Show.
Revenues from the printing segment increased $1.3 million, or 4%, to $37.9
million, primarily from increased demand from the media services segment.
Outside commercial sales were even.
Direct-mail marketing revenues increased $0.5 million, or 4%, to $13.2
million from $12.7 million. In 1996, the Company launched its agency media group
business, which generated revenues of approximately $1.1 million. This increase
was offset by a reduction in revenue of the direct marketing medical group of
approximately $0.6 million. Penton introduced a physician's retraining program
during 1996 which generated approximately $0.3 million in revenue from course
offerings.
31
<PAGE> 33
Operating Expenses
Operating expenses of Penton, after elimination of inter-segment charges,
increased $2.1 million, or 1%, from $168.0 million to $170.1 million.
Cost of Production
Media services cost of production decreased $0.8 million, or 1%, to $79.0
million. The publishing operation's costs decreased $1.5 million offset by an
increase in trade show and conference production costs of $0.7 million. The
reduction of $1.5 million was due to the elimination of approximately $3.3
million of costs related to Progressive Architecture magazine, which was sold in
December 1995, partially offset by other publishing cost increases of $2.0
million in 1996, primarily attributable to sales volume increases. The increase
in trade show and conference related production costs of $0.7 million was due to
the introduction of a new event in 1996 as well as to an overall improvement of
other trade show and conference revenue.
Cost of production of the printing segment increased $1.4 million, due to
increased sales volume net of the impact of significantly lower scrap paper
sales because of softening paper costs.
Direct-mail marketing cost of production increased $1.1 million, or 15%, to
$8.9 million, principally attributable to one-time charges relating to
development costs of a newly-created physicians retraining program and also
attributable to increased volume.
Selling, General, and Administrative
Selling, general, and administrative costs increased $3.2 million, or 5%.
The increase was generally due to greater selling-related costs resulting from
higher sales activity for the year, additional staff relating to new product
launches, and a general increase in the overall cost of doing business, offset
by the elimination of costs associated with Progressive Architecture magazine,
sold in December 1995.
Depreciation and Amortization
Total depreciation and amortization expense increased $0.1 million due to
capital equipment additions.
Operating Income
Total operating income increased $6.6 million, or 55%, to $18.5 million
compared to $11.9 million, primarily as the result of increased revenue and
improved productivity.
Operating income from media services increased $8.3 million, or 88%, to
$17.7 million from $9.4 million. The improvement was attributable to overall
revenue growth, improved product mix of publications and trade show operations,
as well as the full year's benefit of productivity improvement programs
implemented in 1995.
Operating income from the printing segment declined $0.2 million due in
large part to a significant reduction in scrap paper sales.
Direct-mail marketing operating income declined $1.5 million resulting in
an operating loss of $0.5 million compared to an operating profit of $1.0
million. This decrease was directly related to the decrease in revenue of the
direct marketing medical group, which had historically enjoyed higher margins
compared to those of the advertising agency. Operating income was further
adversely impacted by development costs associated with the start up of a
physicians retraining program. In addition, the related printing operation's
operating income decreased due to lower pass-through demand for printing
services from the direct marketing medical group.
Other Income (Expense)
Other income (expense) decreased $3.1 million. Other income (expense) in
1995 included a $1.7 million gain from the sale of Progressive Architecture
magazine and a $1.4 million gain from an insurance settlement resulting from a
municipal water main break that flooded a substantial portion of Penton's
Cleveland headquarters. Even though part of the operation was disrupted, Penton
was able to resume operations quickly with no material loss of business.
32
<PAGE> 34
Effective Tax Rates
The effective tax rates were 40.7% and 42.8% in 1996 and 1995,
respectively. An analysis of Penton's effective tax rate appears in Note 7 to
Penton's Consolidated Financial Statements.
FOREIGN CURRENCY
Penton translates the results of its foreign operations into United States
dollars according to Statement of Financial Accounting Standards No. 52, Foreign
Currency Translation. Assets and liabilities of Penton's foreign entities are
translated using the current exchange rate at the balance sheet date. Capital
accounts are translated at historical exchange rates. Net sales and expenses of
Penton's foreign entities are translated using weighted average exchange rates
which approximate the exchange rates at the transaction dates. There were no
significant transaction gains or losses during 1997 or the three months ended
March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Penton has generated positive cash flow from operations and
has utilized the majority of such cash flows to invest in capital assets,
finance acquisitions, reduce debt, and pay dividends to Pittway.
Penton's cash flow from (used in) operating activities was $(1.0) million,
$0.6 million, $23.2 million, $20.5 million and $7.4 million for the three months
ended March 31, 1998 and 1997 and years 1997, 1996, and 1995, respectively.
In the first quarter of 1998, Penton used cash in continuing operations,
primarily attributable to the timing of cash flows as Penton added fixed
administration and direct show expenses for its acquired trade show companies
only partially offset by related advance deposits. In each of the prior years,
cash flow from operating activities was primarily derived from earnings before
depreciation and amortization. Increases in accounts payable in 1996 and 1997 as
well as decreases in accounts receivable, inventories, and deposits in 1997
contributed to such cash flow.
For each of the years 1997, 1996, and 1995, Penton's investment activities
affecting cash flow consisted of capital expenditures and the net assets of
businesses acquired, offset by net proceeds from the sale of certain
publications. In the first three months of 1998, and in the years 1997, 1996,
and 1995, capital expenditures were $1.1 million, $5.5 million, $4.8 million,
and $5.0 million, respectively. Also, in 1997, Penton acquired the net assets of
three trade show companies for a combined purchase price of $48.7 million,
offset by the proceeds from the sale of Modern Office Technology magazine for
$1.0 million. In 1996, Penton's investment activities include the exchange of
Millimeter magazine, plus $0.9 million in cash, for EEPN magazine and the sale
of Progressive Architecture magazine for $1.0 million in cash.
In 1997, Penton incurred total short-term debt of $48.3 million to finance
the acquisitions of the three trade show companies, of which $14.0 million was
repaid during 1997.
The majority of Penton's operating cash requirements have historically been
funded by operations and by Pittway. Penton's management anticipates that the
primary source of funds to fulfill such needs in the future will be internally
generated cash from operations and borrowings where necessary. Penton's
investments by and advances to Pittway include net after-tax cash generated by
(or used in) the operations of Penton of approximately $3.5 million in 1997,
$15.9 million in 1996, and $1.7 million in 1995. Historically, Penton has
neither earned nor been charged interest on these funds.
Penton's management anticipates additional cash expenditures as a result of
being a separate public company. Such expenditures could include, but may not be
limited to, the payment of dividends, financing costs of new debt, and
administrative costs.
Penton presently is negotiating with various banks to obtain commitments to
establish unsecured, committed lines of credit. These credit lines will be used
to replace existing notes payable and to meet short-term cash needs. It is a
condition to the Stock Distribution and the DM Publishing Combination that
arrangements for such lines be finalized.
Penton's management anticipates that Penton's long-term financing needs
will be met with internally generated cash flows and financing arrangements with
lenders, if necessary.
33
<PAGE> 35
Penton may, in the future, require additional credit facilities or
issuances of corporate debt or equity securities in connection with acquisitions
or otherwise. Any debt incurred or issued by Penton may be secured or unsecured,
have a fixed or variable rate of interest, and be subject to such terms as
management deems prudent. In addition, Penton's future operating performance and
ability to meet its financial obligations will be subject to future economic
conditions and to financial, business, and other factors, many of which will be
beyond Penton's control.
SEASONALITY
Historically, Penton has not experienced significant seasonality in its
business. Nevertheless, in 1997, Penton experienced a greater growth in the
second quarter when compared with the other three quarters of the year due
primarily to the inclusion of the A/E/C trade show held in June 1997. Due to the
addition of the ISOA and INDEX trade shows at the end of 1997, Penton
anticipates a greater growth of revenue in the second and fourth quarters
because the significant portion of the trade show and conference revenues will
be generated in the second and fourth quarters of the year.
INFLATION
Generally, while the impact of inflation on Penton's overall results of
operations has not been significant in recent years, paper prices have
fluctuated over the last few years. Paper prices began to rise in 1994,
increased significantly in 1995, dropped significantly in 1996 and, to a lesser
extent, in 1997. It is expected that paper prices will increase in 1998.
Management continually monitors the impact of inflation on its operations and
attempts to mitigate the impact through productivity and technological
improvements, cost containment programs, and by increasing selling prices over
time as allowed by market conditions. Nevertheless, there can be no assurances
that Penton can recoup cost increases by passing them on to its customers.
YEAR 2000 ISSUE
Penton continues to assess the extent of its risks related to processing
year 2000 information. All software applications that may be unable to interpret
the year 2000 have been identified and Penton has already commenced work to
modify or replace those applications. Penton believes that all necessary work to
make its systems year 2000 compliant will be completed on time. In addition, the
estimated costs to modify or replace its applications are not considered
material to Penton and should not involve a significant amount of Penton's
internal resources.
Penton is in the process of working with its vendors regarding their
progress in identifying and addressing issues related to the year 2000. Penton
is in the process of obtaining commitments from all major vendors on whose
software Penton may be dependent that they have plans in place to be compliant
before processing of information related to year 2000 would be required.
FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other sections of this Prospectus contain forward-looking
statements which are subject to various risks and uncertainties. Actual results
could differ materially from those discussed herein. Important factors that
could cause or contribute to such differences include those discussed under
"Risk Factors" as well as those discussed elsewhere in this Prospectus.
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<PAGE> 36
BUSINESS
For purposes of the following discussion, the business of Penton includes
the business of DM Publishing, unless otherwise expressly indicated.
OVERVIEW
Founded in 1892 by John Augustus Penton, Penton is a leading business media
company. Penton's principal media platforms, including magazines, trade shows
and conferences, and electronic media products, provide proprietary information
to business users, and integrated marketing solutions to industry suppliers.
Penton's publications, trade shows and conferences, and electronic media
products serve the electronics, design/engineering, manufacturing, supply
chain/aviation, mechanical systems/construction, foodservice/hospitality,
government/compliance, and management markets, and, upon completion of the DM
Publishing Combination, will also serve the convenience store/baking market.
Penton's diverse array of products provide business-to-business marketers with
the tools to communicate effectively with their customers, and provide current
information to the markets served. Penton had total revenue of approximately
$205 million in 1997.
Widely recognized as a publisher of high-quality business and trade
magazines, Penton has, in recent years, diversified its media platforms to
include trade shows and conferences, electronic media products (including Web
sites and CD-ROMs), custom publishing, research, databases, and information
product sales. Penton also owns a printing plant, Penton Press, which prints
nearly all of Penton's publications and approximately 50 outside publishers'
magazines, and a direct-mail and marketing services business, Curtin &
Pease/Peneco.
Penton is the fifth largest specialized business magazine publisher in the
United States, according to the American Business Press, the leading association
for the business publishing industry. Penton publishes 42 national business and
trade publications with a combined circulation of over 2.7 million subscribers
worldwide. Of the 29 Penton magazines that serve measured, competitive market
segments, 90% are ranked either first or second in their markets. Some of
Penton's leading magazine brands include Air Transport World, American
Machinist, Computer-Aided Engineering, Electronic Design, IndustryWeek, Machine
Design, Microwaves & RF, New Equipment Digest, and Wireless Systems Design.
Penton's magazines accounted for approximately 74% of Penton's total revenue in
1997.
Penton has aggressively expanded its presence in the trade show and
conference business in recent years, and currently operates 63 trade shows and
conference events. Penton acquired three trade show companies in 1997: A/E/C was
acquired in January and INDEX and ISOA were acquired in December. Penton's trade
shows include the A/E/C SYSTEMS International Shows, Computers for Contractors,
Computers in Manufacturing, International Leisure Industry Week, the North
American Warehousing & Distribution Exposition & Conference, and the Wireless
Symposium & Exhibition. Conferences include the America's Best Plants Series and
the Global Leadership Forum. Trade shows and conferences accounted for
approximately 5% of Penton's total revenue in 1997. On a pro forma basis, had
INDEX and ISOA been acquired in January 1997, Penton's trade show and conference
revenue would have accounted for 12% of Penton's total revenue in 1997, and
Penton would have sold approximately 1.4 million net square feet of exhibit
space to over 5,500 exhibiting companies.
In addition to trade shows and conferences, electronic media products have
expanded Penton's service to its market segments. As business-to-business use of
the Internet has grown, Penton's product arrays have been expanded to include
World Wide Web sites that provide both information resources and market access
to advertisers. Electronic media products also include editorial content and
statistics, directories, and product selection information on CD-ROMs and
diskettes. In December of 1997, Penton signed a joint venture agreement with
Findlay Publishing of the United Kingdom to produce and market Design Selector
Global, a global database of component product information for mechanical,
electro-mechanical, and electronics engineers that is accessible in both CD-ROM
and Internet formats. Revenues from electronic media products accounted for less
than 1% of Penton's total revenue in 1997.
In addition to publications, trade shows and conferences, and electronic
media, Penton's business includes marketing and business development services
such as databases, direct-mail marketing, custom
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<PAGE> 37
communications, and research services. These services provide integrated market
access to Penton's advertiser customers by facilitating the flow of information
between them and their customers.
INDUSTRY
Economic Trends
The robust United States economy has favorably affected the business media
industry in recent years. As companies grow, they use advertising in print
publications, exhibits at trade shows and conferences, and electronic media to
communicate with their customers and potential customers.
Global economic trends also influence business media. As United States
companies penetrate international markets, they seek communications partners
that can help them sell their products and services. In addition, professionals
and managers in international markets have an increasing need for business
information. As a result, business media companies are producing international
editions of their titles, launching trade shows in international venues, and
designing their electronic media products to serve global audiences.
Performance
The business media industry has benefited from these trends. According to
the 1997 Veronis Suhler & Associates Communications Industry Forecast,
business-to-business communications was the fifth fastest growing segment of the
overall communications industry for the period 1991 to 1996, growing at a
compound annual growth rate ("CAGR") of 7.4% during that period. Total spending
in business-to-business media was $16.5 billion in 1997, up from $15.2 billion
in 1996, according to this report. The report forecasts a 7.0% CAGR for business
magazines from 1997 to 2001, inclusive, and a 10.4% CAGR for trade shows and
exhibitions over the same period.
The business-to-business media industry in the United States currently
includes about 1,500 trade magazine publishing companies that publish more than
5,000 titles. In addition, this industry produces approximately 3,900 trade
shows that are operated by integrated media companies, independent show
operators and, increasingly, financial owners, and an additional 2,100
association-owned shows.
Despite an active merger and acquisition market over the past few years,
business media remains a fragmented industry with a wide array of owners.
Furthermore, there is significant organic growth of new products, such as trade
magazines, trade shows, conferences, and online services, as new markets and
technologies develop. With relatively little capital required to launch new
products, business media embrace entrepreneurial organic growth.
Advertising revenues on Internet Web sites totaled $906.0 million in 1997,
according to the Internet Advertising Bureau. Jupiter Communications forecasts
Web site advertising will grow to a volume of $1.9 billion in 1998, $3.0 billion
in 1999, and $4.36 billion in 2000.
The demand for objective, current information and analysis on topics that
are relevant in the market sectors served by business-to-business publications
has increased significantly in recent years. Marketers' need to communicate with
their customers, through advertising designed to increase sales and build brand
loyalty, has increased commensurately. Business-to-business, market-focused
media provide communications channels that connect marketers with a targeted
group of customers.
Print Publications
Publishers of controlled circulation titles, including Penton, have evolved
into broadly integrated media companies in response to major trends: marketers
are increasingly pursuing integrated marketing strategies, i.e., the use of a
variety of tools for communicating with targeted business audiences; end-users,
whose professional roles are more demanding, are seeking more information to
meet their specific professional needs, as well as a variety of effective
channels for receiving information; and digital technology continues to make
rapid advances, which have fed the development of the Internet and the creation
and use of CD-ROMs and other products.
In general, magazine publishers generate the majority of their revenues
from the sale of advertising. Penton's advertising revenues, as well as those of
business magazines in general, are dependent upon general economic cycles.
Historically, advertising revenues increase during economic recoveries, and
decrease during
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<PAGE> 38
both general economic downturns and regional economic recessions. Despite the
strength of the current economy, however, business publishers are experiencing
increasing pressure on advertising rates. In the event of a general economic
downturn or a recession in the United States, Penton's advertisers may reduce
their advertising budgets or intensify their attempts to negotiate lower
advertising rates. As compared to general-interest magazines, however, Penton
believes that its advertising revenues are relatively resistant to changes in
general economic conditions due to the diversity of markets served, its
reputation for high-quality, special-interest editorial content, and the fact
that many advertisers market products that are directly related to the editorial
content of the magazines in which they advertise.
In recent years, magazine publishers have sought to diversify their
revenues and expand the influence of their existing brands by developing new
revenue streams in addition to advertising. In general, magazine publishers have
sought to expand the use of their magazines' editorial content into different
media. The integrated portfolios of business-to-business media companies include
print products such as magazines and newsletters, which offer readers the
convenience of portable information while offering advertisers target audiences;
trade shows and conferences, which facilitate face-to-face interaction between
sellers and buyers that often results in product orders; and electronic media,
including World Wide Web sites, CD-ROMs, and customized Internet-based
information delivery services, which offer interaction with market experts,
content depth and timeliness, and the potential for making purchases
electronically. In 1997, Penton derived approximately 7% of its revenue from its
various ancillary products and services, which include databases, electronic
products, paid subscriptions, reprints, custom publishing, and research. Penton
believes its portfolio of magazines provides opportunities to develop ancillary
revenues due to the targeted nature of the magazines' editorial content.
Trade Shows
A trade show can be described as a face-to-face version of a print
publication. Trade show attendees, like readers of print publications, receive
product information and content in the form of exhibits, conferences, and other
ancillary forums. Producers of trade shows and conferences generate revenue from
exhibit space sales, advertising, sponsorships, and conference and general
attendance fees. Trade shows and conferences allow sellers to make face-to-face
sales presentations to significant numbers of qualified buyers in a short period
of time. Trade show attendees include manufacturers and developers, sales and
distribution personnel, and large-volume end-users. Industry leaders have
consistently used trade shows to introduce new products to purchasers in the
markets they serve.
Trade shows have become an increasingly important element of overall
marketing strategy for vendors in many markets. Companies consider trade shows
one of the most effective media for generating and closing sales, second only to
direct selling. Exhibit space revenues from trade shows were approximately $4.8
billion in 1997, a 14% increase over 1996, according to Tradeshow Week ("TSW")
magazine research. In 1997, exhibit square footage rose 7%, the number of
exhibiting firms increased 5% and attendance increased 6% over 1996, according
to TSW.
Electronic Media
The proliferation of Web sites and the growing number of users combine to
make the Internet an increasingly significant advertising and brand-building
vehicle. The Internet enables marketers to deliver targeted messages because it
provides the ability to track user behavior and offers the potential for
permitting online transactions. The advertising-based business model for online
services, which is similar to those of both print and television media, involves
the payment of advertising fees to Internet content providers. These fees are
based on the demographics and purchasing habits of the audience and on the
quantity and positioning of advertisements delivered. Web sites provide a forum
where sellers can deliver product information and advertising to a targeted
customer base. Penton expects that the Internet market, like the publications
market, will continue to grow as a platform for product advertising.
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BUSINESS STRATEGY
Penton's business strategy is to grow revenues, cash flow, profitability,
and margins by being the preferred provider of integrated media services in
selected market segments. Major components of this strategy include:
- Focusing on Core Market Segments
Penton's primary strategy is to be the preferred information provider in
selected market segments by producing broad and diverse arrays of media
properties that provide integrated marketing solutions to the vendors in such
market segments. In pursuing this strategy, Penton has (i) launched or purchased
trade shows and conferences that fit strategically with, and add value to, its
magazines, (ii) added electronic media products and services to meet the
expanding information needs of its readers and information users, (iii) made
acquisitions in selected markets to strengthen its competitive position, and
(iv) disposed of magazines that were not market leaders. Penton intends to build
the strength of its core portfolio of leading information brands by enhancing
the quality of their editorial content and Penton's marketing services, and
extending its existing brands into other media. In 1997, Penton complemented its
core publications in the design/engineering market, the wireless segment of the
electronics market, and the manufacturing management market by acquiring or
expanding existing trade shows and expanding online content and Web sites.
Management believes that maintaining or achieving a leading position as a
provider of diverse integrated media services in these and other markets served
will enhance its competitive position and profitability.
- Diversifying Revenue Streams
As with most business-to-business publishing companies, Penton historically
derived nearly all of its revenues from advertising in its publications.
Penton's focus on controlled circulation business-to-business magazines limited
the opportunity to capture the increasing communications budgets its advertisers
were allocating towards marketing and promotion vehicles such as trade shows,
direct-mail, customized company magazines, and electronic media. Consequently,
Penton shifted its strategy to focus on enhancing its revenues from other
sources. Penton believes that significant opportunities exist to diversify
revenues by leveraging the editorial content and the nationally-recognized brand
names of its existing publications through trade shows and conferences,
licensing arrangements, strategic joint ventures, circulation list rentals,
affinity group marketing, and electronic media. In particular, Penton believes
that increasing the percentage of revenue generated by trade shows and
conferences, which characteristically produce higher margins and are less
vulnerable to economic cycles than advertising, is a viable means to increasing
profitability and margins.
- Increasing Positions in Growth Markets
Penton continues to monitor trends both in the markets it currently serves
and in emerging markets in order to identify new audiences for
business-to-business information. When Penton identifies appropriate growth
opportunities, it intends to launch or acquire publications and other media
products that are attractive to advertisers, readers, and other information
users. Penton has established an emerging technology initiative to identify
media opportunities in emerging technology markets at an early stage through
either acquisition or launch.
- Leveraging Administrative Services and Reducing Costs
Management believes it can leverage its administrative and overhead
services to enhance the profitability of acquired businesses and new launches.
In addition, management continues to identify cost reduction opportunities,
including (i) using technology to re-engineer processes, including circulation,
production, and graphics; (ii) outsourcing functions in which Penton is not
cost-effective; (iii) increasing productivity; (iv) centralizing certain
departments; and (v) decentralizing functions that are more cost-effectively
conducted at the operating group level. Management believes that effective
implementation of such measures enhances Penton's competitive position and its
overall profitability.
- Completing Strategic Acquisitions
Penton regularly evaluates potential acquisitions to expand and strengthen
its activities in selected markets. Penton believes that the acquisition of
other media businesses complements its existing services and improves its
competitive position with current and potential customers. Consistent with this
strategy, Penton
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acquired three trade show businesses in 1997 and has entered into the DM
Publishing Combination Agreement. The primary focus of Penton's acquisition
strategy is to strengthen current market positions and to add value to the
acquired business through existing market knowledge and core competencies.
Acquisitions of business media properties that would provide Penton with a
premier position in new attractive markets are also part of Penton's acquisition
strategy.
- Expanding Market Positions Globally
Penton intends to leverage its established brands in key overseas markets,
focusing on those markets whose size and growth potential will support its
strategy of developing broad and diverse media arrays. Management intends to
further expand internationally through overseas launches of proven United States
properties, joint ventures and licensing arrangements with local operating
partners, and selective acquisitions. Two acquisitions completed in 1997 provide
Penton with opportunities to expand internationally. INDEX, a United
Kingdom-based producer of trade shows for the information technology,
manufacturing, and leisure markets, provides Penton with a platform for
expanding its existing successful United States shows in the United Kingdom and
on the European continent. ISOA, which is experienced in producing trade shows
in Latin America, offers opportunities for international expansion in the
emerging Mexican and Latin American markets, particularly in the
heating/ventilating/air conditioning market, in which Penton already publishes
successful magazines and produces a trade show. Penton also has a cooperative
agreement with a leading Hong Kong-based business publishing company, CCI-Asia
Pacific, to provide Chinese-language editions of Electronic Design and Air
Transport World.
- Developing Electronic Media Products and Competencies
Penton intends to combine its Internet presence, which currently includes
31 Web sites, and its growing expertise in creating CD-ROMs with its broad
experience in developing high-quality editorial content in order to expand its
existing audiences of information users, to continue to develop new audiences,
and to develop new sources of advertising revenue. Penton believes that the
large existing audience for its electronic media products, combined with its
publishing experience, gives it a competitive advantage in identifying,
acquiring, and developing new electronic media products and services. In
December of 1997, Penton signed a joint venture agreement with Findlay
Publishing of the United Kingdom to produce and market Design Selector Global, a
global database of component product information for mechanical,
electro-mechanical and electronics engineers that is accessible in both CD-ROM
and Internet formats.
RECENT ACQUISITIONS AND DIVESTITURES
Penton acquired three trade show companies in 1997. A/E/C produces the
world's largest conference and trade show event for computer and high-tech
solutions in the architectural, engineering, and construction industries. ISOA
produces 24 industrial trade shows in the United States and Latin America that
focus on the machine tool, plant maintenance, supply chain, and
heating/ventilating/air conditioning markets. INDEX is an owner and producer of
eight trade shows serving the computer, manufacturing, and leisure markets in
the United Kingdom.
Immediately following and as a condition to the Stock Distribution, Penton
will acquire DM Publishing. DM Publishing publishes three magazines in the
baking and convenience store markets: Modern Baking, Baking Management, and
Convenience Store Decisions. It also produces a number of related special
editions and directory and show issues serving the baking and convenience store
markets. See "DM Publishing Combination Agreement."
Penton's strategy to focus on core market segments led to three
dispositions in the 1990s. In 1995, Penton sold Progressive Architecture
magazine, which was a stand-alone title for Penton in the market it served. Also
in 1995, Penton exchanged its Millimeter magazine, which was a market leader but
a standalone in serving the motion picture, television, and video production
industry, for EEPN magazine, a property that strengthened Penton's portfolio in
the electronic engineering market. In 1997, Penton sold Modern Office Technology
magazine because the market served did not fit Penton's strategic plans.
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SOURCES OF REVENUE
A significant amount of Penton's revenues is derived from advertising
sales, with lesser amounts derived from sources such as trade shows and
conferences, ancillary products and services, printing, and direct-mail
marketing. The following table sets forth the sources and amounts of Penton's
revenue for the three fiscal years ended December 31, 1997 (dollars in
millions):
<TABLE>
<CAPTION>
SOURCE 1997 1996 1995
------ ------ ------ ------
<S> <C> <C> <C>
Advertising............................................ $156.0 $146.4 $138.1
Trade Shows and Conferences............................ 10.8 5.4 3.7
Ancillary Products & Services.......................... 14.4 14.9 16.5
Penton Press........................................... 10.5 8.9 8.9
Direct-Mail Marketing.................................. 13.2 13.0 12.7
------ ------ ------
$204.9 $188.6 $179.9
====== ====== ======
</TABLE>
Advertising Sales
Advertising revenues from Penton's publications accounted for approximately
76% of Penton's total revenues in 1997. Penton markets advertising space in each
of its publications by assuring advertisers that they will reach a valuable,
qualified audience of professionals and managers who are known to have an
interest in purchasing products or services in the market segment covered.
Penton's targeted publications enable advertisers to reach their customers and
potential customers cost effectively. Advertising rates are based on the size of
the circulation within the targeted market segment as well as on competitive
factors. Penton's publications compete for advertising on the basis of the
market's perception of the niche served by the magazine, readers' preference for
the publication's content, editorial quality, quantity, and quality of
circulation, reader response to advertisers' products and services, the
effectiveness of sales teams, customer service, and advertising rates.
Each of Penton's publications has its own advertising sales team and rate
structure, although advertisers may qualify for discounts based on spending
patterns across multiple Penton publications. Because Penton provides a single
source for advertisers to reach several market segments, Penton enables
advertisers to be more cost efficient in their advertising purchases.
Trade Shows and Conferences
Revenues from Penton's trade shows and conferences accounted for
approximately 5% of Penton's total revenues in 1997. Trade shows generate income
primarily from the fees exhibitors pay to rent booth space, which must be paid
in full before the events open. Registration fees for attendance at conference
sessions generate additional revenue. Trade shows and conferences generally
produce higher profit margins than print products and, unlike advertising
revenue, revenues generated by trade shows historically have been relatively
stable in economic downturns. Penton believes that revenues from trade shows and
conferences will continue to increase as a percentage of total revenues.
Ancillary Products and Services
Revenues from ancillary products and services, which include databases,
electronic products, paid subscriptions, reprints, custom publishing, and
research, accounted for approximately 7% of Penton's total revenues in 1997.
With the growth of electronic publishing, Penton believes there will be
increased opportunities to market editorial content from Penton's publications
in different formats, and to develop additional content for such formats. Penton
has established 31 Web sites and expects to establish several more in the
future. In addition, Penton offers several of its market-focused product and
service directories on CD-ROM and diskette. Penton believes that electronic
media offer opportunities to generate additional revenues through increased
advertising, sponsorship sales, and access fees paid by users.
Penton Press
Revenues from Penton Press accounted for approximately 5% of Penton's total
revenues in 1997 after intercompany eliminations. Penton Press not only prints
nearly all of Penton's magazines, but also prints approximately 50 titles of
other publishers.
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Direct-Mail Marketing
Revenues from Curtin & Pease/Peneco, Penton's direct-mail marketing
subsidiary, accounted for approximately 6% of Penton's total revenues in 1997,
of which 3% related to its direct-mail marketing operation and 3% to its related
printing business, Feather Fine. Penton plans to reduce the significance of its
direct-mail marketing and related printing operations as a revenue source.
Penton management is currently considering strategic alternatives for Curtin &
Pease/Peneco and Feather Fine.
INFORMATION PRODUCTS AND SERVICES
Publications
Magazines. Penton is the fifth largest specialized business magazine
publisher in the United States, according to the American Business Press, the
leading association for the business publishing industry. Penton publishes 42
national business and trade publications with a combined circulation of over 2.7
million subscribers worldwide. Of the 29 Penton magazines that serve measured,
competitive market segments, 90% are ranked either first or second in their
respective markets. Efficiencies of centralized circulation, fulfillment, and
other back office services enable new titles to be spun off from existing
titles, or acquired and integrated. Penton's publications serve the specialized,
professional information needs of subscribers who work in specific segments of
markets including design/engineering, electronics, manufacturing, supply
chain/aviation, mechanical systems/construction, foodservice/hospitality,
government/compliance, and management markets, and, upon completion of the DM
Publishing Combination, will also serve the convenience store/baking market.
Penton's magazines are controlled-circulation, business-to-business trade
publications that are distributed free of charge to qualified subscribers in
targeted market segments. These publications generate revenues predominantly
from the sale of advertising space. In 1997, advertising revenues from all of
Penton's magazines accounted for 74% of Penton's total revenues.
In a controlled-circulation publication, circulation is limited to
qualified subscribers who have verified their responsibility for certain
specific job functions, such as purchasing influence or purchasing authority in
the market served by the publication. The publisher selects these recipients
based on defined qualifying characteristics, thereby enabling advertisers to
reach those individuals most likely to be interested in purchasing the products
advertised. Penton surveys subscribers to its controlled-circulation
publications annually to verify their continued qualification. Circulation
information for the majority of Penton's publications is audited each year by
BPA International, a nationally recognized auditor of magazines. These audits
verify that Penton has accurately identified the number and job responsibilities
of qualified subscribers and that those subscribers are in fact eligible to
receive the relevant publication under the standards that Penton has
established.
Editorial content is written by in-house editorial staff and freelance
authors, well-known in the market segments that their magazines serve. Penton
believes that its publications have established reputations for authoritative
and reliable journalism among their readers and within the market segments they
serve. Each Penton publication has its own editorial staff, including editors,
designers, and production personnel. To preserve the editorial integrity of each
publication's news reporting and analysis, Penton seeks to maintain strict
separation between the editorial and sales staffs of each publication. Penton
believes that its reputation for objective, fair, and credible editorial content
contributes significantly to its success.
Penton's editorial staffs meet frequently with readers of their
publications to maintain a current understanding of the information needs and
interests of those readers and thereby serve them more effectively. Penton
devotes considerable resources to the study of trends in its readership
communities and strives to make its publications the best-read and most widely
used among its target audiences. Many of Penton's editors and contributors are
recognized as experts in their field and are regularly contacted by the general
press to comment on developments and trends in their respective markets.
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The following is a list of Penton's current magazines broken down by the
market sectors they serve:
<TABLE>
<CAPTION>
FIRST ISSUE ANNUAL
TITLE PUBLISHED CIRCULATION FREQUENCY SUBSCRIBER AUDIENCE
----- ----------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
DESIGN/ENGINEERING
- -------------------------------------
A/E/C SYSTEMS The Magazine of
Computer Solutions................. 1992 30,000 6 architects, engineers and
construction executives
Computer-Aided Engineering........... 1982 55,000 12 technical managers in
manufacturing, product design,
engineering analysis
Hydraulics & Pneumatics.............. 1948 50,100 12 engineers of fluid-power
machinery and equipment
Machine Design....................... 1929 180,000 23 OEM, process and consulting
industry design engineers
Mechanical Solutions................. 1997 60,000 4 users of Autodesk Mechanical
Desktop(R) software
PT Design............................ 1959 57,000 12 motion systems design and
manufacturing engineers
PT Motion Systems Distributor........ 1987 12,000 6 motion systems distributors
ELECTRONICS
- -------------------------------------
EE Product News...................... 1941 112,000 12 OEM electronics design engineers
Communications Products.............. 1996 35,000 6 communications systems design
engineers
Electronic Design.................... 1952 165,000 26 OEM electronics engineers and
engineering managers
Electronic Design China.............. 1994 21,000 12 OEM electronics engineers and
engineering managers in China
Microwaves & RF...................... 1962 57,000 12 radio frequency and microwave
systems engineers and engineering
managers
Wireless Systems Design.............. 1994 50,000 12 wireless systems engineers and
engineering managers
Penton's Embedded Systems
Development........................ 1998 50,000 12 engineers and engineering
managers who develop
microprocessor and
microcontroller-based and
real-time systems
FOODSERVICE/HOSPITALITY
- -------------------------------------
Food Management...................... 1972 50,100 12 foodservice directors and
managers in noncommercial market
Restaurant Hospitality............... 1919 122,250 12 commercial foodservice operators
Lodging Hospitality.................. 1949 50,400 12 lodging industry development,
operations, marketing managers
CONVENIENCE STORE/BAKING
- -------------------------------------
Modern Baking*....................... 1987 27,300 12 in-store, retail and foodservice
bakers
Convenience Store Decisions*......... 1990 41,700 12 convenience store and petroleum
marketer chain management
Baking Management*................... 1997 9,050 12 management of large volume bakers
</TABLE>
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<TABLE>
<CAPTION>
FIRST ISSUE ANNUAL
TITLE PUBLISHED CIRCULATION FREQUENCY SUBSCRIBER AUDIENCE
----- ----------- ----------- --------- -------------------
<S> <C> <C> <C> <C>
GOVERNMENT/COMPLIANCE
- -------------------------------------
Occupational Hazards................. 1938 65,000 12 managers of total risk control
programs, industrial safety
Government Product News.............. 1962 85,000 12 government purchasers and
specifiers
Government PROcurement............... 1993 14,000 4 public-sector purchasing
professionals
MANAGEMENT
- -------------------------------------
IndustryWeek......................... 1882 240,000 23 executives of global
manufacturing enterprises
IW Growing Companies................. 1998 210,000 8 management of growing
manufacturing enterprises with
fewer than 500 employees
MANUFACTURING
- -------------------------------------
American Machinist................... 1877 80,000 12 managers and engineers in durable
goods, metal products industries
Gases & Welding Distributor.......... 1957 5,000 6 distributors of welding supplies,
industrial and medical gases
Forging.............................. 1990 5,000 5 managers and engineers in various
types of forge shops
Foundry Management & Technology...... 1892 19,500 12 foundry industry managers,
engineers and research
professionals
New Equipment Digest................. 1936 207,000 12 administrative, production, plant
operations, maintenance,
engineering design purchasers
throughout industry
Welding Design & Fabrication......... 1931 40,000 12 designers and engineers in
welding and fabricating plants
33 Metalproducing.................... 1963 19,100 12 managers, engineers in
metalproducing industries
Used Equipment Directory............. 1949 75,000 12 manufacturing plants that use
industrial equipment
MECHANICAL SYSTEMS/
CONSTRUCTION
- -------------------------------------
Contracting Business................. 1944 52,000 12 heating, ventilating, air
conditioning and refrigerating
commercial and industrial
contractors
Heating/Piping/Air Conditioning...... 1929 53,000 12 HVAC mechanical systems engineers
Energy & Environmental Management.... 1995 28,500 4 building owners and facility
managers
SUPPLY CHAIN/AVIATION
- -------------------------------------
Air Transport World.................. 1964 40,100 12 airline industry management
Air Transport World China............ 1995 15,000 4 airline industry management in
China
Material Handling Engineering........ 1945 95,000 13 managers and engineers
responsible for material handling
Material Handling Business........... 1995 11,000 4 material handling distributors
and sales managers
Shipping & Receiving................. 1995 25,000 6 shipping managers of small
companies
Transportation & Distribution........ 1960 71,000 12 supply chain company management
</TABLE>
- ---------------
* To be acquired as part of the DM Publishing Combination.
43
<PAGE> 45
Directories and Buyer's Guides. Penton also publishes 28 directories and
buyer's guides, which are trusted, heavily-used sources of buying information
for industry decision makers. Some of the more well-known of these publications,
and the market sectors they serve, include:
<TABLE>
<CAPTION>
TITLE MARKET SECTOR
----- -------------
<S> <C>
Fluid Power Handbook & Directory Design/Engineering
Electronic Design's VMEbus Product Directory Electronics
Microwaves & RF Product Data Directory Electronics
Annual Buyers Handbook* Foodservice/Hospitality
Sales Trend Handbook* Foodservice/Hospitality
Lodging Hospitality Almanac Foodservice/Hospitality
Casting Design & Application Reference Manufacturing
Handbook
The Secondary Market Guide Manufacturing
</TABLE>
- ---------------
* To be acquired as part of the DM Publishing Combination.
Most of the business directories Penton publishes have no competition, and
where competition does exist, Penton's publication is usually the market leader.
Competition, where present, is based on price and quality of data. Management
believes that the comprehensiveness and quality of its data and the specialized
focus of its directory publications have prevented others from launching
competing publications or competing effectively.
Other Publications. Other Penton publications include: Restaurant Show
Daily and Equipment Show Daily, tabloid-format news publications that are the
restaurant industry's primary source of daily show news, company updates and
new-product information at major industry trade shows; and show guides to the
annual Retailer's Bakery Convention/Exhibition, the baking industry's largest
event, and the National Association of Convenience Stores Show, that industry's
largest event. The latter two guides are to be acquired as part of the DM
Publishing Combination. In addition, Penton publishes Design Mart, which
presents information about new products and technology to small and medium-sized
original equipment manufacturers, and NC Shop Owner, which provides information
to small and medium-sized metalworking manufacturing businesses.
44
<PAGE> 46
Trade Shows and Conferences
With the December 1997 acquisitions of INDEX and ISOA, Penton produces 63
trade shows and conferences in 10 market sectors. On a pro forma basis, had
INDEX and ISOA been acquired in January 1997, Penton's trade show and conference
revenue would have accounted for 12% of Penton's total revenue in 1997, and
Penton would have sold approximately 1.4 million net square feet of exhibit
space to over 5,500 exhibiting companies. In addition to these events, Penton
maintains licensing agreements for five trade shows.
The following is a list of Penton's trade shows and conferences broken down
by the market sectors they serve:
DESIGN/ENGINEERING
A/E/C SYSTEMS '98
A/E/C SYSTEMS Fall
A/E/C SYSTEMS Japan*
A/E/C SYSTEMS Mexico*
A/E/C SYSTEMS SMAU '98 (Milan, Italy)*
A/E/C SYSTEMS SMAUCADD (Milan, Italy)*
A/E/C SYSTEMS Singapore*
Build USA
Build USA Fall
Computer-Aided Engineering's 3D and Parametric Design Conference
Computers for Contractors '98
Computers in Manufacturing
EDM/PDM Expo
Computer-Aided Engineering's Managing Product Design Automation
Conference
Hydraulics & Pneumatics Show
International Manufacturing & Engineering Technology (IMET) Congress
M/CAD Expo
M/TECH '98
Motion Control and Sensors Show
PT Design Show
ELECTRONICS
Wireless Symposium & Exhibition, Portable by Design -- Spring
Wireless Symposium & Exhibition, Portable by Design -- Fall
FOOD SERVICE/HOSPITALITY
LaBevEx**
The Vision Forum
GOVERNMENT/COMPLIANCE
Champions of Safety Conference
INFORMATION TECHNOLOGY
Service Management Europe Show
LEISURE
Fitness, Health & Sport '98
International Leisure Industry Week
Leisure Hospitality '98
Parks & Attractions '98
SALTEX Show***
MANAGEMENT
IndustryWeek's America's Best Plants Conference -- Chicago
IndustryWeek's America's Best Plants Conference -- Dallas
IndustryWeek's America's Best Plants Conference -- Norfolk
IndustryWeek's America's Best Plants Conference -- St. Louis
IndustryWeek's Best Practices from America's Best Plants Conference
IndustryWeek's Competing at the Speed of Light Conference
IndustryWeek's Global Leadership Forum
IndustryWeek's Managing for Innovation Conference
MANUFACTURING
Central Pennsylvania Industrial Show
East Tennessee Industrial & Machine Tool Show
Fluid Management Conference
Georgia Industrial & Machine Tool Show
Industrial Equipment & Maintenance (IEM) Expo
45
<PAGE> 47
Kentucky Industrial & Machine Tool Show
Metal Components Expo
Nevada Facilities Expo
Northern Alabama Industrial & Machine Tool Show
Northern Virginia Industrial & Facilities Maintenance Show
Oklahoma Industrial & Manufacturing Technology Expo
Pacific Coast Industrial & Machine Tool Show
Piedmont Industrial & Construction Show
Pre-Owned Production Equipment
(PPE) Show
Reno Industrial & Machine Tool Show
Tennessee Industrial & Machine Tool Show
Tidewater/Hampton Roads Industrial & Manufacturing Technology Show
Tooling Show
Tri-Cities Industrial Show
Tulsa Industrial & Machine Tool Show
USA/Mexico Industrial Expo**
Virginia Industrial Show
Western Pennsylvania Industrial Show & Manufacturing Technology Expo
MECHANICAL SYSTEMS/CONSTRUCTION
Construction Maryland Show
HVAC Comfortech Show
AHR/Mexico Show**
SUPPLY CHAIN
Mastering the Supply Chain: Best Practices in Logistics Conference
Mid-South Industrial, Material Handling & Distribution Expo
North American Warehousing & Distribution Exposition & Conference
(NAWDEC)
- ---------------
* Licensed Penton event
** Joint venture
*** Produced under management contract
Attendees at Penton's trade shows and conferences are professionals and
managers from the markets Penton serves, including manufacturers, distributors,
dealers, retailers, value-added and other resellers, and large corporate
end-users. Most events include an extensive conference program, which provides a
forum for the exchange and dissemination of information germane to the
particular event's focus. In addition, most events have one or more "keynote"
sessions with speakers who are known for their market knowledge and expertise.
Trade show exhibitors pay a set price per square foot of booth space,
regardless of the exhibit hall they select or the location or size of their
booth within a given hall. Typically, a majority of each trade show's exhibitors
commit to booth space during that year's show for the next year's show. In 1997,
exhibitor space fees accounted for 53% of Penton's total trade show and
conference revenue. Penton also gains revenue from attendee fees at trade shows
and conferences. In 1997, registration fees accounted for 29%, and show
directory advertising sponsorship packages and information products accounted
for 18%, of Penton's trade show and conference revenues.
Penton's trade show and conference advertising revenue is derived
principally from five products, some combination of which is part of each event:
(i) a daily news publication distributed during the show; (ii) the program
exhibits guide; (iii) the preview, a news publication published and distributed
to pre-registrants and certain prior year attendees in advance of the show; (iv)
advertising billboards, banners, and sponsorship fees for specific show events
or specific areas of the exhibit hall; and (v) ancillary exhibitor logo products
that are sold to exhibitors to increase booth traffic and name recognition.
Electronic Media
Online Services. Penton has expanded onto the Internet by making many of its
publications, as well as other information services, available through its World
Wide Web sites. Penton's corporate Web site, launched in September 1995,
furnishes market information about all its magazines and corporate services,
46
<PAGE> 48
enables readers to subscribe online, and provides links with its magazine home
pages that provide market-focused services to readers and advertisers. In
December of 1997, Penton entered into a joint venture agreement with Findlay
Publications of the United Kingdom to develop Design Selector Global, a Web- and
CD-ROM-based product that enables design engineers who specify mechanical,
electro-mechanical and electronic components and materials to conduct
sophisticated searches for product and product distribution information. Findlay
Publications owns the global product classification system that supports Design
Selector Global, and has responsibility for the system's technology development.
Penton is responsible for content development and marketing of a United States
edition of the product.
Penton currently maintains the following Web sites:
<TABLE>
<CAPTION>
WEB SITE RELATED BUSINESS(ES)
-------- --------------------
<S> <C>
Penton Media, Inc. Penton Corporate Web site
Penton Research Services Penton Research Services
DESIGN/ENGINEERING
A/E/C SYSTEMS International A/E/C SYSTEMS Division
A/E/C SYSTEMS The Magazine of A/E/C SYSTEMS The Magazine of Computer
Computer Solutions Solutions
CAEnet Computer-Aided Engineering
Penton's Design, Engineering & 15 Penton Design/Engineering and
Manufacturing Network Manufacturing magazines
Fluid Power Web Hydraulics & Pneumatics
Machine Design Online Machine Design
Mechanical Solutions Mechanical Solutions
PT Design Online PT Design
IMET Congress International Manufacturing & Engineering
(IMET) Congress
M/TECH Show M/TECH Show
ELECTRONICS
The Circuit Board Microwaves & RF
Electronic Design Online Electronic Design
Wireless Engineering Center Wireless Systems Design
Wireless Symposium & Exhibition Wireless Symposium & Exhibition Portable by
Design
HOSPITALITY
LH Online Lodging Hospitality
GOVERNMENT/COMPLIANCE
OH Interactive Occupational Hazards
INFORMATION TECHNOLOGY
Service Management Europe Service Management Europe Show
MANAGEMENT
The Interactive Management IndustryWeek
Resource
The Management Resource for Small IW Growing Companies
Manufacturers
<CAPTION>
WEB SITE WEB SITE ADDRESS (WWW.-)
-------- ------------------------
<S> <C>
Penton Media, Inc. penton.com
Penton Research Services pentonresearch.com
DESIGN/ENGINEERING
A/E/C SYSTEMS International aecsystems.com
A/E/C SYSTEMS The Magazine of penton.com/cae/aec/
Computer Solutions
CAEnet penton.com/cae
Penton's Design, Engineering & pdem.net
Manufacturing Network
Fluid Power Web fpweb.com
Machine Design Online penton.com/md
Mechanical Solutions penton.com/cae/mechanical solutions/
PT Design Online ptdesign.com
IMET Congress imetcongress.com
M/TECH Show mtechexpo.com
ELECTRONICS
The Circuit Board penton.com/mwrf
Electronic Design Online elecdesign.com
Wireless Engineering Center penton.com/wsd
Wireless Symposium & Exhibition wirelessportable.com
HOSPITALITY
LH Online lhonline.com
GOVERNMENT/COMPLIANCE
OH Interactive penton.com/oh
INFORMATION TECHNOLOGY
Service Management Europe afsmi.org/sme/index
MANAGEMENT
The Interactive Management industryweek.com
Resource
The Management Resource for Small iwgc.com
Manufacturers
</TABLE>
47
<PAGE> 49
<TABLE>
<CAPTION>
WEB SITE RELATED BUSINESS(ES)
-------- --------------------
<S> <C>
MANUFACTURING
American Machinist Online American Machinist
Forging Online Forging
Industrial Shows of America ISOA Division
New Equipment Digest Innovation On New Equipment Digest
Line
Used Equipment Network Used Equipment Directory
MECHANICAL SYSTEMS/
CONSTRUCTION
Contracting Business Interactive Contracting Business
HPAC Interactive Heating/Piping/Air Conditioning
SUPPLY CHAIN/AVIATION
ATWOnline Air Transport World
MHESource Material Handling Engineering
North American Warehousing & NAWDEC
Distribution Exposition &
Conference
<CAPTION>
WEB SITE WEB SITE ADDRESS (WWW.-)
-------- ------------------------
<S> <C>
MANUFACTURING
American Machinist Online penton.com/am
Forging Online penton.com/forging
Industrial Shows of America isoa.com
New Equipment Digest Innovation On newequipment.com
Line
Used Equipment Network buyused.com
MECHANICAL SYSTEMS/
CONSTRUCTION
Contracting Business Interactive penton.com/cb
HPAC Interactive penton.com/hpac
SUPPLY CHAIN/AVIATION
ATWOnline atwonline.com
MHESource mhesource.com
North American Warehousing & nawdec.com
Distribution Exposition &
Conference
</TABLE>
CD-ROMs and Diskettes. Penton also offers a number of its directories and
magazines on CD-ROM and floppy disk, including: HPAC Info-Disk, which features
Heating/Piping/Air Conditioning's annual directory issue; Lodging Hospitality's
'98 Almanac CD-ROM, a directory of manufacturers, products & services, and
articles from the past year of Lodging Hospitality; Fluid Power Handbook &
Directory CD-ROM, a directory of manufacturers, products, trade names, and
information on fluid power technology; CAE/AEC Compendium CD-ROM, a compendium
of the CAE and A/E/C Directories plus a CAD/CAM Planning Guide; The Inventory of
Manufacturing Equipment, which highlights survey results from American Machinist
magazine; Metalcasting Plant Census on Disk, which features Foundry Management &
Technology's on-going census of the foundry industry; ATW Statistics on
Diskette, which provides information on world airline operating and financial
performance and is available through Air Transport World; and IW's Census of
Manufacturers, an IndustryWeek-Price Waterhouse research study that provides
manufacturers' best practices and metrics, with an interactive CD-ROM allowing
manufacturing executives to measure their performance against data from the
research.
Market Access & Business Development Services
Penton generates additional revenues through a variety of marketing
services, including database rentals and research and consulting services.
Penton offers these services to advertisers to help them to reach their
customers through media in addition to print.
Specialized Advertising Services
Penton forwards reader inquiries, which provide high quality sales leads,
to its advertisers. In addition, classified and recruitment advertising sections
in Penton publications provide a cost-efficient, effective medium for reaching
prospects who are ready to buy specialized products and services and qualified
professionals seeking career opportunities.
Direct Marketing & Fulfillment
Penton uses information from its subscription lists and other available
databases to compile detailed mailing lists for rental by marketers who want to
promote their products and services through direct-mail programs. Penton has the
ability to customize its mailing list databases so that a list renter may select
specific business or demographic criteria. Penton also matches advertisers'
customer files against its subscriber databases in order to compile additional
data regarding such customers, including job function, purchase involvement, and
company size. Because its databases provide such highly targeted data, Penton
believes that
48
<PAGE> 50
they are particularly attractive to its mailing list renters. Penton also
provides copy writing, graphics, and research services for creating direct-mail
marketing programs.
Custom Communications/Promotion
Penton Custom Publishing produces a full range of communications services
for both print and electronic media, CD-ROM, and the Internet, including
newsletters, magazines, catalogs, directories, education and training materials,
and other support materials. Penton provides complete turnkey project management
as well as more limited assistance with individual aspects of a project. Penton
also markets custom reprints of advertisements, magazine articles, or special
magazine supplements that advertisers use as direct-mail pieces, sales and
training aids, product announcements, or trade show handouts. In addition,
content from Penton magazines can be licensed for use on Web sites. For example,
reviews of products and services enhance a manufacturer's and/or advertiser's
Web site when presented as unbiased industry coverage.
Research
Penton Research Services offers a full range of primary and secondary
research services. Primary research, which may be requested by an advertiser or
an industry association, develops original statistics and analysis based on a
variety of research methodologies that may include interviews, surveys, and
focus groups. Secondary research makes use of existing research developed by
other organizations, collating it to answer a specific research need.
Printing
Penton Press occupies a 138,000-square-foot company-owned facility in
Berea, Ohio, has 250 employees, and prints 53 Penton publications and
approximately 50 non-Penton titles. Total copies printed exceeded 64 million in
1997. Services provided include complete electronic and conventional pre-press
service, heatset web offset and multi-color sheetfed printing, and post-press
finishing and binding services that include sheet cutting, folding, insert
tipping, saddle-wire and perfect binding, in-line and off-line mailing, and
polybagging.
Direct-Mail Marketing
Curtin & Pease/Peneco, Penton's direct-mail marketing subsidiary, provides
direct marketing services and advertising/promotion services primarily to the
pharmaceutical, healthcare, and business services markets. Curtin & Pease/Peneco
and its printing division, Feather Fine, accounted for approximately 6% of
Penton's total revenue in 1997. Penton management is currently considering
strategic alternatives for Curtin & Pease/Peneco and Feather Fine.
PRODUCTION AND DISTRIBUTION
Penton prints nearly all of its own magazines and approximately 50 outside
titles. If additional printing capacity is needed, Penton believes that outside
printing services are readily available at competitive prices.
The principal raw material used in Penton's print publications is paper.
Penton believes that the existing arrangements providing for the supply of paper
are adequate and that, in any event, alternative sources are available. Paper
costs accounted for approximately 8% of Penton's total operating costs in 1997.
Paper prices are affected by a variety of factors, including demand, capacity,
pulp supply, and general economic conditions. Paper prices have been volatile
over the past several years. Penton's costs for paper, relative to revenues, can
vary from year to year due to the level of its paper demands.
All of Penton's publications are delivered by the United States Postal
Service within the continental United States. Postage costs also represent a
significant expense for Penton, accounting for approximately 8% of Penton's
total operating costs and expenses in 1997. In an attempt to contain postal
costs, Penton takes advantage of various postal discounts. Penton uses
Yellowstone International Corporation to distribute certain of its publications
internationally.
See "Risk Factors -- Effect of Increases in Paper and Postage Costs."
49
<PAGE> 51
PROMOTION AND MARKETING
Penton uses a variety of promotional activities, including advertising,
direct-mail, public relations, media relations, trade shows, and Internet
marketing, to increase the awareness of and business support for its magazines,
trade shows, electronic media products, and service businesses. These
promotional activities also take place at the corporate level to build the image
of Penton. Penton is implementing a formal corporate identity program to build
greater understanding of its broadened business scope and to create stronger
awareness of the Penton brand among all stakeholder audiences.
COMPETITION
Penton competes with a wide range of companies that provide similar
products and services. Although such competition is significant and is likely to
increase in the future, Penton believes its diverse array of products and
services allows it to compete effectively in the markets it serves.
Competition in the publishing segment of Penton's business generally is at
the market sector level, with each publication having one to three direct
competitors. Competitors range in description from major, international,
multi-title publishing houses with significant resources, which may give them a
competitive advantage, to small, entrepreneurial businesses with relatively
modest financial resources.
Overall competitive factors include the market's perception of the niche
served by the magazine, readers' preference for the publication's content,
editorial quality, quantity and quality of circulation, reader response to
advertisers' products and services, the effectiveness of sales teams, customer
service, and advertising rates. Penton believes its products effectively compete
on the basis of these factors. Penton's principal sales advantages include
relevant editorial content and innovative marketing. Penton believes that its
competitive position also benefits from improvements in productivity and from
cost control programs. Penton places great emphasis on providing quality
products and services to its customers.
While Penton faces competition in the overall trade show and conference
arena, in few cases do Penton events compete directly with other events. Trade
show and conference events generally are differentiated by their market
position, geographic location/venue, and seasonality. Penton believes its events
compete effectively in each of these areas, and that the organizational
efficiency and high quality of conference content are competitive advantages
which draw exhibitor and attendee support.
The Internet media business is highly competitive. An increasing number of
companies are developing online content and services for delivery on the World
Wide Web in order to compete both for audiences and for the advertising dollars
that are currently being directed to the Internet.
TRADEMARKS AND INTELLECTUAL PROPERTY RIGHTS
Penton has developed strong brand awareness for its principal publications,
trade shows, and other products and services. Penton regards its copyrights,
trademarks, service marks, and similar intellectual property as critical to its
success and relies upon copyright and trademark laws, as well as confidentiality
agreements with its employees and others, to protect its rights. Penton pursues
the registration of its material trademarks in the United States and, depending
upon use, in certain other countries. Effective trademark and copyright
protection may not be available in every country in which Penton's publications
and services are available.
Penton may be subject to claims of alleged infringement by it or its
licensees of trademarks and other intellectual property rights of third parties
from time to time in the ordinary course of business. Penton does not believe
there are any such legal proceedings or claims that are likely to have,
individually or in the aggregate, a material adverse effect on Penton's
business, financial condition, or results of operations.
CUSTOMERS
Penton is not overly dependent upon a single customer or a few customers.
Penton has more than 5,000 advertising customers, and the top ten customers in
1997 accounted for only 5% of its total revenue. Penton's top 100 customers
accounted for less than 18% of total revenue in 1997. The Company's customers
include some of the world's largest and most dynamic companies. Penton's top ten
advertiser customers in 1997 were:
50
<PAGE> 52
Hewlett Packard, AT&T, Texas Instruments, Compaq Computer, Scientific
Components, Motorola, IBM, Siemens, Burr-Brown, and CNF Transportation.
ENVIRONMENTAL MATTERS
Penton anticipates that compliance with various laws and regulations
relating to protection of the environment will not have a material effect on its
capital expenditures, earnings, or competitive position.
EMPLOYEES
On April 30, 1998, there were approximately 1,390 persons employed by
Penton, primarily located in the United States. None of Penton's employees is
represented by a labor union, and Penton considers its relations with its
employees to be good.
PROPERTIES
Penton's principal properties and their general characteristics are as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION PRINCIPAL USE LEASE EXPIRATION SQUARE FEET
-------- ------------- ---------------- -----------
<S> <C> <C> <C>
Cleveland, Ohio General Offices 2000 186,000
Cleveland, Ohio Warehousing 2001 28,000
Berea, Ohio Printing/Warehousing Owned 138,000
New York, New York Sales Offices 2000 10,000
Dunedin, Florida General Offices 2000 13,000
Safety Harbor, Florida Warehousing 1999 18,000
Tampa, Florida Printing 2000 15,000
Tampa, Florida General Offices/ Warehousing 1999 19,000
Hasbrouck Heights, New Jersey General Offices 2001 25,000
</TABLE>
Other properties include 13 sales and/or editorial offices under leases
expiring through 2013 located in major cities throughout the United States and
in the United Kingdom. Penton believes its facilities are adequate for its
present needs.
LITIGATION
Penton is not a party to any legal proceedings other than ordinary routine
litigation incidental to its business. No legal proceedings to which Penton is a
party are material to its business or financial condition.
51
<PAGE> 53
MANAGEMENT
BOARD OF DIRECTORS
The following discussion sets forth information concerning the individuals
who, pursuant to the provisions of the DM Publishing Combination Agreement, will
be serving on the Board immediately after the Stock Distribution and the DM
Publishing Combination. Such directors will be divided into three classes.
Stockholders will elect approximately 1/3 of the directors at each annual
meeting, beginning with the 1999 annual meeting.
<TABLE>
<CAPTION>
AGE AND TERM OF
NAME DIRECTORSHIP INFORMATION
---- --------------- -----------
<S> <C> <C>
William J. Friend Term as Director Mr. Friend has served as a Director of Penton
Expires 1999. since June 1998. Assistant to the
Age -- 34 President/Strategic Planning Manager of Pittway
Corporation (manufacturer and distributor of
alarm and other security products) since August
1996. National Sales Manager, Xetron (division
of Pittway) (April 1994 to July 1996) and
Engineering Product Manager, System Sensor
(division of Pittway) (August 1992 to March
1994).
Donald E. Schultz Term as Director Mr. Schultz has served as a Director of Penton
Expires 1999. since June 1998. President of Agora Inc.
Age -- 64 (integrated marketing communications consulting
firm). Professor of Integrated Marketing
Communications at the Medill School of Jour-
nalism, Northwestern University. Senior Partner,
Targetbase Marketing International and the
Targetbase Institute.
Richard B. Swank Term as Director Mr. Swank has served as a Director of Penton
Expires 1999. since June 1998. Retired. Chairman and Chief
Age -- 67 Executive Officer of Advanstar Communications,
Inc. (magazine, publishing, exhibition and
marketing services enterprise) from April 1990
to December 1994 and Director since May 1996.
Non-executive Chairman and Director, The Dialog
Corp. (U.S.A.) (an online information and data
provider) from November 1997 to present.
William C. Donohue Term as Director Mr. Donohue will become a Director of Penton
Expires 2000. upon completion of the DM Publishing
Age -- 53 Combination. President of Donohue Meehan
Publishing Company (a business publishing
company) since January 1987.
Joan W. Harris Term as Director Ms. Harris has served as a Director of Penton
Expires 2000. since June 1998. President of the Harris
Age -- 67 Foundation (a private charitable foundation).
President of the Chicago Music and Dance
Theater. Former Commissioner for Cultural
Affairs for the City of Chicago. Past
chairperson of the Illinois Arts Alliance and
former director of National Public Radio
(1990-1997).
John J. Meehan Term as Director Mr. Meehan will become a Director of Penton upon
Expires 2000. completion of the DM Publishing Combination.
Age -- 50 Executive Vice President of Donohue Meehan
Publishing Company (a business publishing
company) since January 1987.
Daniel J. Ramella Term as Director Mr. Ramella has served as a Director of Penton
Expires 2000. since July 1990. President and Chief Operating
Age -- 46 Officer of Penton (since 1990).
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
AGE AND TERM OF
NAME DIRECTORSHIP INFORMATION
---- --------------- -----------
<S> <C> <C>
Anthony Downs Term as Director Mr. Downs has served as a Director of Penton
Expires 2001. since June 1998. Senior Fellow (since 1997) of
Age -- 67 Brookings Institution (non-profit social policy
research center); Consultant (since 1977).
Director, Pittway Corporation (manufacturer and
distributor of alarm and other security prod-
ucts), Bedford Property Investors, Inc. (real
estate investment trust), Essex Property Trust,
Inc. (real estate investment trust), General
Growth Properties, Inc. (real estate investment
trust), Massachusetts Mutual Life Insurance
Corporation (insurance company), and National
Partnership Foundation (low-income housing
operator).
King Harris Term as Director Mr. Harris has served as a Director of Penton
Expires 2001. since May 1987 and as the non-executive Chairman
Age -- 55 of the Board since May 1998. President, Chief
Executive Officer and Director of Pittway
Corporation (manufacturer and distributor of
alarm and other security products) since 1987.
Non-executive Chairman of the Board and
Director, Aptar Group, Inc. (specialty packaging
components manufacturer) and Director, Cylink
Corporation (commercial data encryption
company).
Thomas L. Kemp Term as Director Mr. Kemp has served as a Director of Penton
Expires 2001. since September 1996. Chief Executive Officer of
Age -- 47 Penton (since September 1996); Chairman of the
Board of Penton from September 1996 to May 1998;
President and Chief Operating Officer from
January 1996 to August 1996, Executive Vice
President from 1994 to 1996, and Senior Vice
President, Business and Special Interest
division, from 1992 to 1994, of Miller Freeman,
Inc. (business magazine publisher and exhibition
manager).
Edward J. Schwartz Term as Director Mr. Schwartz has served as a Director of Penton
Expires 2001. since June 1998. Vice President of Pittway
Age -- 57 Corporation (manufacturer and distributor of
alarm and other security products) since 1989.
</TABLE>
Joan W. Harris is the aunt of King Harris. Mr. Harris is the uncle of
William J. Friend. Pursuant to the DM Publishing Combination Agreement, Messrs.
Donohue and Meehan are to be elected to serve as directors of Penton until
Penton's 2000 annual meeting.
Employees of Penton do not receive any additional compensation for serving
as members of the Board or any of its committees. Compensation of non-employee
directors consists of an annual retainer of $15,000, plus a fee of $2,000 for
each Board meeting attended in person and $500 for any teleconference Board
meeting that may be held. In addition, non-employee directors receive $500 for
each committee meeting, but only $250 for each committee meeting attended on the
same day as a Board meeting. The Chairman of each of the Audit and Compensation
Committees receives an additional $2,000 per year. In lieu of the above fees,
the non-executive Chairman of the Board receives an annual retainer of $50,000
per year.
Each director of Penton will be reimbursed by Penton for out-of-pocket
expenses incurred in attending Board and Board committee meetings (including
those occurring prior to the Stock Distribution Date).
Penton has adopted the Penton Media, Inc. 1998 Director Stock Option Plan
(the "Director Option Plan") for non-employee directors. Pursuant to the
Director Option Plan, and subject to certain limitations contained in it, the
Board may grant non-qualified options to purchase Common Stock, at an exercise
price not less than fair market value on the date of grant, to directors of
Penton who at the time of grant are not employees of Penton or any of its
subsidiaries. It is currently anticipated that shortly after the Stock
Distribution each non-employee director will receive 8,000 options, which will
vest at the rate of 2,000 per year, and that Edward Schwartz will receive an
additional 13,000 fully-vested options. See "Capitalization."
53
<PAGE> 55
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. The Executive Committee consists of Mr. Harris as
Chairman and Messrs. Kemp, Ramella, and Schwartz. When the Board is not in
session, the Executive Committee may exercise all the powers and authority of
the Board except as limited by law and Penton's Amended and Restated Certificate
of Incorporation.
Audit Committee. The Audit Committee consists of Mr. Schwartz as Chairman
and Mr. Friend and Donald Schultz. The Audit Committee will review, as it deems
appropriate, and approve internal accounting and financial controls for Penton
and auditing practices and procedures to be employed in the preparation and
review of Penton's financial statements. The Audit Committee will make
recommendations to the full Board concerning the engagement of independent
public accountants to audit Penton's annual financial statements and will
arrange with such accountants the scope of the audit to be undertaken by such
accountants.
Compensation Committee. The Compensation Committee consists of Richard
Swank as Chairman and Ms. Harris, Anthony Downs, and Mr. Harris. The
Compensation Committee will review and determine the compensation of executive
officers, review and make recommendations to the Board with respect to salaries,
bonuses, and deferred compensation of other officers and executives,
compensation of directors and management succession, and make such
determinations and perform such other duties as are expressly delegated to it
pursuant to the terms of any employee benefit plan of Penton.
Investment Committee. The Investment Committee consists of Mr. Schwartz as
Chairman and Messers. Friend and Swank. The Investment Committee will provide
objectives and guidelines for the investment of funds held in trust under the
various Penton pension plans, act as the investment committee for purposes of
any 401(k) plans, and review the performance of investment managers charged with
investing Penton pension plan funds.
Nominating Committee. The Nominating Committee consists of Ms. Harris as
Chairwoman and Messrs. Harris and Schultz. The Nominating Committee, as it deems
appropriate, will make recommendations to the full Board with respect to the
size and composition of the Board and its committees and with respect to
nominees for election as directors. The Nominating Committee will consider
suggestions regarding candidates for election to the Board submitted by
stockholders in writing to Penton's Secretary.
EXECUTIVE OFFICERS
It is expected that all senior management of both Penton and DM Publishing,
who have extensive experience in the business media industry, will remain with
Penton after the Stock Distribution and the DM Publishing Combination. Messrs.
Kemp and Ramella, who will serve as the Chief Executive Officer and the
President of Penton, respectively, immediately following the Stock Distribution
and the DM Publishing Combination, have 24 and 21 years, respectively, of
experience in the industry. The various operating unit heads of the major Penton
operations who will be serving immediately following the Stock Distribution and
the DM Publishing Combination have, on average, over 25 years of such experience
in the industry.
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<PAGE> 56
Information concerning the persons who will serve as the executive officers of
Penton immediately following the Stock Distribution and the DM Publishing
Combination is as follows:
<TABLE>
<CAPTION>
NAME TITLE AND AGE BUSINESS EXPERIENCE
---- ------------- -------------------
<S> <C> <C>
Thomas L. Kemp Chief Executive Mr. Kemp has been Penton's Chief Executive
Officer. Officer since 1996. Mr. Kemp's publishing career
Age -- 47. spans more than 24 years. He spent 22 years with
San Francisco-based Miller Freeman, Inc., and
was Miller Freeman's President and Chief
Operating Officer in 1996, when he left the
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 the company in
1974. Mr. Kemp is a Director and Treasurer of
Business Publications Audit International and a
member of the organization's Executive
Committee. He is a Director of the Business
Press Educational Foundation, and a former
Director of American Business Press and the
Association of Medical Publishers. Mr. Kemp is a
frequent speaker at media industry conferences
and events.
Daniel J. Ramella President and Chief Mr. Ramella has served as Penton's President and
Operating Officer. Chief Operating Officer since 1990, and has
Age -- 46. worked for Penton for more than 21 years. Mr.
Ramella was Senior Vice President, Publishing
from 1989 to 1990, and Vice President,
Foodservice Group from 1987 to 1989. He was
publisher of Restaurant Hospitality magazine
from 1985 to 1987. Mr. Ramella held management
positions with Production Engineering magazine
between 1977 and 1985. Before joining Penton in
1977, he was a Senior Audit Manager for Arthur
Andersen & Co. He is a Director, Secretary, and
Executive Committee Member of American Business
Press and has served as a Director of the
Business Press Educational Foundation. He is a
former Director, Treasurer, and Executive
Committee member of Business Publications Audit
International.
James D. Atherton Group President. Mr. Atherton is Group President of the
Age -- 62. Mechanical Systems/Construction, Electronics,
Government/ Compliance, Management, Supply
Chain/Aviation, and Industrial Shows of America
Groups. He has worked in business-to-business
publishing at Penton for 45 years. Mr. Atherton
was Group President of Penton's Inside Sales and
Electronics Groups from 1991 to 1995, and
President of the Electronics Group in 1991. From
1989 to 1991, he was Senior Vice President of
Publishing, and from 1984 to 1989, he was
Publishing Vice President of New Equipment
Digest (NED) and Material Handling Engineering
magazines. From 1981 to 1984, he was Vice
President of NED, and from 1975 to 1981, he was
NED's Publisher.
</TABLE>
55
<PAGE> 57
<TABLE>
<CAPTION>
NAME TITLE AND AGE BUSINESS EXPERIENCE
---- ------------- -------------------
<S> <C> <C>
James A. Zaremba Group President. Mr. Zaremba is Group President of the Design/
Age -- 58. Engineering, Foodservice/Hospitality,
Manufacturing, and Independent Exhibitions Ltd.
Groups and A/E/C Systems. He has spent most of
his 30-year business-to-business publishing
career with Penton. From 1993 to 1995, he was
Group President of the Design/Engineering and
Custom Communications Groups, and from 1991 to
1993, he was Group President of the
Design/Engineering Group. He was Group Vice
President of the Design/Engineering Group from
1989 to 1991. From 1988 to 1989, he was
Publisher of Machine Design magazine, and from
1983 to 1988, he was Publisher of PT Design
magazine.
Preston L. Vice Senior Vice President, Mr. Vice has been Senior Vice President of
Publishing Services. Publishing Services since 1989. Mr. Vice has 19
Age -- 50. years of business-to- business publishing
experience and 28 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. Previous to his tenure at Pittway he
was with Coopers & Lybrand.
</TABLE>
Penton's executive officers will hold office until their successors are
appointed and qualified or until their earlier removal or resignation. However,
Messrs. Kemp and Ramella have rights to hold their respective offices pursuant
to and for the terms of their respective employment agreements referred to below
under "Executive Compensation -- Employment Agreements."
SIGNIFICANT EMPLOYEES
Other persons who will be significant employees of Penton immediately
following the Stock Distribution and the DM Publishing Combination and their
positions, ages, and prior business experience are as follows:
<TABLE>
<CAPTION>
NAME TITLE AND AGE BUSINESS EXPERIENCE
---- ------------- -------------------
<S> <C> <C>
William C. Donhoue President, Donohue Mr. Donohue started his 25-year business
Meehan Publishing publishing career in 1973 selling advertising
Company. for Woodall Publishing. He was vice president
Age -- 53. and group publisher of Gorman Publishing's
Bakery Production & Marketing and Prepared Foods
magazines from 1976 to 1986 before forming
Donohue Meehan Publishing Company in 1987.
John J. Meehan Executive Vice Mr. Meehan started his 26-year career in
President, Donohue business-to- business publishing at the former
Meehan Publishing Chilton Publishing, where he held marketing and
Company. sales management positions with the company's
Age -- 50. 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 Thompson Publishing in
New York from 1986 to 1987 before forming
Donohue Meehan Publishing Company in 1987.
Russell S. Carson Vice President & Group Mr. Carson has been Vice President & Group
Publisher, New Publisher of Penton's New Equipment Digest Group
Equipment Digest since 1998. Mr. Carson has spent 33 years in
Group. business-to-business publishing. Mr. Carson was
Age -- 60. Publisher of New Equipment Digest from 1989 to
1998, Publishing Director from 1986 to 1989, and
was National Sales Manager from 1980 to 1986. He
also worked on PT Design in several capacities.
</TABLE>
56
<PAGE> 58
<TABLE>
<CAPTION>
NAME TITLE AND AGE BUSINESS EXPERIENCE
---- ------------- -------------------
<S> <C> <C>
Andrew C. DeSarle Vice President, An- Mr. DeSarle's 25 years in business-to-business
cillary Product Sales and consumer publishing include roles as Vice
& Marketing. President of Special Advertising at Argus Inc.,
Age -- 47. a division of Intertec Publishing, from 1994 to
1996, and General Manager & Publisher for United
Newspapers' Want Ad Press Automotive and Want Ad
Press General Merchandise magazines, from 1991
to 1994. Mr. DeSarle's publishing career also
includes service at CMP Publications, Lebhar
Friedman Inc., Cue magazine, and Ziff-Davis
Publishing. He joined Penton in 1996.
Joseph M. DiFranco Vice President & Group Mr. DiFranco has worked in business-to-business
Publisher, publishing for 25 years. Mr. DiFranco was Group
Design/Engineering, Publisher of Machine Design ("MD") and American
Metals & Manufacturing Machinist ("AM") magazines from 1993 to 1998,
Groups. Publisher of MD from 1990 to 1993, and Publisher
Age -- 52. of AM from 1987 to 1990. He was Publisher of
Huebcor Publishing's Tooling & Production and
Metlfax magazines from 1982 to 1987. He also
held positions at the former Chilton Publishing
and at Eaton Corporation. He joined Penton in
1987.
John G. French Vice President & Group Mr. French has been Electronic Design magazine's
Publisher of Publisher since 1995. Mr. French has worked in
Electronic Design high technology publishing for 18 years. Between
Group. 1989 and 1995, he was Publisher of Microwaves &
Age -- 42. RF magazine, Publisher of the former Electronics
magazine, and National Accounts Manager of
Electronic Design. Mr. French held positions
with VNU Business Publications, CMP Pub-
lishing, Pennwell Publishing, and CW
Communications prior to joining Penton in 1989.
Robert S. Martin Vice President/ Mr. Martin was Plant Superintendent from 1975 to
General Manager, 1981, and Pre-Press Manager from 1968 to 1975.
Penton Press He has worked in the printing industry for 39
Division. years.
Age -- 61.
Charles T. Griesemer Vice President, Mr. Griesemer started his nine-year,
Finance. business-to-business publishing career at Penton
Age -- 46. in 1989. In the preceding 16 years, he held
finance positions at the Thermos Company, Anchor
Swan Corporation Inc., Pittway Corporation, and
Coopers & Lybrand.
Susan J. Grimm Vice President, Ms. Grimm has 18 years experience in
Publishing Systems & business-to- business publishing. Ms. Grimm was
Support Services. Vice President of Systems from 1988 to 1991,
Age -- 53. Vice President of Data Processing from 1987 to
1988, and Director of Data Processing from 1983
to 1987. She was Manager of Systems Development
from 1982 to 1983, and started with Penton as a
Systems Planning Analyst in 1980. Ms. Grimm
worked for Ernst & Young before joining Penton.
Katherine P. Torgerson Vice President, Human Ms. Torgerson was Director of Executive
Resources & Executive Administration from 1997 to 1998, and Executive
Administration. Assistant to the Chairman and the President from
Age -- 50. 1994 to 1997. Over more than 16 years with
Penton, Ms. Torgerson has held roles in
editorial, production, marketing and promotion,
business management, corporate communications,
and executive administration.
</TABLE>
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<PAGE> 59
<TABLE>
<CAPTION>
NAME TITLE AND AGE BUSINESS EXPERIENCE
---- ------------- -------------------
<S> <C> <C>
Andrew Dedman Managing Director, Mr. Dedman has held his post with INDEX since he
Independent Exhi- helped found the company in 1984. He worked for
bitions Ltd. Clapp and Poliak UK (acquired by Cahners
Age -- 46. Publishing in 1983) as Group Show Director and
in sales from 1975 to 1984. Mr. Dedman has 23
years experience in trade show management.
Susan J. Donahue President, Indus- Ms. Donahue is also Vice President of Industrial
trial Shows of Shows of America International. She has 18 years
America. experience in the trade show management
Age -- 42. business. Ms. Donahue was ISOA's Vice President
from 1985 to 1992, and a Sales Representative
from 1980 to 1985. She joined the firm in 1980.
Charles E. Cross III President, Indus- Mr. Cross is also Vice President of ISOA. Mr.
trial Shows of America Cross has 13 years of trade show management
International. experience. From 1990 to 1992, he was Vice
Age -- 41. President of ISOA and ISOA International. He was
ISOA's Sales Manager/Show Manager from 1985 to
1990.
Robert F. Wilson President & CEO, Mr. Wilson has served as President and Chief
Curtin & Pease/ Executive Officer of Curtin & Pease/Peneco since
Peneco. 1990. Mr. Wilson was the subsidiary's President
Age -- 56. from 1987 to 1990, and Executive Vice President
from 1983 to 1986. He has 38 years of experience
in the direct-mail business.
</TABLE>
EXECUTIVE COMPENSATION
COMPENSATION TABLES
The following table sets forth, for 1997, certain information about the
compensation paid to the Chief Executive Officer and each of the four other most
highly compensated executive officers of the Company serving at the end of 1997
(collectively, the "Named Executive Officers"). The table contains additional
information for previous years for Messrs. Kemp and Ramella, which information
previously was required to be provided by Pittway in response to a Securities
and Exchange Commission (the "Commission") filing requirement.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL -----------------------
COMPENSATION AWARDS(1)
------------------- -----------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
SALARY BONUS AWARD(S) OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) SAR'S(#) ($)
- ---------------------------------------- ---- -------- ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Kemp 1997 $400,000 $291,000 $ 0 10,000 $4,322(2)
Chief Executive Officer 1996 133,336 200,000 0 4,000 175
Daniel J. Ramella 1997 330,000 241,000 0 7,000 4,481(3)
President and Chief Operating Officer 1996 315,000 150,000 100,000 7,000 4,330
1995 300,000 115,000 100,000 10,500 3,012
James W. Zaremba 1997 210,000 181,510 0 2,000 5,362(4)
Group President
James D. Atherton 1997 210,000 169,880 0 2,000 5,498(5)
Group President
Jerome C. Neff(6) 1997 177,000 105,880 0 0 6,592(7)
Group President
</TABLE>
- ---------------
(1) The amounts and numbers listed represent awards under the Pittway
Corporation 1990 Stock Awards Plan.
58
<PAGE> 60
(2) Consists of $3,800 annual matching Pittway contributions during the year to
Pittway's salary reduction plan and $522 for term life insurance provided by
Pittway during the year.
(3) Consists of $3,959 annual matching Pittway contributions during the year to
Pittway's salary reduction plan and $522 for term life insurance provided by
Pittway during the year.
(4) Consists of $4,012 annual matching Pittway contributions during the year to
Pittway's salary reduction plan and $1,350 for term life insurance provided
by Pittway during the year.
(5) Consists of $3,392 annual matching Pittway contributions during the year to
Pittway's salary reduction plan and $2,106 for term life insurance provided
by Pittway during the year.
(6) Mr. Neff retired on April 30, 1998.
(7) Consists of $3,392 annual matching Pittway contributions during the year to
Pittway's salary reduction plan and $3,200 for term life insurance provided
by Pittway during the year.
The following table contains information concerning options granted to the
Chief Executive Officer and the Named Executive Officers under the Pittway
Corporation 1990 Stock Awards Plan during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(1)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION --------------------
NAME GRANTED(#) IN FISCAL YEAR(%) ($/SH) DATE 5% 10%
---- ---------- ----------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Kemp 10,000 3.7 $55.00 3/19/2007 $345,892 $876,558
Daniel J. Ramella 7,000 2.6 55.00 3/19/2007 242,124 613,591
James W. Zaremba 2,000 .74 55.00 3/19/2007 69,178 175,312
James D. Atherton 2,000 .74 55.00 3/19/2007 69,178 175,312
Jerome C. Neff 0 N/A N/A N/A N/A N/A
</TABLE>
- ---------------
(1) The value, if any, one may realize upon the exercise of a stock option
depends on the excess of the then current market value per share over the
exercise price per share. There is no assurance that the values to be
realized upon exercise of the stock options listed above will be at or near
the amounts shown.
The following table sets forth information with respect to exercises of
options and stock appreciation rights ("SARs") under the Pittway Corporation
1990 Stock Awards Plan during 1997 by the Named Executive Officers and the
values of unexercised options and SARs under the Pittway Corporation 1990 Stock
Awards Plan held by them as of December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED OPTIONS/SARS AT IN-THE-MONEY OPTIONS
ON VALUE FISCAL YEAR END(#)(1) AT FISCAL YEAR END ($)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas L. Kemp 0 $ 0 0 14,000 $ 0 $236,750
Daniel J. Ramella 0 0 16,098 24,500 845,816 704,813
James W. Zaremba 4,500 163,256 0 8,900 0 271,613
James D. Atherton 6,000 216,850 0 11,200 0 352,400
Jerome C. Neff 0 0 0 4,600 0 161,575
</TABLE>
- ---------------
(1) Prior to and in conjunction with the Stock Distribution, the exercisability
of one-third of Mr. Kemp's Pittway options and of all unexercisable Pittway
options for Messrs. Ramella, Zaremba, and Atherton will be accelerated. The
exercisability of Mr. Neff's Pittway options were accelerated upon his
retirement on April 30, 1998.
59
<PAGE> 61
PENTON COMPENSATION PLANS
Penton has adopted the Penton Media, Inc. 1998 Equity and Performance
Incentive Plan (the "Equity Incentive Plan") and the Penton Media, Inc. 1998
Director Stock Option Plan (the "Director Option Plan") and will adopt prior to
the Stock Distribution the Penton Media, Inc. Retirement Savings Plan (the
"Salary Reduction Plan"), the Penton Media, Inc. Retirement Plan (the "Pension
Plan"), and the Penton Media, Inc. Supplemental Executive Retirement Plan (the
"SERP"). The following summaries of the Equity Incentive Plan, the Director
Option Plan, the Salary Reduction Plan, the Pension Plan, and the SERP are
qualified by reference to the provisions of the actual plans, copies of which
have been filed with the Commission as exhibits to the Registration Statement of
which this Prospectus is a part.
EQUITY INCENTIVE PLAN
The Equity Incentive Plan permits the granting of stock options and other
awards to officers and other key employees of Penton. Stock options may be
either incentive stock options within the meaning of Section 422 of the Code
("Incentive Stock Options") or other options.
The purpose of the Equity Incentive Plan is to promote the long-term
financial interests of Penton and its affiliates by attracting and retaining
officers and other key employees and to provide to such persons incentives and
rewards for superior performance.
Plan Summary
General. Under the Equity Incentive Plan, the Compensation Committee is
authorized to make awards of options to purchase shares of Common Stock ("Option
Rights"), awards of Tandem Appreciation Rights and/or Free-Standing Appreciation
Rights ("Appreciation Rights"), awards of restricted shares ("Restricted
Shares"), awards of deferred shares ("Deferred Shares"), and awards of
performance shares ("Performance Shares") and performance units ("Performance
Units"). The terms applicable to awards of the various types, including those
terms that may be established by the Compensation Committee when making or
administering particular awards, are set forth in detail in the Equity Incentive
Plan.
Shares Available Under the Equity Incentive Plan. Subject to adjustment as
provided in the Equity Incentive Plan, the number of shares of Common Stock that
may be issued or transferred (i) upon the exercise of Option Rights or
Appreciation Rights, (ii) as Restricted Shares, (iii) as Deferred Shares, (iv)
in payment of Performance Shares or Performance Units that have been earned, or
(v) in payment of dividend equivalents paid with respect to awards made under
the Equity Incentive Plan may not exceed 2,500,000 in the aggregate. Such shares
of Common Stock may be shares of original issuance, treasury shares or a
combination of both. Upon the payment of any option price by the transfer to
Penton of shares of Common Stock or upon satisfaction of any withholding amount
by means of transfer or relinquishment of shares of Common Stock, only the net
number of shares of Common Stock actually issued or transferred by Penton will
be deemed to have been issued or transferred under the Equity Incentive Plan.
Eligibility. Officers and other key employees of Penton and its
subsidiaries may be selected by the Compensation Committee to receive benefits
under the Equity Incentive Plan. The Compensation Committee may also make awards
under the Equity Incentive Plan to a person who has agreed to commence serving
in any such capacity within 90 days of the date of grant.
Option Rights. The Compensation Committee may grant Option Rights, which
entitle the optionee to purchase a specified number of shares of Common Stock at
a price not less than 100% of the Market Value per Share (as defined in the
Equity Incentive Plan) on the date of grant for Incentive Stock Options and not
less than the greater of 85% of the Market Value per Share on the date of grant
or the par value of a share of Common Stock for all other Option Rights. The
option price is payable in cash, by the transfer to Penton of nonforfeitable
unrestricted shares of Common Stock owned by the optionee having a value at the
time of exercise equal to the option price, by any other legal consideration the
Compensation Committee may deem appropriate, or by a combination of such payment
methods. Any grant may provide for deferred payment of the option price from the
proceeds of sale through a bank or broker of some or all of the shares of Common
60
<PAGE> 62
Stock to which the exercise relates. Any grant may provide for the automatic
grant of additional Option Rights to an optionee upon the exercise of Option
Rights using shares of Common Stock as payment.
Option Rights granted under the Equity Incentive Plan may be Option Rights
that are intended to qualify as Incentive Stock Options, Option Rights that are
not intended to so qualify, or combinations thereof. The Compensation Committee
may, at or after the date of grant of any Option Rights (other than Incentive
Stock Options), provide for the payment of dividend equivalents to the optionee
in cash or additional shares of Common Stock on a current, deferred, or
contingent basis or may provide that such equivalents be credited against the
option price. The Compensation Committee may condition the exercise of Option
Rights on the achievement of Management Objectives (as defined in the Equity
Incentive Plan).
No Option Right may be exercised more than ten years from the date of
grant. Each grant must specify the period of continuous employment with Penton
or any subsidiary that is necessary before the Option Rights will become
exercisable and may provide for the earlier exercise of such Option Rights in
the event of a Change of Control (as defined below) of Penton. Successive grants
may be made to the same optionee whether or not Option Rights previously granted
remain unexercised. The exercise of an Option Right cancels, on a
share-for-share basis, any Tandem Appreciation Right.
Appreciation Rights. Appreciation Rights provide participants an
alternative means of realizing the benefits of Option Rights. A Tandem
Appreciation Right is a right to receive from Penton up to 100 percent of the
spread between the option price and the current value of the shares of Common
Stock underlying the option. The amount is determined by the Compensation
Committee and the right is exercisable only when the related Option Right is
also exercisable, the spread is positive and the recipient surrenders the
related Option Right for cancellation. A Free-Standing Appreciation Right is the
right to receive from Penton up to 100% of the spread at the time of exercise.
When computing the spread for a Free-Standing Appreciation Right, the base price
must be equal to or greater than the market value of the underlying shares of
Common Stock on the date of grant. Successive grants may be made to the same
recipient even if that individual already has unexercised Free-Standing
Appreciation Rights. No Free-Standing Appreciation Right may be exercised more
than ten years from the date of grant.
Any grant of Appreciation Rights may specify any or all of the following:
(i) that the amount payable on exercise of an Appreciation Right may be paid by
Penton in cash, in shares of Common Stock or in any combination thereof, and the
right to elect among those alternatives may be given to the participant or
retained by the Compensation Committee, (ii) a maximum amount payable on
exercise, (iii) waiting periods before exercise, (iv) permissible exercise dates
or periods, (v) whether the Appreciation Right may be exercised only on or after
a Change of Control of Penton, (vi) whether dividend equivalents may be paid in
cash or in shares of Common Stock, and (vii) Management Objectives that must be
achieved as a condition to exercise such rights.
Restricted Shares. An award of Restricted Shares involves the immediate
transfer by Penton to a participant of ownership of a specific number of shares
of Common Stock in consideration of the performance of services. The participant
is entitled immediately to voting, dividend, and other ownership rights in such
shares, but the Compensation Committee may require that any dividends be
automatically deferred and reinvested in additional Restricted Shares. The
transfer may be made without additional consideration or in consideration of a
payment by the participant that is less than current market value, as the
Compensation Committee may determine. The Compensation Committee may condition
the award on the achievement of Management Objectives.
Restricted Shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period of not less than three
years as determined by the Compensation Committee. An example would be a
provision that the Restricted Shares would be forfeited if the participant
ceased to serve Penton as an officer or key employee during a specified period
of years. In order to enforce these forfeiture provisions, the transferability
of Restricted Shares will be prohibited or restricted in a manner and to the
extent prescribed by the Compensation Committee for the period during which the
forfeiture provisions are to continue. The Compensation Committee may provide
for a shorter period during which the forfeiture provisions are to apply in the
event of a Change of Control of Penton.
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<PAGE> 63
Deferred Shares. An award of Deferred Shares constitutes an agreement by
Penton to deliver shares of Common Stock to the participant in the future in
consideration of the performance of services, but subject to the fulfillment of
such conditions during the deferral period as the Compensation Committee may
specify. During the deferral period, the participant has no right to transfer
any rights under his or her award, has no rights of ownership in the Deferred
Shares and no right to vote them, but the Compensation Committee may, at or
after the date of grant, authorize the payment of dividend equivalents on such
shares on a current, deferred, or contingent basis, either in cash or additional
shares of Common Stock. Awards of Deferred Shares may be made without additional
consideration or in consideration of a payment by the participant that is less
than the market value per share at the date of grant.
Deferred Shares must be subject to a deferral period, as determined by the
Compensation Committee at the date of grant, except that the Compensation
Committee may provide for the earlier termination of such period in the event of
a Change of Control of Penton.
Performance Shares and Performance Units. A Performance Share is the
equivalent of one share of Common Stock and a Performance Unit is the equivalent
of $1.00. The number of Performance Shares or Performance Units is specified by
the Compensation Committee and may be adjusted to reflect changes in
compensation or other factors (unless the adjustment for certain participants
would cause an award to lose its Section 162(m) exemption).
A recipient must meet one or more Management Objectives within a specified
performance period. Such performance period may be subject to earlier
termination in the event of a Change of Control of Penton. A minimum level of
acceptable achievement may also be established by the Compensation Committee. If
by the end of the performance period the participant has achieved the specified
Management Objectives, he or she will be deemed to have fully earned the
Performance Shares or Performance Units. If the participant has not achieved the
Management Objectives, but has attained or exceeded the predetermined minimum,
he or she will be deemed to have partly earned the Performance Shares and/or
Performance Units (the amount earned to be determined in accordance with a
formula to be determined by the Compensation Committee).
To the extent earned, the Performance Shares and/or Performance Units will
be paid to the participant at the time and in the manner determined by the
Compensation Committee in cash, shares of Common Stock or in any combination
thereof (the Compensation Committee may give either the participant or the
Compensation Committee the right to choose the form of payment). Dividend
equivalents on Performance Shares may be paid in cash or additional shares of
Common Stock on a current, deferred, or contingent basis. The Compensation
Committee may specify a maximum amount payable under any grant of Performance
Shares or Performance Units.
Change of Control. "Change of Control" in the Equity Incentive Plan is
defined as any of the following:
(a) Penton is merged or consolidated or reorganized into or with another
corporation or other legal person, and as a result of such merger,
consolidation, or reorganization less than a majority of the combined voting
power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Penton's directors (the
"Directors") immediately prior to such transaction;
(b) Penton sells or otherwise transfers all or substantially all of its
assets to any other corporation or other legal person, and less than a majority
of the combined voting power of the then-outstanding securities of such
corporation or person immediately after such sale or transfer is held in the
aggregate by the holders of shares of Common Stock immediately prior to such
sale or transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that any person
(as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) has become the beneficial owner (as the term "beneficial owner" is
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities representing 20% or more of the Voting Power (as
the term is defined in the Equity Incentive Plan);
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<PAGE> 64
(d) Penton files a report or proxy statement with the Commission pursuant
to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) that a Change of Control of
Penton has or may have occurred or will or may occur in the future pursuant to
any then-existing contract or transaction; or
(e) If during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Directors cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by Penton's stockholders, of each Director first elected during
such period was approved by a vote of at least two-thirds of the Directors then
still in office who were Directors at the beginning of any such period.
Notwithstanding the foregoing provisions, a "Change of Control" shall not
be deemed to have occurred for purposes of the Equity Incentive Plan (i) solely
because (A) Penton; (B) a Subsidiary; (C) the Harris Group; or (D) any
Penton-sponsored employee stock ownership plan or other employee benefit plan of
Penton either files or becomes obligated to file a report or proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A
(or any successor schedule, form or report or item therein) under the Exchange
Act, disclosing beneficial ownership by it of shares, whether in excess of 20%
of the Voting Power or otherwise, or because Penton reports that a Change of
Control of Penton has or may have occurred or will or may occur in the future by
reason of such beneficial ownership or (ii) solely because of a Change of
Control of any subsidiary of Penton. For purposes of the preceding sentence, the
"Harris Group" shall mean Messrs. Irving B. Harris, Neison Harris, King Harris,
William W. Harris, and Sidney Barrows, and their respective spouses, descendants
and spouses of descendants, trustees of trusts established for the benefit of
such persons (acting in their capacity as trustees of such trusts) and executors
of estates of such persons (acting in their capacity as executors of such
estates), and each person of which any of the foregoing owns (i) more than fifty
percent (50%) of the voting stock or other voting interests and (ii) stock or
other interests representing more than fifty percent (50%) of the total value of
the stock or other interests of such person. For purposes of the preceding
sentence, the term "spouses" includes widows and widowers until first remarried.
Administration and Amendments. The Equity Incentive Plan is administered
by a committee of the Board (or subcommittee thereof) consisting of not less
than two Directors, initially the Compensation Committee. The members of the
Committee shall be "Non-Employee Directors" within the meaning of Rule 16b-3
under the Exchange Act and "outside directors" within the meaning of Section
162(m) of the Code.
The Compensation Committee may, with the concurrence of the affected
optionee, cancel any agreement evidencing Option Rights or any other award
granted under the Equity Incentive Plan. In the event of such cancellation, the
Compensation Committee may authorize the granting of new Option Rights or other
such awards under the Equity Incentive plan (which may or may not cover the same
number of shares of Common Stock that had been the subject of the prior award)
in such manner, at such option price and subject to such other terms, conditions
and discretions as would have been applicable under the Equity Incentive Plan
had the canceled Option Rights or other awards not been granted.
The Compensation Committee's interpretation of the Equity Incentive Plan
and related agreements and documents is final and conclusive. The Equity
Incentive Plan may be amended from time to time by the Compensation Committee.
However, any amendment which must be approved by the stockholders of Penton in
order to comply with applicable law or the rules of any national securities
exchange upon which the shares of Common Stock are traded or quoted will not be
effective unless and until such approval has been obtained in compliance with
such applicable law or rules. Presentation of the Equity Incentive Plan or any
amendment thereof for stockholder approval is not to be construed to limit
Penton's authority to offer similar or dissimilar benefits through plans that
are not subject to stockholder approval.
The Compensation Committee may require participants, or permit participants
to elect, to defer issuance of shares or the settlement of cash awards and may
provide for payment of interest or dividend equivalents on the deferred amounts.
The Compensation Committee may also condition any award on the surrender or
deferral by a participant of his or her right to receive a cash bonus or other
compensation.
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<PAGE> 65
Termination. No grant under the Equity Incentive Plan may be made more
than 10 years after the Equity Incentive Plan is approved by the stockholders,
but all grants made on or before the 10th anniversary will continue in effect
after that date subject the terms of those grants and the Equity Incentive Plan.
Plan Benefits
Owing to the discretion to be exercised by the Committee in administering
the Equity Incentive Plan, it is not possible to determine in advance how the
several types of awards authorized under the Equity Incentive Plan will be
allocated among eligible participants. However, it is currently anticipated that
employees will be awarded options and Deferred Shares shortly after the Stock
Distribution. See "Capitalization."
DIRECTOR OPTION PLAN
The Director Option Plan permits the granting of stock options to directors
of Penton who at the time of the grant are not employees of Penton
("Non-Employee Directors"). The purpose of the Director Option Plan is to
promote the long-term financial interests of Penton by (i) providing an
incentive for Non-Employee Directors to maximize the long-term value of Common
Stock and otherwise act in the best interest of Penton's stockholders, (ii)
providing Non-Employee Directors with the opportunity to acquire a greater stake
in the future of Penton through stock ownership, and (iii) attracting and
retaining highly qualified Non-Employee Directors.
Plan Summary
The Director Option Plan permits the granting of stock options that are
non-qualified options for purposes of the Code.
Administration. The Director Option Plan is administered by the Board.
Subject to certain limitations, the Director Option Plan empowers the Board,
among other things: to award options to directors in such forms and amounts as
it determines; to interpret the Director Option Plan; to adopt, amend and
rescind guidelines, rules and regulations relating to the Director Option Plan;
and to make all determinations deemed necessary or advisable for the Director
Option Plan's administration.
Shares Subject to the Director Option Plan; Adjustment. The maximum number
of shares of Common Stock which may be issued pursuant to the Director Option
Plan is 100,000 shares. If options expire unexercised or are canceled,
terminated or forfeited in any manner without the issuance of shares, such
shares are again available under the Director Option Plan. Shares issued
pursuant to the Director Option Plan may be authorized and unissued shares,
treasury shares or a combination thereof.
The maximum number of shares subject to the Director Option Plan, and the
shares and option prices under outstanding options, are subject to adjustment in
the event of certain Organic Changes (as defined in the Director Option Plan)
and/or to prevent dilution or enlargement of option rights.
Required Option Provisions. The option price may not be less than 100% of
the fair market value of the shares of Common Stock on the date of grant or less
than the par value of such shares of Common Stock. The term of an option cannot
exceed ten years from the date of grant. Although options generally may be
exercised at such time or times as the Board determines at or subsequent to
grant, options may only be exercised during "window periods" following the dates
of release for publication of Penton's quarter or annual summary statements of
sales and earnings and generally may not be exercised during the six months
subsequent to grant. In the event a Non-Employee Director ceases to be a member
of the Board for any reason, each option previously granted to such Non-Employee
Director will cease to be exercisable on the fifth anniversary of the date of
termination or, if earlier, on its scheduled date of expiration. The option
price may be paid, to the extent permitted by the Board, in cash using shares of
Common Stock already owned by the optionee valued at its market price on the
date of exercise. The Board may permit the participant to elect to pay the
option price by authorizing a third party to sell the shares acquired upon
exercise (or a sufficient portion thereof) and remit to Penton sale proceeds
sufficient to pay the option price and any withholding or other tax resulting
from exercise. Options will not be transferable except by will or the laws of
descent and distribution, and during a participant's lifetime will be
exercisable only by the participant or his or her legal representative. For
purposes of the Director Option Plan, the market value of the shares of Common
Stock on any date will be its closing
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<PAGE> 66
price on that date (or, if that date is not a trading date for such stock, on
the next preceding trading date for such stock) on the NYSE Composite
Transactions list, as subsequently reported in The Wall Street Journal.
Withholding. The Board has the power to withhold, or require a participant
to remit to Penton, an amount sufficient to cover any withholding and other
taxes due with respect to the participant's exercise of an option. If so
permitted by the Board, a participant may elect to satisfy such taxes by having
shares issuable under the Director Option Plan withheld or by delivering other
shares to Penton.
Termination and Amendment. The Board may terminate the Director Option
Plan at any time, and may from time to time amend the Director Option Plan and
any option outstanding thereunder; provided that no such action shall adversely
affect any outstanding option without the consent of the participant who holds
it. No such amendment to the Director Option Plan may be made without
stockholder approval to the extent such approval is required by law, regulation
or the rules of any exchange upon which the shares of Common Stock are listed.
Plan Benefits
Owing to the discretion to be exercised by the Board in administering the
Director Option Plan, it is not possible to determine in advance how options
will be awarded to directors under the Director Option Plan. However, it is
currently anticipated that shortly after the Stock Distribution each
Non-Employee Director will receive 8,000 options, which will vest at the rate of
2,000 per year and that Mr. Schwartz will receive an additional 13,000
fully-vested options. See "Management -- Board of Directors."
EMPLOYEE RETIREMENT AND SAVINGS PLANS
The Salary Reduction Plan, the Pension Plan, and the SERP are similar to
plans currently maintained by Pittway and its subsidiaries. Assets attributable
to employees of Penton's operating units will be transferred from the
corresponding Pittway plans and credit will be given to such employees under
Penton's plans for periods during which they were employed by Pittway, its
predecessors and their subsidiaries.
Salary Reduction Plan
Substantially all employees of Penton's United States operations will be
eligible to participate in the Salary Reduction Plan. Under the Plan, eligible
employees may elect to have a portion of their "earnings" (total cash
compensation less certain items) contributed to the Plan by their employers and
their employers will match such contributions with specified percentages
thereof. The percentages may vary between certain groups of covered employees
and will be determined from time to time by their employers. For 1997, such
matching percentages under the similar Pittway plan ranged from .5% to 3% of
eligible covered employees' "earnings." Contributions and matches will be
invested in one or more investment funds selected by the employee from among
those available under the Plan. Penton anticipates that such funds may
eventually include a fund which invests solely in Common Stock. Salary reduction
contributions and employer matching contributions will vest immediately. Vested
contributions (after any earnings or losses from the investment thereof) will be
distributed in a lump sum following termination of employment but account
balances may, under certain circumstances and subject to certain conditions, be
withdrawn or borrowed earlier.
Retirement Plans
The Pension Plan is fully paid for by Penton, and employees become fully
vested after five years of service. The annual benefit payable to an employee
under the Pension Plan upon retirement, computed as a straight life annuity
amount, equals the sum of the separate amounts the employee accrues for each of
his years of service under the Pension Plan plus certain increases put into
effect prior to 1998. Such separate amounts are determined as follows: for each
year through 1988, 1.2% of such year's compensation up to the Social Security
wage base for such year and 1.85% (2.0% for years after 1986) of such year's
compensation above such wage base; for each year after 1988 through the year in
which the employee reaches thirty-five years of service, 1.2% of such year's
"covered compensation" and 1.85% of such year's compensation above such "covered
compensation"; and for each year thereafter, 1.2% of such year's compensation.
Years of service and compensation with Pittway will be taken into account under
the Pension Plan, upon the completion of a transfer of assets and liabilities
attributable to Penton employees from the Pittway retirement plan to the Pension
Plan. The employee's compensation under the Pension Plan for any year includes
all salary
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(before any election under Pittway's or Penton's salary reduction plan or
cafeteria plan), commissions and overtime pay and, beginning in 1989, bonuses;
subject to such year's limit applicable to tax-qualified retirement plans
($160,000 for 1998 and, currently, for each year thereafter). The employee's
"covered compensation" under the Pension Plan for any year is generally the
average, computed such year, of the Social Security wage bases for each of the
thirty-five years preceding the employee's Social Security retirement age,
assuming that such year's Social Security wage base will not change in the
future. Normal retirement age under the Pension Plan is age 65, and reduced
benefits are available as early as age 55. Benefits are not subject to reduction
for Social Security benefits or other offset amounts. Estimated annual benefits
payable under the Pension Plan upon retirement at normal retirement age for the
following persons (assuming 1998 and future compensation at the $160,000 limit
currently applicable, that covered compensation remains constant and the
completion of the transfer of assets and liabilities from the Pittway retirement
plan to the Pension Plan; but without regard to the formula limitation on annual
benefits imposed on tax-qualified retirement plans, currently $130,000) are: Mr.
Kemp, $60,024; Mr. Ramella, $87,921; Mr. Zaremba, $60,176; Mr. Atherton,
$47,885; and Mr. Neff, $51,234.
SERP
Messrs. Kemp and Ramella participate in Penton's supplemental executive
retirement plan, which is not tax-qualified. The annual benefit payable to a
participant under the plan at age 65, computed as a straight life annuity
amount, equals the sum of the separate amounts the participant accrues for each
of his years of service after September 3, 1996 and January 1, 1996,
respectively. The separate amount for each such year is 1.85% of that portion of
the participant's salary and annual discretionary cash bonus, if any, for such
year (before any election under Pittway's or Penton's salary reduction plan, and
including any portion of such bonus taken in the form of performance shares
awards) in excess of $150,000 (or any higher limit applicable that year to tax-
qualified retirement plans) but less than $300,000. Benefits are not subject to
reduction for Social Security benefits or other offset amounts. Accrued benefits
are subject to forfeiture in certain events. Estimated annual benefits payable
under the plan upon retirement at age 65 (assuming 1998 and future annual salary
and discretionary cash bonus of not less than $300,000 for each of them and that
the $160,000 limit applicable in 1998 remains constant) are: Mr. Kemp, $53,280
and Mr. Ramella, $52,232.
EMPLOYMENT AGREEMENTS
Employment agreements between Penton and each of Messrs. Kemp and Ramella
provide for minimum annual salaries of $400,000 and $330,000, respectively,
supplementary insurance coverage and participation in Penton's supplemental
executive retirement plan. Mr. Kemp's agreement also provides for the payment of
accrued but unvested pension plan and salary reduction plan benefits in the
event of termination of employment prior to full vesting. The agreements are for
terms currently expiring September 3 and December 31, 2000, respectively. Each
agreement renews automatically at the end of each contract year for an
additional year (or until age 65, if earlier) unless either party thereto elects
otherwise, but may be terminated by the executive officer on specified advance
notice (with forfeiture of supplemental retirement benefits). Each agreement
includes non-competition, non-solicitation and confidentiality obligations on
the part of the executive officer which survive its termination.
Under the terms of his employment agreement, Mr. Kemp is entitled to
surrender to Pittway for cancellation immediately prior to the Stock
Distribution all non-qualified options under the Pittway 1990 Stock Awards Plan
held by him and to receive from Penton at the close of business on the Stock
Distribution Date non-qualified options under the Equity Incentive Plan having
an exercise price equal to the then fair market value of the Common Stock and
having exercisability provisions corresponding to and an aggregate value equal
to that of the surrendered Pittway options. Mr. Kemp currently intends to
exercise one-third of his options prior to the Record Date and to surrender his
remaining options under the Pittway 1990 Stock Awards Plan for a number of
options under the Equity Incentive Plan equal to the value of the options
surrendered. In addition, Mr. Kemp is to receive, at the close of business on
the Stock Distribution Date a non-qualified option under the Equity Incentive
Plan having an exercise price equal to the then fair market value of the Common
Stock and a value of $400,000.
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It is anticipated that in lieu of portions of bonuses otherwise payable in
cash in 1998, Messrs. Kemp and Ramella will receive Deferred Shares under the
Equity Incentive Plan having three-year deferral periods worth $60,000 and
$50,000, respectively.
CERTAIN TRANSACTIONS
Each of the DM Publishing Shareholders, as such, has certain contingent
rights to additional cash (and/or, under certain circumstances, additional
shares of Common Stock) and registration rights and indemnification rights from
Penton pursuant to the DM Publishing Combination Agreement. See "DM Publishing
Combination Agreement -- Closing Considerations and Contingent Rights."
DM Publishing leases equipment from Donohue Meehan Equipment Leasing, an
Illinois partnership, which is owned by the DM Publishing Shareholders. The
total balances on these leases as of December 31, 1997, was $270,928. Penton
believes that the lease terms are no less favorable to DM Publishing than those
obtainable in an arm's-length transaction with an independent third party. See
DM Publishing's Financial Statements.
Immediately following the Stock Distribution Date, two of the 11 persons
who are directors of Penton will also be directors of Pittway, and Penton and
Pittway will have certain limited ongoing relationships after the Stock
Distribution. See "The Stock Distribution -- Relationship between Penton and
Pittway after the Stock Distribution" and Penton's Consolidated Financial
Statements.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the Common Stock
projected to be beneficially owned immediately after the Stock Distribution and
the issuance of shares of Common Stock at the closing of the DM Publishing
Combination by (a) persons projected by Penton to be the beneficial owners of
more than 5% of the outstanding shares of Common Stock, (b) each of the
directors of Penton, (c) each of the Named Executive Officers of Penton and (d)
all directors and executive officers of Penton as a group. The projections are
based upon the numbers of shares of Pittway Stock held on May 31, 1998 (to the
extent known to Pittway), as adjusted to reflect the Stock Distribution and the
shares of Common Stock to be issued at the closing of the DM Publishing
Combination. See "The Stock Distribution -- Manner of the Stock Distribution."
Except where otherwise indicated, the mailing address of each of the
stockholders named in the table is: c/o Penton Media, Inc., 1100 Superior
Avenue, Cleveland, Ohio 44114.
<TABLE>
<CAPTION>
PERCENTAGE OF
PROJECTED PROJECTED
NAME NUMBER OF SHARES(1) TOTAL SHARES(2)
---- ------------------- ---------------
<S> <C> <C>
William Harris Investors, Inc.(3)(4)........................ 3,079,774 13.54%
2 North LaSalle Street
Suite 400
Chicago, Illinois 60602
Mario J. Gabelli, et al(5).................................. 2,966,571 13.05
One Corporate Center
Rye, New York 10580
Janus Capital Corporation(6)................................ 1,893,611 8.33
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Irving B. Harris(3)(7)...................................... 3,079,774 13.54
2 North LaSalle Street
Suite 400
Chicago, Illinois 60602
Current Harris Group(3)..................................... 5,479,130 23.99
Joan W. Harris(3)(8)........................................ 3,000 *
King Harris(3)(9)(10)....................................... 1,401,893 6.14
William J. Friend(3)(10)(18)................................ 71,723 *
Edward J. Schwartz(11)...................................... 23,001 *
Anthony Downs(12)........................................... 11,839 *
Thomas L. Kemp(10)(13)...................................... 5,072 *
Daniel J. Ramella(10)(14)................................... 71,694 *
William C. Donohue.......................................... 769,500 3.38
John J. Meehan.............................................. 769,500 3.38
Richard B. Swank............................................ 0 *
Donald E. Schultz........................................... 0 *
James W. Zaremba(15)........................................ 9,254 *
James D. Atherton(16)....................................... 5,200 *
Jerome C. Neff(10)(17)...................................... 20,297 *
All Directors and Executive Officers........................ 3,153,574 13.76
as a Group (14 persons)(10)(19)
</TABLE>
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- ---------------
* Less than one percent.
(1) Except as otherwise indicated below, beneficial ownership means the sole
power to vote and dispose of shares.
(2) Calculated using 22,739,000 shares as the total projected outstanding
shares.
(3) The information as to the Current Harris, Group (as defined below), Irving
B. Harris, Joan W. Harris, King Harris, and William J. Friend is derived in
part from statements with respect to Pittway Stock, as amended January 15,
1990, filed with the Commission pursuant to Section 13(d) of the Exchange
Act and statements with respect to Pittway Stock, as amended November 15,
1991, filed with the Commission pursuant to such Section. Such statements
were filed on behalf of such named persons as well as those other persons
and entities who are currently members of the "Harris Group" beneficially
owning, directly or indirectly, shares of Pittway Stock (the "Current Harris
Group"). Such statements disclose that, because of the relationships among
members of the Current Harris Group, such persons may be deemed to be a
group within the meaning of Section 13(d) of the Exchange Act and the rules
and regulations thereunder. The "Harris Group" means Messrs. Irving B.
Harris, Neison Harris, King Harris, William W. Harris, and Sidney Barrows,
and their respective spouses, descendants and spouses of descendants,
trustees of trusts established for the benefit of such persons, and
executors of estates of such persons. Joan W. Harris is the spouse of Irving
B. Harris and the aunt of King Harris. King Harris is the uncle of William
J. Friend. The aggregate number of outstanding shares which may be deemed to
be beneficially owned by the Current Harris Group includes all the shares
shown in this table for William Harris Investors, Inc. ("WHI"), Irving B.
Harris, Joan W. Harris, King Harris, and William J. Friend. The total
excludes duplication of shares within such group.
(4) The information as to WHI is derived in part from two statements with
respect to Pittway Stock, as amended February 12, 1998, filed with the
Commission pursuant to Section 13(g) of the Exchange Act. Such statements,
together with advice furnished to Penton separately by WHI, disclose that
(i) WHI, an investment adviser registered under the Investment Advisers Act
of 1940, holds all its shares of Pittway Stock on behalf, and in terminable
discretionary accounts, of Joan W. Harris and certain other members of the
Harris Group, (ii) WHI shares voting power with such persons, and has sole
dispositive power, with respect to all such shares, (iii) Irving B. Harris
and his children are the sole voting stockholders of WHI, and (iv) Irving B.
Harris is the Chairman of WHI.
(5) The information as to Mario J. Gabelli and entities controlled directly or
indirectly by Mr. Gabelli is derived from statements with respect to Pittway
Stock, as amended November 3, 1997 and December 3, 1997, filed with the
Commission pursuant to Section 13(d) of the Exchange Act. Such statements
disclose that (i) Mr. Gabelli is the chief investment officer for most of
the entities signing such statements and is deemed to have beneficial
ownership of the shares beneficially owned by all such entities, (ii) Mr.
Gabelli and such entities do not admit that they constitute a group within
the meaning of Section 13(d) of the Exchange Act and the rules and
regulations thereunder, and (iii) with respect to Pittway Stock, Mr. Gabelli
and such entities have the sole power to vote and dispose of all the shares
of which they are beneficial owners (unless the aggregate voting interest of
all such entities exceeds 25% of Pittway's total voting interest or other
special circumstances exist, in which case the proxy voting committees of
certain of such entities would have the sole power to vote certain of
426,700 shares of Pittway Common Stock and 416,500 shares of Pittway Class A
Stock -- equivalent in total to 843,200 shares of Common Stock) except 6,450
shares of Pittway Common Stock and 47,733 shares of Pittway Class A
Stock -- equivalent in total to 54,183 shares of Common Stock -- as to which
they have no voting power.
(6) The information as to Janus Capital Corporation ("Janus") is derived from a
statement with respect to Pittway Stock, as amended March 10, 1998, filed
with the Commission pursuant to Section 13(g) of the Exchange Act. Such
statement discloses that (i) Thomas H. Bailey is President and Chairman of
the Board of Janus, owns approximately 12.2% of Janus and may be deemed to
exercise control over Janus, (ii) Janus is deemed to have beneficial
ownership of all its shares of Pittway Stock, (iii) Janus and Mr. Bailey
share voting and dispositive power with respect to such shares, (iv) all
such shares are held by managed portfolios to which Janus is an investment
advisor or sub-advisor, and (v) Mr. Bailey disclaims beneficial ownership of
such shares.
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<PAGE> 71
(7) Consists of the shares to be held by WHI (of which Irving B. Harris is a
controlling stockholder), certain of which are held by WHI for the account
of Mr. Harris or would otherwise be deemed beneficially owned by him without
regard to WHI. As set forth in note (4), the voting power of the shares held
by WHI is shared by WHI with the respective persons for whose account they
are held and WHI has sole dispositive power with respect to such shares.
(8) Consists of 3,000 shares to be held by WHI for the account of Joan W.
Harris. As set forth in note (4), the voting power of the shares held by WHI
is shared by WHI with the respective persons for whose account they are held
and WHI has sole dispositive power with respective to such shares.
(9) Mr. King Harris will share the power to vote and dispose of 1,216,072 of
such shares. Includes 103,161 shares which Mr. Harris will receive in the
Stock Distribution in the event he exercises, prior to the Record Date,
options for shares of Pittway Class A Stock held by him that are or will
then be exercisable.
(10) Includes shares to be issued in the Stock Distribution with respect to
shares of Pittway Class A Stock beneficially owned as of March 31, 1998,
through participation in the Pittway Profit Sharing Plan. See "Stock
Distribution -- Manner of the Stock Distribution" and " -- Pittway Stock
Held under or Issuable pursuant to Pittway Employee Plans."
(11) Mr. Schwartz will share the power to vote and dispose of 4,903 such shares.
Includes 12,954 shares which Mr. Schwartz will receive in the Stock
Distribution in the event he exercises, prior to the Record Date, options
for shares of Pittway Class A Stock held by him that are or will then be
exercisable.
(12) Includes 1,000 shares which Mr. Downs will receive in the Stock
Distribution in the event he exercises, prior to the Record Date, options
for shares of Pittway Class A Stock held by him that are or will then be
exercisable.
(13) Includes 4,667 shares which Mr. Kemp will receive in the Stock Distribution
in the event he exercises, prior to the Record Date, options for shares of
Pittway Class A Stock held by him that are or will then be exercisable.
(14) Mr. Ramella will share power to vote and dispose of 22,971 of such shares.
Includes 40,598 shares which Mr. Ramella will receive in the Stock
Distribution in the event he exercises, prior to the Record Date, options
for shares of Pittway Class A Stock held by him that are or will then be
exercisable.
(15) Includes 4,400 shares which Mr. Zaremba will receive in the Stock
Distribution in the event he exercises, prior to the Record Date, options
for shares of Pittway Class A Stock held by him that are or will then be
exercisable.
(16) Includes 5,200 shares which Mr. Atherton will receive in the Stock
Distribution in the event he exercises, prior to the Record Date, options
for shares of Pittway Class A Stock held by him that are or will then be
exercisable.
(17) Includes 1,600 shares which Mr. Neff will receive in the Stock Distribution
in the event he exercises, prior to the Record Date, options for shares of
Pittway Class A Stock held by him that are or will then be exercisable. Mr.
Neff retired on April 30, 1998.
(18) Mr. Friend will share the power to vote and dispose of 70,826 of such
shares.
(19) Includes 1,170,788 shares as to which voting power will be shared other
than with directors and officers of Penton and 185,482 shares to be
received in the Stock Distribution in the event they exercise, prior to the
Record Date, options for shares of Pittway Class A Stock held by them that
are or will then be exercisable.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
The Restated Certificate of Incorporation (the "Certificate of
Incorporation") of Penton provides among other things that its authorized
capital stock consists of 60 million shares of Common Stock and 2 million shares
of Preferred Stock, par value $.01 per share ("Preferred Stock").
COMMON STOCK
Penton is authorized to issue up to 60 million shares of Common Stock
without stockholder approval (except as may be required by applicable stock
exchange regulations). Holders of Common Stock have one vote for each share and
share ratably in all dividends, subject to the rights of the Preferred Stock
holders, if any. All of the shares of Common Stock to be distributed in the
Stock Distribution will be fully paid and non-assessable. Following the Stock
Distribution and the issuance of shares at the closing of the DM Publishing
Combination, there will be approximately 22,739,000 shares of Common Stock
outstanding. At that time, Penton will be committed to issue certain options
under its Equity Incentive Plan and will have outstanding certain debt
obligations convertible into Common Stock. See "Capitalization."
PREFERRED STOCK
Penton is authorized to issue up to 2 million shares of Preferred Stock
without stockholder approval (except as may be required by applicable stock
exchange regulations). The Board may provide for the issuance of shares of
Preferred Stock or provide for the issuance of shares of Preferred Stock in one
or more series, establish from time to time the number of shares to be included
in each such series and fix the designations, voting powers, rights and
qualifications, limitations, or restrictions of the shares of Preferred Stock of
each such series.
LISTING AND TRADING OF COMMON STOCK
Application has been made to list the Common Stock on the NYSE. Prior to
the date hereof, there has been no trading market for the Common Stock. In view
of the contingent nature of the Stock Distribution, trading is not expected to
commence until the Stock Distribution Date. See "Introduction." Penton is unable
to predict the extent of the market for the Common Stock or the prices at which
the shares will trade.
Shares of Common Stock distributed in the Stock Distribution will be freely
transferable, except for shares received by persons who may be deemed to be
"affiliates" of Penton under the Securities Act and shares received with respect
to shares of Pittway Stock that are "restricted stock" for purposes of
Securities Act Rule 144. Persons who may be deemed to be affiliates of Penton
after the Stock Distribution generally include individuals or entities that
control, are controlled by, or are under common control with Penton and may
include certain officers and directors of Penton as well as principal
stockholders of Penton. Persons who are affiliates of Penton will be permitted
to sell their shares of Common Stock distributed in the Stock Distribution only
pursuant to an effective registration statement under the Securities Act or an
exemption from the registration requirements of the Securities Act (such as Rule
144).
DIVIDENDS ON COMMON STOCK
The dividend policy of Penton will be determined by the Board. It is
expected that Penton will pay initial quarterly dividends in an amount of $.03
per share. The future payment of dividends will depend on business decisions
that will be made by the Board from time to time based upon the results of
operations and financial condition of Penton and such other business
considerations as the Board considers relevant.
STOCK DISTRIBUTION AGENT, TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank will act as the Stock Distribution Agent for
the Stock Distribution, and will act as the Transfer Agent and Registrar for the
Common Stock after the Stock Distribution is completed.
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<PAGE> 73
ANTI-TAKEOVER EFFECTS
Penton's Certificate of Incorporation contains several provisions that may
make the acquisition of control of Penton by means of a tender offer, open
market purchase, proxy fight, or otherwise more difficult. Penton's Amended and
Restated Bylaws (the "Bylaws") also contain provisions that could have an
anti-takeover effect.
These provisions of the Certificate of Incorporation and the Bylaws are
designed to encourage persons seeking to acquire control of Penton to negotiate
the terms with the Board. Penton believes that, as a general rule, the interest
of Penton's stockholders would be served best if any change in control results
from negotiations with the Board based upon careful consideration of the
proposed terms, such as the price to be paid to stockholders, the form of
consideration to be paid and the anticipated tax effects of the transaction.
However, the provisions could have the effect of discouraging a prospective
acquirer from making a tender offer or otherwise attempting to obtain control of
Penton. To the extent that these provisions discourage takeover attempts, they
could deprive stockholders of opportunities to realize takeover premiums for
their shares. Moreover, these provisions could discourage accumulations of large
blocks of Common Stock, thus depriving stockholders of any advantages which
large accumulations of stock might provide.
Set forth below is a summary of the relevant provisions of the Certificate
of Incorporation and the Bylaws and certain applicable sections of the General
Corporation Law of the State of Delaware (the "DGCL"). Such summary does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all of the provisions of the Certificate of Incorporation and the
Bylaws. Copies of the Certificate of Incorporation and the Bylaws are filed as
exhibits to the Registration Statement of which this Prospectus is a part.
BUSINESS COMBINATIONS
Penton is governed by Section 203 of the DGCL. Section 203, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the time that such stockholder became an interested stockholder,
unless: (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those owned (x) by
persons who are directors and also officers and (y) by employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer; or (iii) at or subsequent to such time, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. The application of Section 203 may limit the ability of
stockholders to approve a transaction that they may deem to be in their best
interests.
In general, Section 203 defines "business combination" to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition of 10% or more of the assets of the corporation to or with the
interested stockholder; (iii) subject to certain exceptions, any transaction
which results in the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder; (iv) any transaction involving the
corporation which has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially owned by the
interested stockholder; or (v) the receipt by the interested stockholder of the
benefit of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation. In general, Section 203 defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
of the outstanding voting stock of the corporation or any entity or person
associated with, affiliated with or controlling or controlled by such entity or
person.
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<PAGE> 74
CLASSIFIED BOARD OF DIRECTORS
The Certificate of Incorporation provides for the Board to be divided into
three classes of directors, as nearly equal in number as possible, serving
staggered terms. Approximately 1/3 of the Board is to be elected each year. See
"Management -- Board of Directors." Under Section 141 of the DGCL, directors
serving on a classified board can only be removed for cause. The provision for a
classified board may be amended, altered or repealed only upon the affirmative
vote of the holder of 66 2/3% of the outstanding shares of Penton's voting
stock.
The provision for a classified board could prevent a party who acquires
control of a majority of the outstanding voting stock from obtaining control of
the Board until the second annual stockholders meeting following the date the
acquirer obtains the controlling stock interest. The classified board provision
could have the effect of discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control of Penton and could increase the
likelihood that incumbent directors will retain their positions.
Penton believes that a classified board will help to assure the continuity
and stability of the Board and Penton's business strategies and policies as
determined by the Board, because a majority of the directors will eventually
have prior experience as directors of Penton.
The classified board provision should also help to ensure that the Board,
if confronted with an unsolicited proposal from a third party that has acquired
a block of the voting stock of Penton, will have sufficient time to review the
proposal and appropriate alternatives and to seek the best available result for
all stockholders.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
The Certificate of Incorporation and the Bylaws provide that the number of
directors shall be set by resolution of the Board adopted by the affirmative
vote of a majority of the Board; provided that under no circumstance will the
number of directors exceed 13.
Pursuant to the Certificate of Incorporation, each director will serve
until his or her successor is duly elected and qualified, unless he or she
resigns, dies, becomes disqualified, or is removed. The Certificate of
Incorporation also provides that, subject to the rights of the holders of any
series of Preferred Stock, directors may be removed at any time, but only for
cause.
The Certificate of Incorporation further provides that generally vacancies
or newly created directorships in the Board may only be filled by a resolution
approved by a majority of the Board and any director so chosen will hold office
until the next election of the class for which such director was chosen.
The provisions regarding the maximum size of the Board may not be amended,
altered, changed or repealed in any respect without the affirmative vote of
66 2/3% of the outstanding voting stock of Penton, prevent stockholders from
creating additional directorships.
STOCKHOLDER ACTION; SPECIAL MEETINGS
The Certificate of Incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. The Certificate of Incorporation and
the Bylaws provide that, except as otherwise required by law, special meetings
of the stockholders can only be called pursuant to a resolution adopted by a
majority of the Board. Stockholders are not permitted to call a special meeting
or to require the Board to call a special meeting. Such provisions may not be
amended, altered, changed or repealed in any respect without the affirmative
vote of 66 2/3% of the outstanding voting stock of Penton.
STOCKHOLDER PROPOSALS AND NOMINATIONS
The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before an annual or special meeting of stockholders of Penton,
including proposed nominations of persons for election to the Board.
Stockholders at an annual or special meeting may only consider proposals or
nominations brought before the meeting by Penton, by or at the direction of the
Board or by a stockholder who was a stockholder of record on the record date for
the meeting, who is entitled to vote at the meeting and who has given to
Penton's Secretary timely written notice, in proper form, of the stockholder's
intention to bring that business before the
73
<PAGE> 75
meeting. Such provisions may not be amended, altered, changed or repealed in any
respect without the affirmative vote of 66 2/3% of the outstanding voting stock
of Penton.
To be timely, notice by stockholders of nominations or proposals to be
brought before the 1999 annual meeting of stockholders, or before any special
meeting of stockholders, must be delivered to the Secretary of Penton not
earlier than the 90th day prior to such meeting and not later than the 60th day
prior to such meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Notice by stockholders
of nominations or proposals to be brought before any subsequent annual meeting
must be received by the Secretary not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting of
stockholders or if the date of the annual meeting is more than 30 days prior to
or more than 60 days after the preceding anniversary date, notice by the
stockholder will be timely if received not earlier than the 90th day prior to
such annual meeting and not later than the close of business on the later of (i)
the 60th day prior to such annual meeting or (ii) the 10th day following public
announcement of such meeting.
Each notice by stockholders must set forth (i) the name and address of the
stockholder who intends to make the nomination or proposal and of any beneficial
owner on whose behalf the nomination or proposal is made and (ii) the class and
number of shares of Common Stock that are owned beneficially and of record by
such stockholder and beneficial owner, if any. In the case of a stockholder
proposal, the notice must also set forth a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest of such stockholder or
beneficial owner, if any, in that proposed business. In the case of nomination
of any person for election as a director, the notice must also set forth any
information regarding the nominee proposed by the stockholder that would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Commission and the consent, if so required, of the nominee to be named in
a proxy statement as a candidate for election and to serve as a director of
Penton if elected.
Although the Bylaws do not give the Board the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the Bylaws may have the
effect of precluding the conduct of certain business at a meeting if the proper
procedures are not followed or may discourage or defer a potential acquirer from
conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of Penton.
AMENDMENT OF BYLAWS
The Bylaws may be amended, altered or repealed by the affirmative vote of
the holders of at least 66 2/3% of the voting power of the then outstanding
shares of Penton's voting stock or by the affirmative vote of a majority of the
Board. The percentage required for a vote by stockholders may make it more
difficult to change the Bylaws for the purpose of gaining control over Penton.
74
<PAGE> 76
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
The 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 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 existing at the time of such repeal or modification.
INDEMNIFICATION AND INSURANCE
Section 145 of the DGCL contains provisions permitting (and, in some
situations, requiring) Delaware corporations such as Penton 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. The Certificate of Incorporation contains
provisions requiring indemnification by Penton of its directors, officers, and
employees to the fullest extent permitted by law. Among other things, these
provisions provide that Penton 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) (a
"Proceeding") by reason of the fact that such person is or was a director,
officer, or employee of Penton, or is or was serving at the request of Penton 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 to provide broader indemnification rights than such law permitted
Penton 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.
Penton anticipates that it will enter into agreements with its directors
providing contractually for indemnification consistent with the Certificate of
Incorporation and Bylaws. In addition, the Certificate of Incorporation
authorizes Penton to purchase insurance for its directors, officers, and
employees insuring them against certain risks as to which Penton may be unable
lawfully to indemnify them. Penton intends to obtain this insurance coverage for
its directors, officers, and employees as well as insurance coverage to
reimburse Penton for potential costs of its corporate indemnification of
directors, officers, and employees.
1999 ANNUAL STOCKHOLDERS MEETING
On June 1, 1998, Pittway, which was then and is currently the sole
stockholder of Penton, elected the current members of the Board (and elected
each of the DM Publishing Shareholders as members of the Board contingent upon
the Stock Distribution and the DM Publishing Combination). The first annual
meeting of Penton's stockholders after the Stock Distribution is expected to be
in May 1999.
Penton's Bylaws establish an advance notice procedure for stockholder
proposals to be brought before annual meetings, including proposed nominations
of persons for election to the Board. See "Anti-Takeover Effects -- Stockholder
Proposals and Nominations."
LEGAL MATTERS
The validity of the Common Stock to be distributed in the Stock
Distribution will be passed upon by Jones, Day, Reavis & Pogue, Cleveland, Ohio,
counsel for Penton.
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<PAGE> 77
EXPERTS
The financial statements of Penton as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of DM Publishing as of December 31, 1997 and for
the year then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of INDEX as of November 30, 1997 and for the
twelve months then ended included in this Prospectus have been so included in
reliance on the reports of Horwath Clark Whitehill, chartered accountants, given
on the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
Penton has filed with the Commission a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act with respect to the
Common Stock. This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information, reference is made to the Registration Statement, including
the exhibits and schedules thereto. Following the Stock Distribution, Penton
will be subject to the reporting requirements of the Exchange Act and, in
accordance therewith, will file reports, proxy statements and other information
with the Commission. Copies of the Registration Statement (including the
exhibits and schedules thereto) can be, and copies of the reports, proxy
statements and other information filed by Penton with the Commission following
the Stock Distribution can in the future be, inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. After being filed,
copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. Following the Stock Distribution, such materials and other information
concerning Penton will also be filed electronically with the Commission and will
be accessible via the World Wide Web at http://www.sec.gov. Following the
listing of Common Stock on the NYSE, Penton will be required to file with the
exchange copies of such reports, proxy statements and other information which
then can be inspected at the offices of such exchange at 20 Broad Street, New
York, New York 10005. See "Description of Capital Stock -- Listing and Trading
of Common Stock."
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<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PENTON MEDIA, INC.
Report of Independent Accountants...................... F-3
Consolidated Statement of Income for the three months
ended March 31, 1998 and 1997 and the years ended
December 31, 1997, 1996 and 1995...................... F-4
Consolidated Balance Sheet at March 31, 1998 and
December 31, 1997 and 1996............................ F-5
Consolidated Statement of Cash Flows for the three
months ended March 31, 1998 and 1997 and the years
ended December 31, 1997, 1996 and 1995................ F-6
Consolidated Statement of Stockholder's Equity for the
three months ended March 31, 1998 and the years ended
December 31, 1997, 1996 and 1995...................... F-7
Summary of Accounting Policies......................... F-8
Notes to Consolidated Financial Statements............. F-10
DONOHUE MEEHAN PUBLISHING COMPANY
Report of Independent Accountants...................... F-17
Statement of Income and Accumulated Deficit for the
three months ended March 31, 1998 and the year ended
December 31, 1997..................................... F-18
Balance Sheet at March 31, 1998 and December 31,
1997.................................................. F-19
Statement of Cash Flows for the three months ended
March 31, 1998 and the year ended December 31, 1997... F-20
Notes to Financial Statements.......................... F-21
INDEPENDENT EXHIBITIONS LIMITED
Director's Report for the twelve months ended November
30, 1997.............................................. F-23
Statement of Director's Responsibilities............... F-24
Report of the Auditors................................. F-25
Profit and Loss Account for the twelve months ended
November 30, 1997..................................... F-26
Balance Sheet at November 30, 1997..................... F-27
Notes to the Financial Statements...................... F-28
SERVICE EXHIBITIONS LIMITED
Director's Report for the twelve months ended November
30, 1997.............................................. F-33
Statement of Director's Responsibilities............... F-34
Report of the Auditors................................. F-35
Profit and Loss Account for the twelve months ended
November 30, 1997..................................... F-36
Balance Sheet at November 30, 1997..................... F-37
Notes to the Financial Statements...................... F-38
</TABLE>
F-1
<PAGE> 79
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
EQUITY INFORMATION EXCHANGE LIMITED
Director's Report for the twelve months ended November
30, 1997.............................................. F-41
Statement of Director's Responsibilities............... F-42
Report of the Auditors................................. F-43
Profit and Loss Account for the twelve months ended
November 30, 1997..................................... F-44
Balance Sheet at November 30, 1997..................... F-45
Notes to the Financial Statements...................... F-46
</TABLE>
F-2
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF PENTON MEDIA, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of stockholder's equity
present fairly, in all material respects, the financial position of Penton
Media, Inc. (formerly Penton Publishing, Inc., and a wholly-owned subsidiary of
Pittway Corporation) and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Penton Media Inc.'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 generally accepted auditing standards 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 the opinion expressed above.
/s/ Price Waterhouse LLP
Cleveland, Ohio
June 8, 1998
F-3
<PAGE> 81
PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEARS ENDED DECEMBER 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
REVENUES.................................... $52,485 $48,666 $204,931 $188,557 $179,900
------- ------- -------- -------- --------
OPERATING EXPENSES:
Editorial, production and circulation..... 23,322 22,212 94,560 91,581 92,859
Selling, general and administrative....... 22,471 19,919 78,523 72,566 69,322
Depreciation and amortization............. 2,027 1,678 6,551 5,911 5,772
------- ------- -------- -------- --------
47,820 43,809 179,634 170,058 167,953
------- ------- -------- -------- --------
Operating income............................ 4,665 4,857 25,297 18,499 11,947
------- ------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense.......................... (662) (208) (841) (34) (85)
Gain on sale of publications.............. -- -- 1,040 -- 1,700
Gain on insurance settlement.............. -- -- -- -- 1,431
Miscellaneous, net........................ 3 3 10 17 83
------- ------- -------- -------- --------
(659) (205) 209 (17) 3,129
------- ------- -------- -------- --------
Income from continuing operations before
income taxes.............................. 4,006 4,652 25,506 18,482 15,076
------- ------- -------- -------- --------
INCOME TAXES:
Current................................... 1,687 1,761 9,754 6,733 5,702
Deferred.................................. (21) 173 878 793 749
------- ------- -------- -------- --------
1,666 1,934 10,632 7,526 6,451
------- ------- -------- -------- --------
Income from continuing operations........... 2,340 2,718 14,874 10,956 8,625
------- ------- -------- -------- --------
Loss from discontinued operations, net of
income tax credit of $30.................. -- -- -- -- (48)
------- ------- -------- -------- --------
NET INCOME.................................. $ 2,340 $ 2,718 $ 14,874 $ 10,956 $ 8,577
======= ======= ======== ======== ========
INCOME FROM CONTINUING OPERATIONS AND NET
INCOME PER SHARE BASIC AND DILUTED
(21,200,000 SHARES OUTSTANDING)........... $ .11 $ .13 $ .70 $ .52 $ .40
</TABLE>
See Summary of Accounting Policies and Notes to Consolidated Financial
Statements.
F-4
<PAGE> 82
PENTON MEDIA, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1998 -------------------------
(UNAUDITED) 1997 1996
--------------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 1,732 $ 2,419 $ 1,571
Accounts and notes receivable, less allowance for doubtful
accounts of $2,368 in 1998, $2,406 in 1997 and $2,069 in
1996.................................................... 32,112 29,363 30,985
Inventories............................................... 3,660 2,429 3,360
Deferred tax assets....................................... 2,995 2,851 2,608
Prepayments, deposits and other........................... 5,077 3,886 3,318
-------- -------- --------
45,576 40,948 41,842
-------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Buildings................................................. 6,168 6,168 6,163
Machinery and equipment................................... 61,623 60,493 54,938
-------- -------- --------
67,791 66,661 61,101
Less: accumulated depreciation............................ 41,341 39,845 34,809
-------- -------- --------
26,450 26,816 26,292
-------- -------- --------
Land...................................................... 426 426 426
-------- -------- --------
26,876 27,242 26,718
-------- -------- --------
OTHER ASSETS:
Goodwill, less accumulated amortization of $6,666 in 1998,
$6,192 in 1997 and $5,134 in 1996....................... 65,371 65,460 19,735
Other intangibles, less accumulated amortization of $5,443
in 1998, $5,382 in 1997 and $5,177 in 1996.............. 6,302 6,362 2,205
Deferred tax assets....................................... 3,951 4,067 5,102
Due from parent company................................... 10,880 12,212 13,136
Miscellaneous............................................. 138 135 61
-------- -------- --------
86,642 88,236 40,239
-------- -------- --------
$159,094 $156,426 $108,799
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Notes payable............................................. $ 34,648 $ 34,170 $ --
Accounts payable.......................................... 8,691 9,427 7,405
Accrued compensation and benefits......................... 7,352 9,081 8,833
Other accrued expenses.................................... 7,988 8,383 7,703
Unearned income, principally trade show and conference
deposits................................................ 7,929 5,203 3,538
-------- -------- --------
66,608 66,264 27,479
-------- -------- --------
LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Net deferred pension credits.............................. 19,592 19,592 21,092
Other..................................................... 941 957 1,077
-------- -------- --------
20,533 20,549 22,169
-------- -------- --------
STOCKHOLDER'S EQUITY:
Preferred stock, 2,000,000 shares authorized; none
issued..................................................
Common stock, $.01 par value, 60,000,000 shares
authorized; 21,200,000 shares issued and outstanding.... 212 212 212
Capital in excess of par value............................ 29,630 29,630 29,630
Retained earnings......................................... 42,111 39,771 29,309
-------- -------- --------
71,953 69,613 59,151
-------- -------- --------
$159,094 $156,426 $108,799
======== ======== ========
</TABLE>
See Summary of Accounting Policies and Notes to Consolidated Financial
Statements.
F-5
<PAGE> 83
PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATING
ACTIVITIES:
Income from continuing operations........... $ 2,340 $ 2,718 $ 14,874 $ 10,956 $ 8,625
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization............ 2,027 1,678 6,551 5,911 5,772
Deferred income taxes.................... (21) 173 878 793 749
Retirement and deferred compensation
plans.................................. -- (500) (2,000) (2,032) (1,198)
Provision for losses on accounts
receivable............................. 168 217 662 948 870
Gain on sale of publications............. -- -- (1,040) -- (1,700)
Gain on insurance settlement............. -- -- -- -- (1,431)
Change in assets and liabilities,
excluding effects from acquisitions and
dispositions:
(Increase) decrease in accounts and
notes receivable.................... (2,915) (1,032) 1,261 (2,313) (3,991)
(Increase) decrease in inventories..... (1,231) 214 931 37 210
(Increase) decrease in prepayments and
deposits............................ (1,176) (211) 630 94 1,024
(Decrease) increase in accounts payable
and accrued expenses................ (2,872) (1,838) 1,584 5,952 (1,246)
Increase (decrease) in unearned
income.............................. 2,696 (781) (552) 687 (563)
Other changes, net....................... (34) (48) (593) (526) 302
------- -------- -------- -------- -------
Net cash (used) provided by continuing
operations.................................. (1,018) 590 23,186 20,507 7,423
------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (1,128) (759) (5,450) (4,822) (4,989)
Net assets of businesses acquired, net of
cash..................................... -- (14,040) (48,733) (900) --
Proceeds from sale of publications.......... -- -- 991 1,000 --
------- -------- -------- -------- -------
Net cash used by investing activities......... (1,128) (14,799) (53,192) (4,722) (4,989)
------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable................... 114 14,000 48,342 -- --
Repayments of notes payable................. -- -- (14,000) -- --
Dividends to parent company................. -- -- (4,412) (22,567) (1,278)
Advances from (to) parent company........... 1,345 (84) 924 6,679 (419)
------- -------- -------- -------- -------
Net cash provided (used) by financing
activities.................................. 1,459 13,916 30,854 (15,888) (1,697)
------- -------- -------- -------- -------
NET (DECREASE) INCREASE IN CASH............... (687) (293) 848 (103) 737
CASH AT BEGINNING OF PERIOD................... 2,419 1,571 1,571 1,674 937
------- -------- -------- -------- -------
CASH AT END OF PERIOD......................... $ 1,732 $ 1,278 $ 2,419 $ 1,571 $ 1,674
======= ======== ======== ======== =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid............................... $ 841 $ 35 $ 35
Income taxes paid........................... $ 10,759 $ 8,823 $ 6,033
</TABLE>
See Summary of Accounting Policies and Notes to Consolidated Financial
Statements.
F-6
<PAGE> 84
PENTON MEDIA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
---------------------------------------------
CAPITAL IN
COMMON STOCK EXCESS OF
------------------- PAR RETAINED
SHARES PAR VALUE VALUE EARNINGS
------ --------- ---------- --------
(SHARES AND DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE -- DECEMBER 31, 1994...................... 21,200 $212 $29,630 $33,621
Net income...................................... 8,577
Dividends....................................... (1,278)
------ ---- ------- -------
BALANCE -- DECEMBER 31, 1995...................... 21,200 212 29,630 40,920
------ ---- ------- -------
Net income...................................... 10,956
Dividends....................................... (22,567)
------ ---- ------- -------
BALANCE -- DECEMBER 31, 1996...................... 21,200 212 29,630 29,309
------ ---- ------- -------
Net income...................................... 14,874
Dividends....................................... (4,412)
------ ---- ------- -------
BALANCE -- DECEMBER 31, 1997...................... 21,200 212 29,630 39,771
------ ---- ------- -------
Net income (unaudited) 2,340
------ ---- ------- -------
BALANCE -- MARCH 31, 1998 (UNAUDITED)............. 21,200 $212 $29,630 $42,111
====== ==== ======= =======
</TABLE>
See Summary of Accounting Policies and Notes to Consolidated Financial
Statements.
F-7
<PAGE> 85
SUMMARY OF ACCOUNTING POLICIES
(Dollars in thousands, except per share data)
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Penton Media,
Inc. (formerly known as Penton Publishing, Inc.) and its subsidiaries ("Penton"
or the "Company"). The Company, a wholly owned subsidiary of Pittway Corporation
("Pittway" or "Parent Company"), produces national business magazines and
related products, trade shows and conferences domestically and in the United
Kingdom, and direct mail marketing programs. The common stock of the Company is
expected to be distributed by Pittway to its stockholders ("Stock Distribution")
in connection with the pending acquisition described in Note 1.
The accompanying financial statements for 1995 reflect two former
subsidiaries, Pittway Real Estate, Inc. ("PREI"), a real estate development
company, and Penton Learning Systems, Inc. ("PLS"), a seminar business, as
discontinued operations. The stock of PREI was distributed to Pittway in
November 1995. The stock of PLS was sold to its 49% minority shareholders in
July 1995 at book value.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted.
In the opinion of management, the interim consolidated financial statements
reflect all adjustments necessary for a fair presentation of the interim
periods. The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs included in
inventories are raw materials, direct labor and manufacturing overhead. Cost of
substantially all of the paper and ink stock is determined by using the last-in,
first-out (LIFO) method, while the remaining inventories are valued primarily
using the average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are depreciated over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes. The useful lives are 3 to 15 years for machinery
and equipment and up to 40 years for buildings. Leasehold improvements are
amortized over the shorter of the lease term or the remaining useful life of the
related assets. Maintenance and repairs are charged to expense as incurred;
renewals and improvements which extend the life of the asset are capitalized.
Depreciation expense amounted to $5,288, $5,023 and $4,748 in 1997, 1996 and
1995, respectively.
INTANGIBLE ASSETS
Goodwill and other intangible assets, which primarily consist of exhibitor
lists, customer mailing lists, trademarks and trade names, are capitalized and
amortized over their estimated useful lives of up to 40 years. The carrying
value of goodwill and other intangible assets is periodically reviewed by the
Company and impairment is recognized when the projected, undiscounted net pretax
cashflows derived from such intangible assets are less than their carrying
value.
F-8
<PAGE> 86
SUMMARY OF ACCOUNTING POLICIES
(Dollars in thousands, except per share data)
STOCKHOLDER'S EQUITY
Pursuant to the Combination Agreement (See Note 1), the Company amended its
Certificate of Incorporation on June 4, 1998, to authorize capital stock
consisting of 60 million shares of Common Stock, par value $.01 per share, and 2
million shares of Preferred Stock, par value $.01 per share. Immediately
thereafter, the Company issued 21,200,000 shares of Common Stock in replacement
of the 100 shares of $1 par value stock previously outstanding. An amount of
$212 has been transferred from Capital in excess of par value to Common Stock.
The financial statements and related notes have been restated to reflect this
recapitalization retroactively.
REVENUE RECOGNITION
Advertising revenues from the Company's trade magazines are recognized in
the month the publications are mailed. Revenues from trade shows and conferences
are recognized in the month the events are held. Licensing revenues are
recognized on a straight-line basis over the term of the license agreement.
ADVERTISING AND PROMOTION EXPENSES
Advertising and promotion costs are primarily expensed as incurred. These
costs amounted to $8,420, $9,330 and $9,954 in 1997, 1996 and 1995,
respectively.
INCOME TAXES
For 1997 and in prior years, the results of the Company were included in
Pittway's consolidated U.S. federal income tax returns. The provision for income
taxes included in the consolidated statements of income represents an allocated
share of Pittway's tax expense. The allocated share approximates the tax expense
that would have been incurred on a separate return basis. The liability for
income taxes currently payable is recorded by Pittway. Deferred income tax
assets and liabilities are recorded by the Company at the current statutory tax
rate.
Pursuant to the Combination Agreement, the Company is required to indemnify
Pittway for any additional federal, state, local and foreign income tax
liabilities with respect to all periods prior to and including the date of the
Stock Distribution. All consolidated federal income tax returns of Pittway have
been audited by the Internal Revenue Service through 1992.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's foreign operations acquired in
December 1997 is the 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 expense are translated at the average rates
of exchange prevailing during the year. There were no transaction gains or
losses in 1997.
NET INCOME PER SHARE
Net income per share reflects net income divided by the historical number
of shares outstanding, as restated.
F-9
<PAGE> 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 1 -- PENDING ACQUISITION AND SPIN-OFF FROM PITTWAY
The Company has entered into an agreement (the "Combination Agreement") to
acquire Donohue Meehan Publishing Company ("DM Publishing") for $7 million in
cash, 6.767% of the Company's stock to be outstanding immediately after the
acquisition and up to an additional $4 million in cash based on DM Publishing's
pre-tax income for the years 1998 and 1999. The Company also has agreed to make
a contingent cash payment to the extent, if any, that the shares issued in the
acquisition have an average aggregate market value of less than $29 million
during either of two 30-day periods in the year 2000. The contingent payment is
subject to certain limitations as to any of such shares sold prior to the
payment. A portion of the contingent payment may be made with Common Stock
rather than cash under certain conditions.
Pittway intends to distribute 100% of the Company's Common Stock on a share
for share basis to holders of Pittway stock. The distribution to Pittway
stockholders is contingent upon the closing immediately thereafter of the
aforementioned acquisition by Penton of DM Publishing.
NOTE 2 -- RELATIONSHIP AND TRANSACTIONS WITH PITTWAY
The Combination Agreement provides for Pittway to assist Penton in
preparing its tax returns for 1998 and to assist in other tax matters for fees
to be negotiated.
Included in the consolidated statement of income is an allocation of
corporate expenses related to services provided for the Company by Pittway. This
allocation was based on an estimate of the incremental corporate expenses
related to the Company's operations for the periods presented and, in the
opinion of management, has been made on a reasonable basis. However, the
allocation is not necessarily indicative of the level of expenses which might
have been incurred had the Company been a separate company. The aggregate
allocated costs totaled $386, $314 and $310 for the years ended 1997, 1996 and
1995, respectively. The Company's employees also participate in Pittway's
pension plan (see Note 9). Certain of the Company's employees participate in
Pittway's 1990 Stock Awards Plan, for which Pittway has allocated costs to the
Company totaling $1,041, $1,122 and $1,456 in 1997, 1996 and 1995, respectively.
Other transactions between the Company and Pittway, consisting principally
of taxes and other reimbursable expenses paid by Pittway, have been reflected in
the historical financial statements as though on a stand-alone basis, except
that no interest income or expense has been allocated on intercompany balances.
Pittway utilizes a centralized cash management system. Under this system,
cash generated by Penton in excess of its cash requirements (including cash
requirements for Penton's income taxes and other reimbursable expenses paid by
Pittway) is transferred to Pittway and reflected as "Due from parent company" in
the balance sheet. This account is reduced by dividends declared by the Company.
As provided in the DM Publishing Combination Agreement, cash totaling the
aggregate amount of outstanding checks and trade show deposits, net of deferred
costs incurred with respect to trade shows, will be retained by Penton with any
excess cash distributed to Pittway. If cash balances are less than this amount,
Pittway will remit the difference to Penton. A final dividend will be declared
to Pittway to settle the "Due from parent company" account.
NOTE 3 -- ACQUISITIONS AND DISPOSITIONS
During 1997, the Company acquired one foreign and two domestic trade show
companies for $45,602 cash and $2,476 of notes payable to the sellers. The
acquisitions also include future contingent payments up to $12,227 tied to
future earnings of the acquired companies through the year 2000, of which $655
was earned in 1997. The excess of the aggregate purchase price over the fair
market value of net assets acquired of $46,531, excluding $4,218 of other
intangibles amortizable over 15 years, is being amortized over 40 years. In 1997
the Company also sold one publication for $991 cash, and the assumption of
certain liabilities.
During 1995, the Company sold a publication for $1,000 cash, received in
January 1996, and the assumption of $1,339 of deferred subscription revenues.
F-10
<PAGE> 88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All the aforementioned acquisitions were accounted for as purchase
transactions. These operations have been included in the consolidated financial
statements from their respective dates of acquisition or to the dates of
disposition.
The following unaudited pro forma information presents the combined results
of operations of the Company and the acquired businesses, as if the acquisitions
had occurred at the beginning of each of the years ended 1997 and 1996 and the
quarterly period ended March 31, 1997, respectively: Net sales -- $220,936,
$208,191 and $49,652; net income -$15,183, $11,317 and $1,894. The pro forma
amounts give effect to certain adjustments, including the amortization of
intangibles, foreign currency translation, increased interest expense and income
tax effects. This pro forma information does not necessarily reflect the results
of operations as they would have been if the businesses had constituted a single
entity during such periods and is not necessarily indicative of results which
may be obtained in the future.
NOTE 4 -- GAIN ON INSURANCE SETTLEMENT
In 1995 the Company recorded a $1,431 pretax gain in connection with an
insurance settlement resulting from a municipal water main which broke in
January of 1995 and flooded a substantial portion of the Company's Cleveland
headquarters. The gain primarily results from replacement of equipment at
current market value in excess of net book value of damaged assets. The total
proceeds from the insurance settlement, which included reimbursement for other
expenses incurred, were received over a two-year period.
NOTE 5 -- INVENTORIES
The LIFO reserve balances of $613, $462 and $368 at March 31,1998
(unaudited) and December 31, 1997 and 1996, respectively, represent the excess
of current replacement cost over the LIFO value of inventory which consists
principally of raw materials.
NOTE 6 -- NOTES PAYABLE
The Company's short-term notes payable at December 31, 1997 include $29,170
of foreign indebtedness, denominated in British pounds and bearing interest at
8.1%, and $5,000 of domestic indebtedness at 6%. Pittway has guaranteed $26,694
of the foreign debt, which the Company is required to refinance without the
guarantee prior to the Stock Distribution. The foreign debt includes $2,476 due
in December 1998 which the holder may convert into Common Stock at fair market
value. The domestic note is an allocated portion of Pittway's notes payable
representing cash required for an acquisition completed in December 1997. There
are no compensating balance or commitment fee requirements associated with these
short-term borrowings.
NOTE 7 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of accounts and notes receivable, accounts payable,
accrued expenses and notes payable approximates fair value because of the short
maturity of these instruments.
F-11
<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current -
Federal........................................... $ 8,124 $ 5,541 $ 4,795
State and local................................... 1,630 1,192 907
------- ------- -------
9,754 6,733 5,702
------- ------- -------
Deferred -
Federal........................................... 851 711 672
State and local................................... 98 82 77
Foreign........................................... (71) -- --
------- ------- -------
878 793 749
------- ------- -------
$10,632 $ 7,526 $ 6,451
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income tax at statutory rate........................ $ 8,927 $ 6,469 $ 5,277
Tax effect of -
State income taxes, net of federal benefit........ 1,123 818 649
Nondeductible expenses............................ 582 513 525
Other items, net.................................. -- (274) --
------- ------- -------
Actual income tax provision......................... $10,632 $ 7,526 $ 6,451
======= ======= =======
Effective income tax rate........................... 41.7% 40.7% 42.8%
======= ======= =======
</TABLE>
The components of deferred tax assets and liabilities at December 31, 1997
and 1996 are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets -
Deferred pension credits............................. $ 7,651 $ 8,231
Accrued vacation..................................... 1,159 1,025
Bad debts............................................ 805 808
Deferred compensation................................ -- 311
Other................................................ 1,107 1,128
------- -------
Total deferred tax assets......................... 10,722 11,503
------- -------
Deferred tax liabilities -
Depreciation......................................... (3,640) (3,793)
Other................................................ (164) --
------- -------
Total deferred tax liabilities.................... (3,804) (3,793)
------- -------
Net deferred tax asset................................. $ 6,918 $ 7,710
======= =======
</TABLE>
These balances are allocated between "Current assets" and "Other assets" in
the accompanying balance sheet.
F-12
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- RETIREMENT PLAN
The Company participates in Pittway's noncontributory salaried retirement
plan (the "Plan") covering substantially all current and former domestic
employees. Benefits are based on years of service and annual compensation as
defined by the Plan. Prior to 1995, Pittway allocated net pension plan income
credits to the Company based upon the assets of a previously separate Company
plan, which was merged into the Pittway plan in 1991. At the time the plans were
merged, the amount of the Company's plan assets exceeded its projected benefit
obligation and, by 1995, such excess ("Funding Excess") had increased and had
become substantially disproportionate to the Funding Excess for the remainder of
the Pittway plan. As a result, for the years 1995 through 1997 Pittway limited
the allocation of net pension income credits to the Company to $1,500 per year.
As provided in the Combination Agreement, Pittway has agreed to transfer
$45,000 of its plan assets ("Allocated Assets"), including approximately $10,461
of Funding Excess, as of December 31, 1997 to a new plan to be adopted by the
Company after the Stock Distribution. From December 31, 1997 to the actual
transfer date, the Allocated Assets will be increased or decreased by a pro rata
share of the return on Pittway plan assets and decreased by the amount of
benefit payments made to retired Company employees. The amount of Allocated
Assets was determined by Pittway as the estimated proportion of total Pittway
plan assets that would result in the elimination of the Funding Excess for the
Company in the same future year as such elimination for the remainder of the
Pittway plan based on historical rates of service cost increases and return on
plan assets.
The "Net deferred pension credits" in the Consolidated Balance Sheet at
December 31, 1997 include deferred investment gains of $29,500 which Pittway
allocated to the Company on a basis consistent with the above-mentioned
limitation on previous net pension plan income credits.
The components of net pension income for the Company's portion of the Plan
consist of:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost........................................ $ 1,767 $ 1,672 $ 1,588
Interest cost....................................... 2,226 2,173 2,110
Amortization of unrecognized transition asset....... (841) (841) (841)
Amortization of prior service cost.................. 357 357 357
Recognized net investment earnings and actuarial
gains............................................. (5,009) (4,861) (4,714)
------- ------- -------
Net pension income.................................. $(1,500) $(1,500) $(1,500)
======= ======= =======
</TABLE>
F-13
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of the funded status of the Company's portion of the
Plan follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Change in Benefit Obligation -
Projected benefit obligation at January 1.......... $ 32,150 $ 31,460
Service cost....................................... 1,767 1,672
Interest cost...................................... 2,226 2,173
Actuarial loss..................................... 669 1,115
Benefits paid...................................... (2,273) (4,270)
-------- --------
Projected benefit obligation at December 31........ $ 34,539 $ 32,150
======== ========
Fair value of Allocated Assets at December 31........ $ 45,000 $ 40,762
======== ========
Funded Status of the Company's portion of the Plan -
Funding Excess..................................... $ 10,461 $ 8,612
Unrecognized net gain.............................. (29,500) (28,667)
Unrecognized prior service cost.................... 1,969 2,326
Unamortized transition net asset................... (2,522) (3,363)
-------- --------
Net deferred pension credits....................... $(19,592) $(21,092)
======== ========
Assumptions as of December 31 -
Discount rate...................................... 7% 7%
Expected return on plan assets..................... 7% 7%
Rate of compensation increase...................... 5% 5%
</TABLE>
NOTE 10 -- LEASE COMMITMENTS
The Company leases certain office space and equipment under noncancelable
operating leases expiring at various dates through the year 2003. Some of the
leases contain renewal options and certain equipment leases include options to
purchase during or at the end of the lease term. Minimum annual rental
commitments under all noncancelable leases for the next five years beginning
with 1998 are $6,994, $6,532, $5,865, $580, $381 and an aggregate of $105
thereafter. Total rent expense (including taxes, insurance and maintenance when
included in the rent) amounted to $6,575, $6,329 and $6,644 in 1997, 1996 and
1995, respectively.
NOTE 11 -- CONTINGENCIES
The Company in the normal course of business 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 the Company's financial statements, management is
unable to estimate the magnitude of financial impact of claims and lawsuits
which may be filed in the future.
NOTE 12 -- SEGMENT INFORMATION
The Company has three reportable segments: media services, printing and
direct-mail marketing. The segments are based on the Company's internal
organization and are managed separately due to inherent differences in the
nature of these business. Within the media services segment, operating segments
serving differing industries were combined due to the similarity of their
economic characteristics and other factors.
The media services segment serves specific industries and broad markets
with integrated product offerings including trade magazines, trade shows and
conferences, directories, name lists and a variety of other products and
services. Revenues of this segment are generated primarily from magazine
advertising. The printing segment prints magazines, catalogs, brochures and
direct-mail pieces for the media services segment and outside commercial
customers. The direct-mail marketing segment serves primarily the pharmaceutical
and business services markets with the ability to design, produce, print and
mail direct mail-marketing campaigns.
F-14
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Inter-segment revenues are made at approximate arm's-length prices. The
Company evaluates performance based on operating income. Segment assets are
those assets that are specifically identified with the reportable segments in
which operations are conducted. Non-current assets at December 31, 1997 include
$29,968 identified with operations in the United Kingdom, substantially all of
which are intangible assets, with the remaining assets identified with domestic
operations. Non-current assets at December 31, 1996 and 1995 are domestic.
Export sales were not material and no single customer accounted for ten percent
of sales.
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total segment revenues:
Media Services............................ $46,630 $43,582 $181,109 $166,631 $158,314
Printing.................................. 9,694 9,183 39,092 37,933 36,637
Direct-Mail Marketing..................... 2,866 2,667 13,370 13,173 12,668
------- ------- -------- -------- --------
59,190 55,432 233,571 217,737 207,619
Less Inter-segment revenues:
Printing.................................. 6,705 6,751 28,566 29,064 27,719
Direct-Mail Marketing..................... -- 15 74 116 --
------- ------- -------- -------- --------
$52,485 $48,666 $204,931 $188,557 $179,900
======= ======= ======== ======== ========
Operating Income:
Media Services............................ $ 4,495 $ 4,829 $ 24,854 $ 17,681 $ 9,428
Printing.................................. 416 292 1,534 1,270 1,512
Direct-Mail Marketing..................... (246) (264) (1,091) (452) 1,007
------- ------- -------- -------- --------
$ 4,665 $ 4,857 $ 25,297 $ 18,499 $ 11,947
======= ======= ======== ======== ========
Depreciation and Amortization:
Media Services............................ $ 3,903 $ 3,335 $ 3,302
Printing.................................. 2,229 2,145 2,085
Direct-Mail Marketing..................... 419 431 385
-------- -------- --------
$ 6,551 $ 5,911 $ 5,772
======== ======== ========
Total assets:
Media Services............................ $130,123 $ 79,652 $ 87,871
Printing.................................. 17,823 18,681 19,735
Direct-Mail Marketing..................... 8,480 10,466 8,888
-------- -------- --------
$156,426 $108,799 $116,494
======== ======== ========
Capital expenditures:
Media Services............................ $ 3,741 $ 3,339 $ 2,986
Printing.................................. 1,406 948 876
Direct-Mail Marketing..................... 303 535 1,127
-------- -------- --------
$ 5,450 $ 4,822 $ 4,989
======== ======== ========
</TABLE>
F-15
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 -- QUARTERLY RESULTS (UNAUDITED)
Quarterly results of operations for the years ended December 31, 1997 and
1996 are shown below:
<TABLE>
<CAPTION>
1997 QUARTERS
---------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $48,666 $54,054 $50,729 $51,482 $204,931
Operating Income...................... 4,857 8,545 5,708 6,187 25,297
Net Income............................ 2,718 4,875 3,218 4,063(a) 14,874
Basic and diluted net income per
share............................... .13 .23 .15 .19 .70
</TABLE>
<TABLE>
<CAPTION>
1996 QUARTERS
---------------------------------------- TOTAL
FIRST SECOND THIRD FOURTH FOR YEAR
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $45,233 $48,382 $46,437 $48,505 $188,557
Operating Income...................... 3,256 6,022 3,508 5,713 18,499
Net Income............................ 1,928 3,568 2,075 3,385 10,956
Basic and diluted net income per
share............................... .09 .17 .10 .16 .52
</TABLE>
(a) Includes $634 after-tax gain, or $.03 per share (basic and diluted), on sale
of a magazine.
F-16
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Donohue Meehan Publishing Company
In our opinion, the accompanying balance sheet and the related statements of
income and accumulated deficit and of cash flows present fairly, in all material
respects, the financial position of Donohue Meehan Publishing Company at
December 31, 1997, and the results of its operations and its cash flows for the
year in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards 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 audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Cleveland, Ohio
April 3, 1998, except for Note 7 which
is dated as of May 21, 1998
F-17
<PAGE> 95
DONOHUE MEEHAN PUBLISHING COMPANY
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
-------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
REVENUES.................................................... $2,104 $ 9,358
------ -------
OPERATING EXPENSES:
Editorial, production and circulation..................... 666 2,826
Selling................................................... 455 2,146
General and administrative................................ 158 748
Depreciation.............................................. 17 75
------ -------
1,296 5,795
------ -------
Operating income............................................ 808 3,563
OTHER INCOME (EXPENSE):
Interest expense.......................................... (5) (21)
Interest income........................................... 10 75
------ -------
5 54
------ -------
Income before taxes......................................... 813 3,617
Provision for state income taxes (Note 1)................... -- 36
------ -------
NET INCOME.................................................. 813 3,581
Shareholder distributions................................... -- (3,617)
Accumulated deficit at beginning of period.................. (1,318) (1,282)
------ -------
Accumulated deficit at end of period........................ ($ 505) ($1,318)
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 96
DONOHUE MEEHAN PUBLISHING COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1998 DECEMBER 31
(UNAUDITED) 1997
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $1,147 $ 19
Accounts receivable, less allowance for doubtful accounts
of $113 in 1998 and 1997............................... 1,360 1,898
Prepaid expenses.......................................... 77 46
------ -------
2,584 1,963
PROPERTY, PLANT AND EQUIPMENT:
Furniture and equipment................................... 404 404
Automobiles............................................... 131 131
Accumulated depreciation.................................. (329) (312)
------ -------
206 223
------ -------
Other assets................................................ 2 2
------ -------
$2,792 $ 2,188
====== =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 28 $ 92
Accrued expenses.......................................... 50 54
Lease obligations, current portion........................ 90 90
Retirement plan payable................................... 68 194
Deferred income tax....................................... 23 23
------ -------
259 453
------ -------
LONG-TERM LIABILITIES
Lease obligations......................................... 101 116
Deferred compensation..................................... 2,877 2,877
------ -------
2,978 2,993
------ -------
3,237 3,446
------ -------
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock -- 700 shares Series A issued and
outstanding, no par value.............................. 60 60
Accumulated deficit....................................... (505) (1,318)
------ -------
(445) (1,258)
------ -------
$2,792 $ 2,188
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 97
DONOHUE MEEHAN PUBLISHING COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1998 1997
(UNAUDITED)- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 813 $ 3,581
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 17 75
Deferred income tax provision.......................... -- 2
Deferred compensation.................................. -- 81
Changes in assets and liabilities:
Decrease (increase) in accounts receivable............. 538 (182)
(Increase) decrease in prepaid expenses................ (31) 11
(Decrease) increase in accounts payable................ (64) 11
(Decrease) increase in accrued expenses................ (4) 8
(Decrease) increase in retirement plan payable......... (126) 30
------ -------
Net cash provided by operating activities................. 1,143 3,617
CASH FLOWS FROM FINANCING ACTIVITIES:
Lease payments............................................ (15) (58)
Distributions made to shareholders........................ -- (3,617)
------ -------
Net cash used by financing activities..................... (15) (3,675)
------ -------
NET INCREASE (DECREASE) IN CASH............................. 1,128 (58)
CASH AT BEGINNING OF YEAR................................... 19 77
------ -------
CASH AT END OF YEAR......................................... $1,147 $ 19
====== =======
Supplemental cash flow information:
State income taxes paid................................... $ -- $ 34
====== =======
Interest.................................................. $ 5 $ 20
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 98
DONOHUE MEEHAN PUBLISHING COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
NOTE 1 -- NATURE OF BUSINESS:
Donohue Meehan Publishing Company ("the Company") is a publisher of
magazines in the retail baking market (Modern Baking and Baking Management) and
in the convenience store industry (Convenience Store). The Company's principal
revenues are derived from magazine advertising. The Company has offices located
in Chicago, Illinois and Philadelphia, Pennsylvania.
The Company was incorporated on January 5, 1987 and elected "S" Corporation
tax status. Accordingly, the Company is not liable for federal income taxes. The
state of Illinois imposes a replacement income tax on "S" Corporations. The
state of Pennsylvania accepts the "S" Corporation status for corporations and
does not impose a corporate income tax, however, Pennsylvania does impose a
Capital Stock Foreign Franchise Tax.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires the use of estimates by management
regarding the reported amounts of assets and liabilities as well as the revenues
and expenses recognized during the reporting period. Actual results could differ
from these estimates.
CASH
The Company considers all short-term securities purchased with an original
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Revenues from advertising are recognized as earned during the period when
the corresponding issue containing the advertisements is mailed.
PLANT PROPERTY AND EQUIPMENT
Furniture and equipment are recorded at cost and are depreciated over the
estimated useful lives of the assets principally using accelerated methods.
Leased property meeting certain criteria is capitalized and the present value of
the related lease payment is recorded as a liability. Depreciation for these
assets is computed over the lease term using the straight-line method. Lease
terms are 3 years for equipment and 5 years for automobiles.
STATE INCOME TAXES
The company records state income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes."
This standard requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns.
The state income tax provision consisted of the following:
<TABLE>
<S> <C>
Current..................................................... $34
Deferred.................................................... 2
---
$36
===
</TABLE>
The year-end deferred income tax liability consists of the difference
between accrual basis profits and cash basis profits recorded at the effective
state income tax rate.
F-21
<PAGE> 99
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- RETIREMENT PLAN:
In 1988 the company established a profit sharing plan for its eligible
employees in order to provide for their future retirement. The amount of the
Company's contribution to the Plan is determined annually by the Company's Board
of Directors.
The Board of Directors declared a $194 plan contribution for 1997 to be
paid in 1998. This amount has been recorded as a liability at December 31, 1997.
NOTE 4 -- RELATED PARTY TRANSACTIONS:
The Company leases various computers, automobiles and office equipment
under capital leases from Donohue-Meehan Equipment Leasing, an Illinois
partnership under common ownership with the Company.
Capitalized leases at December 31, 1997, consisted of computers and office
equipment ($185) and automobiles ($131).
During 1997, $78 was paid pursuant to these leases. Additionally, the
Company acquired in non-cash transactions, $173 of assets by capital lease in
1997. Future minimum annual lease payments under capital leases are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 90
1999........................................................ 74
2000........................................................ 50
2001........................................................ 37
2002........................................................ 20
----
271
Less interest expense....................................... 65
----
Present value of minimum lease payments..................... $206
====
</TABLE>
NOTE 5 -- OPERATING LEASES:
Future minimum annual rental payments under the noncancelable operating
leases for office facilities are as follows: 1998 -- $66; 1999 -- $67;
2000 -- $67; and 2001 -- $25.
NOTE 6 -- DEFERRED COMPENSATION:
The Company has entered into certain agreements with key employees in which
the Company is obligated to pay the employees a specified amount upon death or
disability of the employer or upon sale of the Company. The compensation is
based on specified percentages as set forth in each employee's deferred
compensation agreement applied against the fair market value of the Company and
results in a charge to results of operations of $81 in 1997.
NOTE 7 -- SUBSEQUENT EVENT:
On May 21, 1998, the Company and its shareholders entered into an Agreement
whereby, upon the spin-off of Penton Media, Inc. ("Penton") (formerly Penton
Publishing, Inc.) from Pittway Corporation, the Company will be merged into a
wholly-owned subsidiary of Penton.
Upon completion of the merger, the Company's shareholders will receive (i)
common stock of Penton immediately following the spin-off from Pittway and the
merger, (ii) cash, (iii) the right to receive additional cash if certain
profitability levels are achieved during 1998 and/or 1999, and (iv) the right to
receive additional cash (or, in certain circumstances, additional common stock
of Penton) if the market price of Penton's common stock during either of two
reference periods in the year 2000 is less than a specified amount.
F-22
<PAGE> 100
INDEPENDENT EXHIBITIONS LIMITED
DIRECTOR'S REPORT
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
The directors present their report together with the financial statements
for the twelve months ended 30 November 1997.
PRINCIPAL ACTIVITY
The principal activity of the company continues to be the organisation of
exhibitions and conferences.
BUSINESS REVIEW AND FUTURE DEVELOPMENTS
The business of the company has continued to develop in the light of
prevailing trading conditions and the position at 30 November 1997 is reflected
in the company's financial statements for the twelve months then ended. The
present intention is to continue the existing development of the company.
In December 1997, the company's entire issued share capital was acquired by
Penton Media Limited. Penton Media Limited has confirmed that it will provide
such financial support as is necessary to allow the company to trade and to meet
its liabilities as they fall due.
RESULTS
The results for the twelve month period are set out in the Profit and Loss
Account on page F-26. The director recommends the payment of a dividend of
L117,531.
DIRECTORS AND THEIR INTEREST IN THE COMPANY
The director who served during the period was RJ Findlay. The director has
an interest in the share capital of the company at the beginning and end of the
period, through his interest in the shares of Findlay Publications Holdings
Limited. His interest in that company's share capital is disclosed in its
financial statements.
RJ Findlay resigned as a director of the company on 12 December 1997.
The following were appointed Directors of the company on 12 December 1997.
DJ Ramella
TL Kemp
PL Vice
A Dedman
By Order of the Board
/s/ J. Wood
Company Secretary
F-23
<PAGE> 101
INDEPENDENT EXHIBITIONS LIMITED
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
It is the purpose of this statement to distinguish the directors'
responsibilities for the financial statements from those of the auditors, as
stated in their report.
The directors have prepared financial statements which give a true and fair
view of the company's state of affairs at 30 November 1997 and of its profit or
loss for the twelve month period. In preparing those financial statements the
directors have been required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
- prepare the financial statements on the going concern basis unless it is
inappropriate to assume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company. The directors are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection
of fraud or other irregularities.
F-24
<PAGE> 102
REPORT OF THE AUDITORS
TO THE DIRECTORS OF
INDEPENDENT EXHIBITIONS LIMITED
We have audited the financial statements for the twelve months ended 30
November 1997 on pages F-26 to F-32 which have been prepared under the
accounting policies set out on page F-28.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-24 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the director in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of the information in the financial statements.
UNQUALIFIED OPINION
In our opinion, the financial statements give a true and fair view of the
state of the company's affairs at 30 November 1997 and of its profit for the
twelve months then ended.
/s/ Horwath Clark Whitehill
Chartered Accountants
and Registered Auditors
June 10, 1998
London, England
F-25
<PAGE> 103
INDEPENDENT EXHIBITIONS LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
<TABLE>
<CAPTION>
1997
NOTES (pound)
----- ---------
<S> <C> <C>
TURNOVER.................................................... 1(ii) 2,607,480
Cost of Sales............................................... 1,076,330
---------
GROSS PROFIT................................................ 1,531,150
Administrative expenses..................................... 1,497,617
---------
OPERATING PROFIT............................................ 33,533
Interest receivable and similar income...................... 26,869
---------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 2 60,402
Tax on profit on ordinary activities........................ 4 15,517
---------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 44,885
Dividends................................................... (117,531)
---------
RETAINED LOSS FOR THE PERIOD................................ (72,646)
Profit and loss account brought forward..................... 18,014
---------
PROFIT AND LOSS ACCOUNT CARRIED FORWARD..................... (54,632)
=========
</TABLE>
The profit and loss account contains all the gains and losses recognised in
the twelve months and is the only movement in shareholders' funds.
The notes to the financial statements form part of these financial statements.
F-26
<PAGE> 104
INDEPENDENT EXHIBITIONS LIMITED
BALANCE SHEET
30 NOVEMBER 1997
<TABLE>
<CAPTION>
1997
NOTES (pound) (pound)
----- --------- -------
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets............................................. 5 44,628
CURRENT ASSETS
Debtors..................................................... 6 1,242,951
Cash at bank................................................ 2,056,046
---------
3,298,997
CREDITORS: amounts falling due within one year.............. 7 3,361,454
---------
NET CURRENT LIABILITIES..................................... (62,457)
-------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... (17,829)
PROVISIONS FOR LIABILITIES AND CHARGES...................... 8 34,363
-------
NET LIABILITIES............................................. (52,192)
=======
FINANCED BY:
CAPITAL AND RESERVES
Called up share capital..................................... 9 105
Share premium............................................... 2,335
Profit and loss account..................................... (54,632)
-------
SHAREHOLDERS' DEFICIT....................................... (52,192)
-------
</TABLE>
Approved by the Board on
June 10, 1998
and signed on its behalf:
/s/ A. Dedman -- Director
The notes to the financial statements form part of these financial statements.
F-27
<PAGE> 105
INDEPENDENT EXHIBITIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
1. ACCOUNTING POLICIES
(i) BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
(ii) TURNOVER
Turnover represents the invoiced value of services supplied and is
stated net of value added tax. The turnover is attributable to the
principal activity of the company of organising exhibitions and
conferences.
(iii)DEFERRED TAXATION
Deferred taxation is accounted for using the liability method on all
material timing differences to the extent that it is probable that
liabilities or assets will crystallise.
(iv) FIXED ASSETS AND DEPRECIATION
Fixed assets are included at cost. Depreciation is provided on all
tangible fixed assets to write off the cost over their expected life by
equal annual instalments.
The rates applied are:
Fixtures and fittings - 10% to 50%
Motorcars - 25%
(v) PENSION COSTS
The costs of providing pensions for employees are charged in the profit
and loss account in accordance with the recommendations of qualified
actuaries. Any funding surpluses or deficits that may arise from time to
time are amortised over the average remaining working life of employees.
2. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
1997
(pound)
------
<S> <C>
This is stated after charging:
Auditors' remuneration.................................... 5,250
Depreciation.............................................. 16,074
------
</TABLE>
F-28
<PAGE> 106
INDEPENDENT EXHIBITIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
3. STAFF COSTS
<TABLE>
<CAPTION>
1997
(pound)
-------
<S> <C>
Wages and salaries.......................................... 477,650
Social security costs....................................... 41,666
Other pension costs......................................... 21,730
-------
541,046
=======
NO.
The average number of employees during the year was......... 14
=======
</TABLE>
4. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997
(pound)
------
<S> <C>
Corporation tax based on profits for the year at 23.5%
(1996: 24%)............................................... 22,750
Under/(over) provision in previous years.................... 67
Deferred taxation........................................... (7,300)
------
15,517
======
</TABLE>
5. FIXED ASSETS
<TABLE>
<CAPTION>
FIXTURES
AND
FITTINGS
(pound)
--------
<S> <C>
COST
At 1 December 1996........................................ 71,273
ADDITIONS................................................. 14,525
------
AT 30 NOVEMBER 1997......................................... 85,798
------
DEPRECIATION
At 1 December 1996........................................ 25,096
CHARGE FOR THE YEAR....................................... 16,074
------
AT 30 NOVEMBER 1997......................................... 41,170
------
NET BOOK VALUE
AT 30 NOVEMBER 1997......................................... 44,628
------
</TABLE>
6. DEBTORS
<TABLE>
<CAPTION>
1997
(pound)
---------
<S> <C>
Trade debtors............................................... 836,084
Other debtors............................................... 345,316
Prepayments and accrued income.............................. 61,551
---------
1,242,951
=========
</TABLE>
F-29
<PAGE> 107
INDEPENDENT EXHIBITIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
7. CREDITORS
Amounts falling due within one year:
<TABLE>
<CAPTION>
1997
(pound)
---------
<S> <C>
Trade creditors........................................ 956,982
Corporation tax........................................ 59,998
Other taxes and social security........................ 42,046
Other creditors........................................ 2,106,166
Proposed dividend...................................... 117,531
Accruals and deferred income........................... 78,731
---------
3,361,454
=========
</TABLE>
8. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<S> <C>
Pension provision........................................... 49,113
Less deferred tax........................................... (14,750)
---------
34,363
=========
A) DEFERRED TAXATION
At 1 December 1996................................ (7,450)
Movement in provision............................. (7,300)
---------
(14,750)
=========
</TABLE>
Full recognition has been made in respect of the company's deferred
taxation asset which consists of timing differences arising from:
<TABLE>
<CAPTION>
1997
(pound)
---------
<S> <C>
Capital allowances................................ 1,300
Tax relief on pension provision................... (16,050)
---------
(14,750)
=========
</TABLE>
b) PENSION PROVISION
Employees of the company are eligible for membership of the Findlay
Publications Pension and Death Benefit Scheme. The scheme is a defined
benefit pension scheme, the assets of which are held in a separate
trustee administered fund. The total pension costs to all participating
companies are assessed on the advice of qualified actuaries using the
attained age method. The latest actuarial assessment of the scheme was
at 1 March 1996.
The significant actuarial assumptions used in the assessment were that
future investment return would be 9% per annum and future salary and
wage increases would average 8% per annum. At the date of the latest
actuarial assessment the actuarial value of the assets in the scheme was
sufficient to cover 117% of the benefits that had accrued to members,
after allowing for expected future increases in earnings.
The surplus funding of the scheme has enabled participating companies,
in accordance with the advice from the actuary, to make reduced
contributions which results in the creation of the pension provision in
compliance with Statement of Standard Accounting Practice No. 24.
F-30
<PAGE> 108
INDEPENDENT EXHIBITIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
Following the sale of the company in December 1997, new pension
arrangements are to be put in place and the actuary has been requested
to calculate the value of members benefits to be transferred into a new
pension arrangement.
9. SHARE CAPITAL
<TABLE>
<CAPTION>
1997
(pound)
-----
<S> <C>
Authorised
10,000 Ordinary shares of 10p each.......................... 1,000
-----
Allotted, called up and fully paid
1,052 Ordinary shares of 10p each........................... 105
-----
</TABLE>
10. RELATED PARTY TRANSACTIONS
At 30 November 1997, the following companies are deemed to be related
parties by virtue of the beneficial interest held in their share capital by the
director and/or key management of the company:
Findlay Publications Limited
Richard Copley-Smith Limited
Service Exhibitions Limited*
Equity Information Exchange Limited*
* The company acts as agent for these related parties.
During the twelve month period the following amounts were paid to related
parties for services detailed:
<TABLE>
<CAPTION>
(pound)
-------
<S> <C> <C>
Findlay Publications Limited -Management 61,000
charges.............
-Circulation 28,000
charges.............
-Consultancy 316,720
charges.............
Richard Copley-Smith Limited -Consultancy 316,720
charges.............
</TABLE>
As at 30 November 1997, the following amounts were outstanding with related
parties:
<TABLE>
<S> <C> <C>
Creditors - Findlay Publications Limited........... 160,797
Creditors - Equity Information Exchange Limited.... 635,325
Creditors - Service Exhibitions Limited............ 623,682
</TABLE>
11. SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES.
a) DIVIDENDS
In accordance with UK GAAP the profit and loss account for the twelve
months to 30 November 1997 has been charged with the dividend proposed
for the period. Under US GAAP dividends are charged to retained reserves
only when declared.
b) DEFERRED TAXATION
Deferred corporation tax has, in accordance with UK GAAP, been provided
under the liability method to the extent that it is probable that a
liability will crystallise in the foreseeable future. Under US GAAP the
liability method is required by FAS109, however full provision is
required for all differences. In the financial statements for the twelve
months to 30 November 1997 this does not give rise to a difference as
full provision has been made for all timing differences.
F-31
<PAGE> 109
INDEPENDENT EXHIBITIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
c) PENSION COSTS
Pension costs have been assessed in accordance with the advice of an
independent actuary and are based on the actuarial valuation of the
scheme as at 1 March 1996 and have been accounted for in accordance with
UK SSAP24. This surplus that has arisen in the scheme is being released
over the remaining service lives of employees.
Under US GAAP pension costs are accounted for in accordance with FAS87
which recommends the use of the projected unit credit method for
calculating the cost to an accounting period.
A full valuation and recalculation of the pension costs under US GAAP
has not been prepared. However, the difference in cost charged to the
profit and loss account for the twelve months to 30 November 1997 is not
considered to be material.
F-32
<PAGE> 110
SERVICE EXHIBITIONS LIMITED
DIRECTOR'S REPORT
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
The directors present their report together with the financial statements
for the twelve months ended 30 November 1997.
PRINCIPAL ACTIVITY
The principal activity of the company continues to be the organisation of
exhibitions and conferences for those involved in the service management
profession.
BUSINESS REVIEW AND FUTURE DEVELOPMENTS
The business of the company has continued to develop the business in the
light of prevailing trading conditions and the position at 30 November 1997 is
reflected in the company's accounts for the twelve months then ended. The
present intention is to continue the development of the existing business of the
company.
In December 1997 the company's entire issued share capital was acquired by
Penton Media Limited. Penton Media Limited has confirmed that it will provide
such financial support as is necessary to allow the company to continue to trade
and meet its liabilities as they fall due.
RESULTS
The results for the twelve month period are set out in the Profit and Loss
Account on page F-36. The director recommends the payment of a final dividend of
L82,448.
DIRECTORS AND THEIR INTEREST IN THE COMPANY
The director who served during the period was RJ Findlay. His interest in
the share capital of the company was 450 L1 ordinary shares throughout the
period.
RJ Findlay resigned as a director on 12 December 1997.
The following were appointed directors on 12 December 1997.
DJ Ramella
TL Kemp
PL Vice
A Dedman
By Order of the Board
/s/ J. Wood
Company Secretary
F-33
<PAGE> 111
SERVICE EXHIBITIONS LIMITED
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
It is the purpose of this statement to distinguish the director's
responsibilities for the financial statement from those of the auditors, as
stated in their report.
The directors have prepared financial statements which give a true and fair
view of the company's state of affairs at 30 November 1997 and of its profit or
loss for the twelve month period. In preparing the financial statements the
directors have been required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
- prepare the financial statements on the going concern basis unless it is
inappropriate to assume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company. The directors are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection
of fraud or other irregularities.
F-34
<PAGE> 112
REPORT OF THE AUDITORS
TO THE DIRECTORS OF
SERVICE EXHIBITIONS LIMITED
We have audited the financial statements on pages F-36 to F-40 which have
been prepared under the accounting policies set out on page F-38.
RESPECTIVE RESPONSIBILITIES OF DIRECTOR AND AUDITORS
As described on page F-34 the company's director is responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the director in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of the information in the financial statements.
UNQUALIFIED OPINION
In our opinion, the financial statements give a true and fair view of the
state of the company's affairs at 30 November 1997 and of its profit for the
twelve months then ended.
/s/ Horwath Clark Whitehill
Chartered Accountants
and Registered Auditors
June 10, 1998
London, England
F-35
<PAGE> 113
SERVICE EXHIBITIONS LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
<TABLE>
<CAPTION>
1997
NOTES (pound)
----- ---------
<S> <C> <C>
TURNOVER.................................................... 1(ii) 531,433
Cost of Sales............................................... 181,664
---------
GROSS PROFIT................................................ 349,769
Administrative expenses..................................... 296,106
---------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 2 53,663
Tax on profit on ordinary activities........................ 4 12,955
---------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 40,708
Dividends................................................... (82,448)
---------
RETAINED LOSS FOR THE PERIOD................................ (41,740)
Profit and loss account brought forward..................... 18,077
---------
PROFIT AND LOSS ACCOUNT CARRIED FORWARD..................... (23,663)
=========
</TABLE>
The profit and loss account contains all the gains and losses recognised in
the twelve months and is the only movement in shareholders' funds.
The notes to the financial statements form part of these financial statements.
F-36
<PAGE> 114
SERVICE EXHIBITIONS LIMITED
BALANCE SHEET
30 NOVEMBER 1997
<TABLE>
<CAPTION>
1997
NOTES (pound)
----- -------
<S> <C> <C>
CURRENT ASSETS
Debtors..................................................... 5 667,971
CREDITORS: amounts falling due within one year.............. 6 690,634
-------
NET LIABILITIES............................................. (22,663)
=======
CAPITAL AND RESERVES
Called up share capital..................................... 7 1,000
Profit and loss account..................................... (23,663)
-------
SHAREHOLDERS' DEFICIT....................................... (22,663)
=======
</TABLE>
Approved by the Board
on June 10, 1998,
and signed on its behalf:
/s/ A. Dedman -- Director
The notes to the financial statements form part of these financial statements.
F-37
<PAGE> 115
SERVICE EXHIBITIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
1. ACCOUNTING POLICIES
(I) BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
(II) TURNOVER
Turnover represents the amount invoiced to customers for attendance at
exhibitions and conferences, and is stated net of value added tax.
(III) DEFERRED TAXATION
Deferred taxation is accounted for using the liability method on all
material timing differences to the extent that it is probable that liabilities
or assets will crystallise.
<TABLE>
<CAPTION>
1997
(pound)
------
<S> <C>
2. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
This is stated after charging:
Auditors' remuneration...................................... 2,500
------
3. STAFF COSTS
Wages and salaries.......................................... 45,070
Social security costs....................................... 4,380
------
49,450
======
</TABLE>
<TABLE>
<CAPTION>
NO.
------
<S> <C>
The average number of employees during the year was......... 3
------
</TABLE>
F-38
<PAGE> 116
SERVICE EXHIBITIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
<TABLE>
<CAPTION>
1997
(pound)
------
<S> <C>
4. TAX ON PROFIT ON ORDINARY ACTIVITIES
Corporation tax based on profits for the year at 23.5%
(1996: 24%)............................................... 13,000
Over provision in respect of previous years................. (45)
------
12,955
======
</TABLE>
<TABLE>
<CAPTION>
1997
(pound)
-------
<S> <C>
5. DEBTORS
Other debtors............................................... 663,295
Prepayments and accrued income.............................. 4,676
-------
667,971
=======
6. CREDITORS
Amounts falling due within one year:
Corporation tax............................................. 31,068
Other taxes and social security costs....................... 4,440
Other creditors............................................. 87,133
Proposed dividends.......................................... 82,448
Accruals and deferred income................................ 485,545
-------
690,634
=======
7. SHARE CAPITAL
Authorised
Ordinary shares of L1 each.................................. 1,000
-------
Allotted, called up and fully paid
Ordinary shares of L1 each.................................. 1,000
=======
</TABLE>
8. RELATED PARTY TRANSACTIONS
At 30 November 1997, the following companies are deemed to be related
parties by virtue of the beneficial interest held in their share capital by the
director and/or key management of the company:
Findlay Publications Investments Limited
Findlay Publications Limited
Richard Copley-Smith Limited
Independent Exhibitions Limited*
- ---------------
* Independent Exhibitions Limited acts as agent for the company.
F-39
<PAGE> 117
SERVICE EXHIBITIONS LIMITED
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
During the year the following amounts were paid to related parties for
services detailed:
<TABLE>
<CAPTION>
(pound)
-------
<S> <C>
Findlay Publications Limited -- Management charges..... 10,301
Findlay Publications Investments Limited -- Consultancy
charges............................................... 67,500
Richard Copley-Smith Limited -- Consultancy charges.... 67,500
As at 30 November 1997, the following amounts were
outstanding with related parties:
Debtors -- Independent Exhibitions Limited............. 623,682
</TABLE>
9. SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
(A) DIVIDENDS
In accordance with UK GAAP the profit and loss account for the twelve
months to 30 November 1997 has been charged with the dividend proposed
for the period. Under US GAAP dividends are charged to retained reserves
only when declared.
(B) DEFERRED TAXATION
Deferred corporation tax has in accordance with UK GAAP been provided
under the liability method to the extent that it is probably that a
liability will crystallise in the foreseeable future. Under US GAAP the
liability method is required by FAS109, however full provision is
required for all differences. In the financial statements for the twelve
months to 30 November 1997 this does not give rise to a difference as
full provision has been made for all timing differences.
F-40
<PAGE> 118
EQUITY INFORMATION EXCHANGE LIMITED
DIRECTORS' REPORT
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
The directors have pleasure in presenting their report and the financial
statements for the twelve months ended 30 November 1997.
PRINCIPAL ACTIVITY
The principal activity of the company continues to be the organisation of
exhibitions.
BUSINESS REVIEW AND FUTURE DEVELOPMENTS
The directors have continued to develop the business in the light of
prevailing trading conditions and the position at 30 November 1997 is reflected
in the company's accounts for the year then ended. The present intention is to
continue the development of the existing business of the company.
In December 1997 the company's entire issued share capital was acquired by
Penton Media Limited. Penton Media Limited has confirmed that it will provide
such financial support as is necessary to allow the company to trade and to meet
its liabilities as they fall due.
RESULTS AND DIVIDENDS
The results for the twelve month period are set out in the profit and loss
account on page F-44. The directors recommend the payment of a dividend of
L153,295.
DIRECTORS AND THEIR INTERESTS IN THE COMPANY
The directors who served during the period and their interests in the share
capital of the Company were as follows:
<TABLE>
<CAPTION>
L1 ORDINARY SHARES
-----------------------------------
30 NOVEMBER 1997 30 NOVEMBER 1996
---------------- ----------------
<S> <C> <C>
RS Copley-Smith............................................. 222 222
RJ Findlay.................................................. 435 435
</TABLE>
RS Copley-Smith and RJ Findlay resigned as directors on 12 December 1997.
The following were appointed directors on 12 December 1997.
DJ Ramella
TL Kemp
PL Vice
A Dedman
By Order of the Board
/s/ J. Wood
Company Secretary
F-41
<PAGE> 119
EQUITY INFORMATION EXCHANGE LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
It is the purpose of this statement to distinguish the directors'
responsibilities for the financial statements from those of the auditors, as
stated in their report.
The directors have prepared financial statements which give a true and fair
view of the company's state of affairs at 30 November 1997 and of its profit or
loss for the twelve month period. In preparing the financial statements the
directors have been required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the financial
statements;
- prepare the financial statements on the going concern basis unless it is
inappropriate to assume that the company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company. The directors are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection
of fraud or other irregularities.
F-42
<PAGE> 120
REPORT OF THE AUDITORS
TO THE DIRECTORS OF
EQUITY INFORMATION EXCHANGE LIMITED
We have audited the financial statements for the twelve months ended 30
November 1997 on pages F-44 to F-49 which have been prepared under the
accounting policies set out on page F-46.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page F-42 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those financial statements and to
report our opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of the information in the financial statements.
UNQUALIFIED OPINION
In our opinion, the financial statements give a true and fair view of the
state of the company's affairs at 30 November 1997 and of its profit for the
twelve months then ended.
/s/ Horwath Clark Whitehill
Chartered Accountants
and Registered Auditors
June 10, 1998
London, England
F-43
<PAGE> 121
EQUITY INFORMATION EXCHANGE LIMITED
PROFIT AND LOSS ACCOUNT
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
<TABLE>
<CAPTION>
1997
NOTES (pound)
----- ---------
<S> <C> <C>
TURNOVER.................................................... 1(ii) 2,159,136
Cost of Sales............................................... 854,272
---------
GROSS PROFIT................................................ 1,304,864
Administrative expenses..................................... 1,260,533
---------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION............... 2 44,331
Tax on profit on ordinary activities........................ 4 901
---------
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION................ 43,430
Dividends................................................... (153,295)
---------
RETAINED PROFIT FOR THE PERIOD.............................. (109,865)
Profit and loss account brought forward..................... 239
---------
PROFIT AND LOSS ACCOUNT CARRIED FORWARD..................... (109,626)
=========
</TABLE>
The profit and loss account contains all the gains and losses recognised in
the twelve months and is the only movement in shareholders' funds.
The notes form part of these financial statements.
F-44
<PAGE> 122
EQUITY INFORMATION EXCHANGE LIMITED
BALANCE SHEET
30 NOVEMBER 1997
<TABLE>
<CAPTION>
1997
NOTES (pound)
----- --------
<S> <C> <C>
CURRENT ASSETS
Debtors..................................................... 5 691,608
CREDITORS: amounts falling due within one year.............. 6 780,003
--------
NET CURRENT LIABILITIES..................................... (88,395)
PROVISIONS FOR LIABILITIES AND CHARGES...................... 7 19,581
--------
NET LIABILITIES............................................. (107,976)
========
CAPITAL AND RESERVES
Called up share capital..................................... 8 1,026
Share premium............................................... 624
Profit and loss account..................................... (109,626)
--------
SHAREHOLDERS' DEFICIT....................................... (107,976)
--------
</TABLE>
Approved by the Board on
June 10, 1998
and signed on its behalf:
/s/ A. Dedman - Director
The notes to the financial statements form part of these financial statements.
F-45
<PAGE> 123
EQUITY INFORMATION EXCHANGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
1. ACCOUNTING POLICIES
(I) BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
convention and in accordance with applicable accounting standards.
(II) TURNOVER
Turnover represents the invoiced value of services supplied and is stated
net of value added tax. The turnover is attributable to one activity, the
principal activity of the company.
(III) DEFERRED TAXATION
Deferred taxation is accounted for using the liability method on all
material timing differences to the extent that it is probable that liabilities
or assets will crystallise.
(IV) PENSION COSTS
The costs of providing pensions for employees are charged in the profit and
loss account in accordance with the recommendations of qualified actuaries. Any
funding surpluses or deficits that may arise from time to time are amortised
over the average remaining working life of employees.
2. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
1997
(pound)
-------
<S> <C>
This is stated after charging:
Auditors' remuneration...................................... 4,300
</TABLE>
3. STAFF COSTS
<TABLE>
<S> <C>
Wages and salaries.......................................... 195,803
Social security costs....................................... 17,277
Other pension costs......................................... --
-------
213,080
=======
NO.
The average number of employees in the year was............. 7
=======
</TABLE>
4. TAX ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1997
(pound)
-------
<S> <C>
Corporation tax based on profits for the year at 23.5%
(1996: 24%)............................................... 13,000
Overprovision in respect of previous years.................. (7,999)
Deferred taxation........................................... (4,100)
-------
901
=======
</TABLE>
F-46
<PAGE> 124
EQUITY INFORMATION EXCHANGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
5. DEBTORS
<TABLE>
<S> <C>
Other debtors............................................... 674,267
Prepayments and accrued income.............................. 17,341
-------
691,608
=======
</TABLE>
6. CREDITORS
Amounts falling due within one year:
<TABLE>
<S> <C>
Other creditors............................................. 263,880
Corporation tax............................................. 42,749
Other taxes and social security costs....................... 32,505
Proposed dividend........................................... 153,295
Accruals and deferred income................................ 287,574
-------
780,003
=======
</TABLE>
7. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<S> <C>
Pension provision........................................... 29,081
Less deferred tax........................................... (9,500)
-------
19,581
-------
(a) DEFERRED TAXATION
At 1 December 1996.......................................... (5,400)
Movement in provision....................................... (4,100)
-------
At 30 November 1997......................................... (9,500)
=======
</TABLE>
Full recognition has been made in respect of the company's deferred taxation
asset which consists entirely of timing differences arising from the tax
relief on the pension provision.
(b) PENSION PROVISION
Employees of the company are eligible for membership of the Findlay
Publications Pension and Death Benefit Scheme. The scheme is a defined
benefit pension scheme, the assets of which are held in a separate
trustee administered fund. The total pension costs to all participating
companies are assessed on the advice of qualified actuaries using the
attained age method. The latest actuarial assessment of the scheme was
at 1 March 1996.
The significant actuarial assumptions used in the assessment were that
future investment return would be 9% per annum and future salary and
wage increases would average 8% per annum. At the date of the latest
actuarial assessment the actuarial value of the assets in the scheme was
sufficient to cover 117% of the benefits that had accrued to members,
after allowing for expected future increases in earnings.
The surplus funding of the scheme has enabled participating companies,
in accordance with the advice from the actuary, to make reduced
contributions which results in the creation of the pension provision in
compliance with Statement of Standard Accounting Practice No. 24.
F-47
<PAGE> 125
EQUITY INFORMATION EXCHANGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
Following the sale of the company in December 1997, new pension
arrangements are to be put in place and the actuary has been requested
to calculate the value of members benefits to be transferred into a new
pension arrangement.
8. SHARE CAPITAL
<TABLE>
<CAPTION>
1997
(pound)
-------
<S> <C>
Authorised
Ordinary shares of L1 each.................................. 100,000
-------
Allotted, called up and fully paid
Ordinary shares of L1 each................................ 1,026
=======
</TABLE>
9. RELATED PARTY TRANSACTIONS
The following companies are deemed to be related parties by virtue of the
beneficial interest held in their share capital by the director and/or key
management of the company:
Findlay Publications Investments Limited
Findlay Publications Limited
Richard Copley-Smith Limited
Service Exhibitions Limited
Independent Exhibitions Limited*
-----------------------
* Independent Exhibitions Limited acts as agent for the company.
During the twelve month period the following amounts were paid to related
parties for services detailed:
<TABLE>
<CAPTION>
(pound)
-------
<S> <C>
Findlay Publications Limited -- Management charges........ 76,500
-- Circulation charges.... 21,370
Findlay Publications Investments Limited -- Consultancy
charges................................................ 233,187
Richard Copley-Smith Limited -- Consultancy charges....... 233,187
As at 30 November 1997, the following amounts were
outstanding with related parties:
Debtors -- Independent Exhibitions Limited................ 635,325
</TABLE>
10. SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
a) DIVIDENDS
In accordance with UK GAAP the profit and loss account for the twelve
months to 30 November 1997 has been charged with the dividend proposed
for the period. Under US GAAP dividends are charged to retained reserves
only when declared.
b) DEFERRED TAXATION
Deferred corporation tax has, in accordance with UK GAAP, been provided
under the liability method to the extent that it is probable that a
liability will crystallise in the foreseeable future. Under US GAAP the
liability method is required by FAS109, however full provision is
required for all
F-48
<PAGE> 126
EQUITY INFORMATION EXCHANGE LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE TWELVE MONTHS ENDED 30 NOVEMBER 1997
differences. In the financial statements for the twelve months to 30
November 1997 this does not give rise to a difference as full provision
has been made for all timing differences.
C) PENSION COSTS
Pension costs have been assessed in accordance with the advice of an
independent actuary and are based on the actuarial valuation of the
scheme as at 1 March 1996 and have been accounted for in accordance with
UK SSAP24. This surplus that has arisen in the scheme is being released
over the remaining service lives of employees.
Under US GAAP pension costs are accounted for in accordance with FAS87
which recommends the use of the projected unit credit method for
calculating the cost to an accounting period.
A full valuation and recalculation of the pension costs under US GAAP
has not been prepared. However, the difference in cost charged to the
profit and loss account for the twelve months to 30 November 1997 is not
considered to be material.
F-49
<PAGE> 127
======================================================
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PENTON OR
BY PITTWAY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES NOR DOES IT CONSTITUTE AN OFFER
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR THE STOCK DISTRIBUTION SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF PENTON SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Certain Information............. 3
Forward-Looking Statements................. 5
Introduction............................... 7
The Stock Distribution..................... 8
DM Publishing Combination Agreement........ 11
Risk Factors............................... 17
Capitalization............................. 21
Selected Historical Financial
Information.............................. 22
Unaudited Pro Forma Combined Financial
Information.............................. 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 28
Business................................... 35
Management................................. 52
Executive Compensation..................... 58
Certain Transactions....................... 67
Stock Ownership of Certain Beneficial
Owners and Executive Officers and
Directors................................ 68
Description of Capital Stock............... 71
Anti-Takeover Effects...................... 72
Limitations on Liability and
Indemnification of Officers and
Directors................................ 75
1999 Annual Stockholders Meeting........... 75
Legal Matters.............................. 75
Experts.................................... 76
Available Information...................... 76
Index to Financial Statements.............. F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
======================================================
======================================================
PENTON MEDIA, INC.
PENTON MEDIA, INC. LOGO
COMMON STOCK
DISTRIBUTED TO STOCKHOLDERS
OF PITTWAY CORPORATION
---------------------------
PROSPECTUS
---------------------------
, 1998
======================================================
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate (except for the Commission registration fee)
of the fees and expenses payable by the Registrant in connection with the
issuance and distribution in the Stock Distribution of Common Stock:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....... $21,226
NYSE Original Listing Fee................................. 150,000
Printing and engraving costs.............................. *
Legal fees and expenses................................... 235,000
Accountants fees and expenses............................. 95,000
Blue Sky fees and expenses................................ *
Insurance premium......................................... *
Miscellaneous............................................. *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
The 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 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 existing at the time of such repeal or modification.
INDEMNIFICATION AND INSURANCE
Section 145 of the DGCL contains provisions permitting (and, in some
situations, requiring) Delaware corporations such as Penton 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. The Certificate of Incorporation contains
provisions requiring indemnification by Penton of its directors, officers, and
employees to the fullest extent permitted by law. Among other things, these
provisions provide that Penton 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) (a
"Proceeding") by reason of the fact that such person is or was a director,
officer, or employee of Penton, or is or was serving at the request of Penton 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 to provide broader indemnification rights than such law permitted
Penton 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.
Penton anticipates that it will enter into agreements with its directors
providing contractually for indemnification consistent with the Certificate of
Incorporation
S-1
<PAGE> 129
and Bylaws. In addition, the Certificate of Incorporation authorizes Penton to
purchase insurance for its directors, officers, and employees insuring them
against certain risks as to which Penton may be unable lawfully to indemnify
them. Penton intends to obtain this insurance coverage for its directors,
officers and employees as well as insurance coverage to reimburse Penton for
potential costs of its corporate indemnification of directors, officers and
employees.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On December 12, 1997, Penton Media Limited, a United Kingdom subsidiary of
the Registrant, acquired the outstanding stock of Independent Exhibitions
Limited and two affiliates under common control with it, all United Kingdom
corporations, from their stockholders for UK L16,505,637, UK L1,500,000
convertible loan note and UK L2,200,000 of contingent convertible loan notes.
The Registrant agreed that any or all of the principal of each of such notes
could be exchanged for Penton common stock (at its average market price during
the 30 trading days immediately following notice of exercise of the exchange
right) if at the time of exchange such common stock were listed and admitted to
trading on the New York Stock Exchange or on any other principal securities
exchange in the United States or were quoted in the over-the-counter market as
reported by NASDAQ. In agreeing to such exchange rights, the Registrant relied
upon the exemption from registration provided by Regulation S under the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------
<C> <S>
2.1 Combination Agreement, dated May 21, 1998, by and among
Penton Media, Inc., D-M Acquisition Corp., Pittway
Corporation, Donohue Meehan Publishing Company, William C.
Donohue, and John J. Meehan.
3.1 Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
5.1* Opinion of Jones, Day, Reavis & Pogue regarding legality
8.1 Internal Revenue Service Revenue Ruling
10.1 Credit Facility, dated December 12, 1997, between Penton
Media, Ltd. and the Bank of America
10.2 Employment Agreement between the Registrant and Thomas L.
Kemp, dated July 25, 1996.
10.3 Employment Agreement between the Registrant and Daniel J.
Ramella, dated January 1, 1997.
10.4 Form of Employment Agreement between the Registrant and
William C. Donohue
10.5 Form of Employment Agreement between the Registrant and John
J. Meehan
10.6 Penton Media, Inc. 1998 Equity and Performance Incentive
Plan
10.7 Penton Media, Inc. 1998 Director Stock Option Plan
10.8* Penton Media, Inc. Retirement Savings Plan
10.9* Penton Media, Inc. Retirement Plan
10.10* Penton Media, Inc. Supplemental Executive Retirement Plan
</TABLE>
S-2
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of Penton Media, Inc.
23.1 Consent of Price Waterhouse LLP with respect to the
Consolidated Financial Statements of Penton Media, Inc.
23.2 Consent of Price Waterhouse LLP with respect to the
Financial Statements of Donohue Meehan Publishing Company
23.3 Consent of Horwath Clark Whitehill with respect to the
Financial Statements of Independent Exhibitions Limited,
Service Exhibitions Limited and Equity Information Exchange
Limited
23.4 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
24.1 Powers of Attorney (see page S-5)
99.1 Consent of William C. Donohue to be a Director of Penton
Media, Inc.
99.2 Consent of John J. Meehan to be a Director of Penton Media,
Inc.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
PENTON MEDIA, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGE TO DEDUCTIONS BALANCE
BEGINNING COSTS AND FROM AT END OF
OF PERIOD EXPENSES OTHER(A) RESERVE(B) PERIOD
---------- --------- -------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful accounts........ $2,069 $662 $344 $669 $2,406
1996
Allowance for doubtful accounts........ $1,997 $948 $876 $2,069
1995
Allowance for doubtful accounts........ $1,993 $870 $866 $1,997
</TABLE>
- ---------------
(A) Valuation allowance of company acquired during the year.
(B) Write-off of accounts considered uncollectible, net of recoveries.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the 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
Securities Act and will be governed by the final adjudication of such issue.
S-3
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cleveland,
Ohio, on the 15th day of June, 1998.
PENTON MEDIA, INC.
By /s/ THOMAS L. KEMP
---------------------------------------
Thomas L. Kemp, Chief Executive Officer
S-4
<PAGE> 132
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas L. Kemp, Daniel J. Ramella and Preston L.
Vice and each of them, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign and file
Registration Statement any and all amendments (including post-effective
amendments) to this Registration Statement, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or either of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
* * * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement and Power of Attorney have been signed on June 15,
1998 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ THOMAS L. KEMP Chief Executive Officer and Director
- -------------------------------------------- (Principal Executive Officer)
Thomas L. Kemp
/s/ PRESTON L. VICE Senior Vice President
- -------------------------------------------- (Principal Financial Officer)
Preston L. Vice
/s/ CHARLES T. GRIESEMER Vice President, Finance
- -------------------------------------------- (Controller or Principal Accounting Officer)
Charles T. Griesemer
/s/ ANTHONY DOWNS Director
- --------------------------------------------
Anthony Downs
/s/ WILLIAM J. FRIEND Director
- --------------------------------------------
William J. Friend
/s/ JOAN W. HARRIS Director
- --------------------------------------------
Joan W. Harris
/s/ KING HARRIS Director
- --------------------------------------------
King Harris
/s/ DANIEL J. RAMELLA Director
- --------------------------------------------
Daniel J. Ramella
/s/ EDWARD J. SCHWARTZ Director
- --------------------------------------------
Edward J. Schwartz
Director
- --------------------------------------------
Donald E. Schultz
/s/ RICHARD B. SWANK Director
- --------------------------------------------
Richard B. Swank
</TABLE>
S-5
<PAGE> 133
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- ------------------------------------------------------------
<C> <S>
2.1 Combination Agreement, dated May 21, 1998, by and among
Penton Media, Inc., DM Acquisition Corp., Pittway
Corporation, Donohue Meehan Publishing Company, William C.
Donohue, and John J. Meehan. The Registrant agrees to
furnish supplementally a copy of any omitted schedule to the
Commission upon request.
3.1 Restated Certificate of Incorporation
3.2 Amended and Restated Bylaws
5.1* Opinion of Jones, Day, Reavis & Pogue regarding legality
8.1 Internal Revenue Service Revenue Ruling
10.1 Credit Facility dated December 12, 1997, between Penton
Media Ltd. and Bank of America
10.2 Employment Agreement between the Registrant and Thomas L.
Kemp, dated July 25, 1996.
10.3 Employment Agreement between the Registrant and Daniel J.
Ramella, dated January 1, 1997.
10.4 Form of Employment Agreement between the Registrant and
William C. Donohue.
10.5 Form of Employment Agreement between the Registrant and John
J. Meehan.
10.6 Penton Media, Inc. 1998 Equity and Performance Incentive
Plan
10.7 Penton Media, Inc. 1998 Director Stock Option Plan
10.8* Penton Media, Inc. Retirement Savings Plan
10.9* Penton Media, Inc. Retirement Plan
10.10* Penton Media, Inc. Supplemental Executive Retirement Plan
21.1 Subsidiaries of Penton Media, Inc.
23.1 Consent of Price Waterhouse LLP with respect to the
Consolidated Financial Statements of Penton Media, Inc.
23.2 Consent of Price Waterhouse LLP with respect to the
Consolidated Financial Statements of Donohue Meehan
Publishing Company
23.3 Consent of Horwath Clark Whitehill with respect to the
Financial Statements of Independent Exhibitions Limited,
Service Exhibitions Limited and Equity Information Exchange
Limited
23.4 Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
24.1 Power of Attorney (See page S-5)
99.1 Consent of William C. Donohue to be a Director of Penton
Media, Inc.
99.2 Consent of John J. Meehan to be a Director of Penton Media,
Inc.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 2.1
COMBINATION AGREEMENT
by and among
PENTON MEDIA, INC.,
D-M ACQUISITION CORP.,
PITTWAY CORPORATION,
DONOHUE MEEHAN PUBLISHING COMPANY,
WILLIAM C. DONOHUE
and
JOHN J. MEEHAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1 DEFINITIONS..............................................................................................1
2 THE COMBINATION.........................................................................................11
2.1 The Merger.....................................................................................11
2.2 The Closing....................................................................................11
2.3 Actions at the Closing; Effective Time.........................................................12
2.4 Effect of Merger...............................................................................12
(a) General.............................................................................12
(b) Articles of Incorporation...........................................................12
(c) Bylaws..............................................................................12
(d) Directors and Officers..............................................................12
(e) Conversion of D-M Shares............................................................13
(f) Conversion of Capital Stock of Combination Subsidiary...............................14
(g) Contingent Cash Payment(s)..........................................................14
(h) Guarantee of Value..................................................................17
(i) Closing of Transfer Records.........................................................20
(j) Delivery of Merger Consideration to Public Official.................................20
(k) Lost, Stolen or Destroyed Certificates..............................................20
(l) Transferability Restriction.........................................................20
(m) Plan of Merger......................................................................20
3 REPRESENTATIONS AND WARRANTIES OF PENTON ...............................................................20
3.1 Penton and Combination Subsidiary Organization and Qualification...............................20
3.2 Penton and Combination Subsidiary Authority Relative to This Agreement.........................21
3.3 Penton Constituent Instruments/Capitalization..................................................22
3.4 Subsidiaries...................................................................................23
3.5 Financial Statements...........................................................................23
3.6 Absence of Undisclosed Liabilities.............................................................24
3.7 No Material Adverse Change.....................................................................24
3.8 Litigation.....................................................................................24
3.9 Brokerage......................................................................................24
3.10 Employees; Retiree Welfare Benefit Liabilities.................................................24
3.11 Compliance with Laws; Permits; Certain Operations..............................................24
3.12 Affiliate Transactions.........................................................................25
3.13 Tax Status of Spinoff; Tax Matters Related to the Merger.......................................25
4 REPRESENTATIONS AND WARRANTIES OF THE D-M SHAREHOLDERS..................................................25
4.1 D-M Organization and Qualification.............................................................26
4.2 Authority Relative to This Agreement...........................................................26
4.3 Investment.....................................................................................27
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C> <C>
4.4 D-M Constituent Instruments/Capitalization.....................................................27
4.5 Subsidiaries...................................................................................28
4.6 Title to Assets................................................................................28
4.7 Sufficiency of Assets..........................................................................28
4.8 Financial Statements...........................................................................28
4.9 Absence of Undisclosed Liabilities.............................................................29
4.10 No Material Adverse Change.....................................................................29
4.11 Litigation.....................................................................................29
4.12 Brokerage......................................................................................29
4.13 Employees; Retiree Welfare Benefits Liabilities................................................29
4.14 Compliance with Laws; Permits; Certain Operations..............................................29
4.15 Affiliate Transactions.........................................................................30
4.16 Tax Status of Merger...........................................................................30
5 REPRESENTATIONS AND WARRANTIES OF PITTWAY...............................................................30
5.1 Organization and Qualification.................................................................30
5.2 Authority Relative to This Agreement...........................................................30
5.3 Brokerage......................................................................................31
5.4 Affiliate Transactions.........................................................................31
6 CONDUCT OF BUSINESS PENDING THE MERGER..................................................................32
6.1 Conduct of Penton Business Pending the Merger..................................................32
6.2 Conduct of D-M Business Pending the Merger.....................................................33
7 ADDITIONAL AGREEMENTS...................................................................................35
7.1 Access and Information; Corporate Records; Confidentiality.....................................35
7.2 Registration Rights; Certain Filings...........................................................36
(a) Demand Registration.................................................................36
(b) Piggyback Registrations.............................................................37
(c) Registration Covenants..............................................................38
(d) Holdback Agreements.................................................................39
(e) Indemnification Relating to Registrations...........................................40
(f) Resale Restrictions.................................................................42
(g) Obligation of the D-M Shareholders to Supply Information............................43
(h) Obligation of Penton to Supply Information..........................................43
(i) Obligation to Deliver Certain Filings...............................................44
7.3 Other Necessary Action; Further Assurance......................................................44
7.4 Certain Tax Matters............................................................................45
7.5 No Negotiations, etc...........................................................................46
7.6 Expenses.......................................................................................47
7.7 Indemnification and Hold Harmless Agreements...................................................47
(a) Penton Indemnification Provisions for Benefit of the D-M
Shareholders........................................................................47
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C> <C>
(b) D-M Shareholders Indemnification Provisions for Benefit of
Penton and Combination Subsidiary...................................................47
(c) Pittway Indemnification Provisions for Benefit of Penton............................48
(d) Penton Indemnification Provisions for Benefit of Pittway............................49
(e) D-M Shareholders Indemnification Provisions for Benefit of
Pittway.............................................................................50
(f) Matters Involving Third Parties.....................................................50
(g) Determination of Adverse Consequences...............................................51
(h) Determination of Indemnification Remedies...........................................51
(i) Limitations.........................................................................51
(j) Basket for Certain Indemnification Claims...........................................52
7.8 Employee Matters...............................................................................52
(a) Employee Benefit Liabilities........................................................52
(b) Penton Pension Plans................................................................53
(c) Penton Employee Welfare Benefit Plans...............................................55
(d) Disputed Employee Benefit Claims....................................................56
(e) Workers' Compensation Claims........................................................56
(f) Penton 1998 Stock Awards Plan.......................................................56
(g) Penton 1998 Director Stock Option Plan..............................................56
(h) Penton SERP.........................................................................56
(i) Coverage of Surviving Corporation's Employees.......................................57
7.9 Update of Disclosure Letters...................................................................57
7.10 Agreement Regarding Distribution of Penton Common on Certain
Pittway Shares.................................................................................57
7.11 Agreement Regarding Transitional Services......................................................58
7.12 Agreement Regarding Post-Spinoff Tax Returns and Other Post-
Spinoff Tax Matters............................................................................58
7.13 D-M Shareholders Non-Compete, Non-Solicitation.................................................59
7.14 Penton Directors...............................................................................60
7.15 Post-Effective Time Cash Contributions/Return..................................................60
7.16 Post-Effective Time Receivables Collection.....................................................61
8 CONDITIONS..............................................................................................62
8.1 Conditions to Obligations of Each Party........................................................62
8.2 Additional Conditions to Obligations of D-M and the D-M
Shareholders...................................................................................64
8.3 Additional Conditions to Obligations of Penton and Combination
Subsidiary.....................................................................................67
8.4 Additional Conditions to Obligation of Pittway.................................................69
9 TERMINATION, AMENDMENT AND WAIVER.......................................................................71
9.1 Termination....................................................................................71
9.2 Effect of Termination..........................................................................71
9.3 Amendment......................................................................................72
</TABLE>
- iii -
<PAGE> 5
<TABLE>
<S> <C> <C>
9.4 Waiver.........................................................................................72
10 GENERAL PROVISIONS......................................................................................72
10.1 Survival of Representations and Warranties.....................................................72
10.2 Public Statements..............................................................................73
10.3 Designation of D-M Shareholders as Representative..............................................73
10.4 Notices........................................................................................73
10.5 Interpretation.................................................................................74
10.6 Severability...................................................................................75
10.7 Disputes.......................................................................................75
10.8 Jurisdiction and Service of Process............................................................76
10.9 Miscellaneous..................................................................................77
</TABLE>
- iv -
<PAGE> 6
EXHIBITS
Exhibit A - Articles of Incorporation of Combination Subsidiary
Exhibit B - By-Laws of Combination Subsidiary
Exhibit C - Post-Spinoff Amended and Restated Certificate of
Incorporation of Penton
Exhibit D - Post-Spinoff Bylaws of Penton
Exhibit E - Form of Employment Agreement between Donohue and Penton
Exhibit F - Form of Employment Agreement between Meehan and Penton
DISCLOSURE LETTERS
Penton Disclosure Letter Captions
Authority
Capitalization
Joint Ventures
Liabilities
Litigation
Compliance with Laws
Affiliate Transactions
Taxes
Possible Dispositions
D-M Shareholders Disclosure Letter Captions
Authority
Security Interests
Sufficiency of Assets
Liabilities
Litigation
Compliance with Laws
Affiliate Transactions
Pittway Disclosure Letter Captions
Authority
Affiliate Transactions
- v -
<PAGE> 7
COMBINATION AGREEMENT
COMBINATION AGREEMENT dated as of May 21, 1998 (this
"AGREEMENT"), by and among Penton Media, Inc., a Delaware corporation
("PENTON"), D-M Acquisition Corp., an Illinois corporation ("COMBINATION
SUBSIDIARY") that is a wholly-owned direct subsidiary of Penton, Pittway
Corporation, a Delaware corporation ("PITTWAY") of which Penton is a
wholly-owned direct subsidiary, Donohue Meehan Publishing Company, an Illinois
Corporation ("D-M"), and William C. Donohue ("DONOHUE") and John J. Meehan
("MEEHAN") (collectively, the "D-M SHAREHOLDERS"), the owners of all of the
outstanding capital stock of D-M. Penton, Combination Subsidiary, Pittway, D-M
and the D-M Shareholders are referred to collectively herein as the "PARTIES."
Penton and the D-M Shareholders desire to cause a business
combination of D-M with Penton through the merger of D-M with and into
Combination Subsidiary in which the D-M Shareholders receive stock of Penton,
cash and additional contingent consideration, on the terms set forth in this
Agreement. The combination is contingent upon the distribution of all of the
outstanding capital stock of Penton to the stockholders of Pittway (the
"SPINOFF") and also upon the other conditions set forth in this Agreement.
The Parties intend (a) that the Spinoff qualify as a tax-free
(to Pittway and the stockholders of Pittway) distribution under the provisions
of Section 355 of the Code (as defined herein) and (b) that the merger of D-M
with and into Combination Subsidiary constitute a "reorganization" within the
meaning of Section 368(a) of the Code.
Now, therefore, in consideration of the premises and the
mutual promises herein made, and in consideration of the representations,
warranties, and covenants herein contained, the Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
"ACCREDITED INVESTOR" has the meaning set forth in Regulation
D promulgated under the Securities Act.
"ADJUSTED D-M LIABILITIES" means the payables and accrued
liabilities of D-M that exist immediately prior to the Effective Time that are
then recorded (or required to be recorded in accordance with D-M's historic
practice as reflected in the D-M Financial Statements) on the books of D-M,
exclusive of any such payables and accrued liabilities related to Business
Information Products for which revenues would not be recognized until after the
Effective Time under D-M's historic practice as reflected in the D-M Financial
Statements.
<PAGE> 8
"ADVERSE CONSEQUENCES" means all charges, complaints, actions,
suits, proceedings, hearings, investigations, claims, demands, judgments,
orders, decrees, stipulations, injunctions, damages, dues, interest, penalties,
fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes,
liens, losses, reasonable expenses and fees (including reasonable attorneys'
fees), and court costs. In calculating any damage or loss claimed to have been
suffered by any D-M Shareholder for purposes of Section 7.7: (i) no account
shall be taken of the effect of the occurrence, act, omission or state of facts
underlying such claim on the value of the shares of Penton Common to which such
damage or loss relates except to the extent such effect is reflected in the
market price of such shares at the time of such claim, whether or not such
effect is foreseeable or determinable at the time of such claim; (ii) such
damage or loss shall include any decline in the market price of the shares of
Penton Common to which such damage or loss relates that is attributable to any
Penton indemnification with respect to such damage or loss; and (iii) any
payment (in cash or shares of Penton Common) to such D-M Shareholder pursuant to
Section 2.4(h) for or with respect to the shares of Penton Common to which such
damage or loss relates shall be taken into account.
"ADVERSE D-M CHANGE" means any change since December 31, 1997,
other than a change contemplated in this Agreement, which has an adverse effect
on the business (taking into account prospects), financial condition, assets or
results of operations of D-M.
"ADVERSE PENTON CHANGE" means any change since December 31,
1997, other than a change contemplated in this Agreement, which has an adverse
effect on the business (taking into account prospects), financial condition,
assets or results of operations of Penton and its Subsidiaries, considered as
whole.
"AFFILIATE" means, with respect to any Person, any Person
controlling, controlled by or under common control with such Person. In any
event, each D-M Shareholder shall be deemed to be an Affiliate of the other D-M
Shareholder and of D-M, and D-M shall be deemed to be an Affiliate of each D-M
Shareholder.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504 (or any analogous combined, consolidated or unitary
group defined under state, local or foreign income Tax law).
"ARTICLES OF MERGER" has the meaning set forth in Section 2.3.
"AVERAGE MARKET PRICE" during any period means (i) the
numerical average of the closing prices of Penton Common on the principal
securities exchange or trading system on which such security is then traded on
the days during such period on which Penton Common is traded thereon; or (ii) if
Penton Common is not traded on a securities exchange or trading system during
such period, the numerical average of the last quoted sale prices (or, if not so
quoted, the averages of the high bid and low asked prices) of Penton Common in
the over-the-counter market on the days during
-2-
<PAGE> 9
such period for which such prices are available; or (iii) if Penton Common is
not traded on a securities exchange or trading system or in the over-the-counter
market during such period, the market value of Penton Common at the midpoint of
such period, as determined by an investment banking firm of recognized standing
that is not an investment banking firm of Penton or any of its Affiliates
jointly retained by Penton and the D-M Shareholders (or, if they are unable to
agree on the choice of such a firm, a firm selected by lot from four such firms
that are willing to serve, two of which shall be designated by Penton and two of
which shall be designated by the D-M Shareholders).
"BUSINESS INFORMATION PRODUCT" means a magazine, special
issue, catalogue, directory, newsletter, card deck, electronic/internet product,
trade show, exposition, conference or ancillary product.
"CLOSING" has the meaning set forth in Section 2.2.
"CODE" means the Internal Revenue Code of 1986, as amended,
and regulations issued thereunder.
"COMBINATION SUBSIDIARY" has the meaning set forth in the
preface to this Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"CONFIDENTIALITY AGREEMENT" means the Confidentiality and
Non-Disclosure Agreement dated August 15, 1997 between Penton, Donohue and
Meehan.
"CONTINGENT CASH PAYMENT" has the meaning set forth in Section
2.4(g)(i).
"CONTROL" means direct ownership of stock possessing at least
eighty percent (80%) of the total combined voting power of all classes of stock
entitled to vote and at least eighty percent (80%) of the total number of shares
of each and all other classes of stock (for purposes of which ownership shall
not include voting stock if rights to vote such stock (or to restrict or
otherwise control the voting of such stock) are held by a third party (including
a voting trust) other than an agent).
"CONTROL GROUP LIABILITY" means any joint and several
Liability imposed by law on entities that are Affiliates of each other.
"CORPORATE RECORDS" means books, ledgers, files,
correspondence, lists, Tax Returns, declarations of estimated Tax, contracts,
commitments and records (whether stored in written form, on computer disks, on
microfiche or other medium).
"COVERED PENTON EMPLOYEES/DEPENDENTS" means individuals who
are, immediately prior to the Effective Time, employees or former employees of
Penton and its then or former Subsidiaries (other than former Subsidiaries
Saddlebrook Resorts,
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Inc., Saddlebrook International Tennis, Inc., C&A Investments, Inc. and Pittway
Real Estate, Inc., each a Florida corporation) and their respective
predecessors, and their spouses and eligible dependents.
"CURTIN & PEASE" means Curtin & Pease/Peneco, Inc., a Florida
corporation.
"DEFINED BENEFIT PLAN" has the meaning set forth in Section
3(35) of ERISA.
"DEFINED CONTRIBUTION PLAN" has the meaning set forth in
Section 3(34) of ERISA.
"DELAWARE CORPORATION LAW" means the General Corporation Law
of the State of Delaware, as amended from time to time.
"DEMAND REGISTRATION" has the meaning set forth in Section
7.2(a).
"DISTRIBUTED D-M ACCOUNTS RECEIVABLE" has the meaning set
forth in Section 6.2
"D-M" has the meaning set forth in the preface to this
Agreement.
"D-M COMMON STOCK" means Common Stock - Series A, without par
value, of D-M.
"D-M FINANCIAL STATEMENTS" has the meaning set forth in
Section 4.8.
"D-M INSIDERS" has the meaning set forth in Section 4.15.
"D-M OWNERSHIP FRACTION" means, with respect to each D-M
Shareholder, the fraction of which the numerator is the number of shares of D-M
Common Stock outstanding immediately prior to the Effective Time owned by such
D-M Shareholder and the denominator is the total number of shares of D-M Common
Stock outstanding immediately prior to the Effective Time.
"D-M SHAREHOLDERS" has the meaning set forth in the preface to
this Agreement.
"D-M SHAREHOLDERS DISCLOSURE LETTER" has the meaning set forth
in Section 4.2.
"DONOHUE" has the meaning set forth in the preface to this
Agreement.
"EFFECTIVE TIME" has the meaning set forth in Section 2.3.
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<PAGE> 11
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in
Section 3(2) of ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in
Section 3(1) of ERISA.
"EMPLOYMENT AGREEMENTS" has the meaning set forth in Section
8.1(o).
"EQUITY INFORMATION" means Equity Information Exchange
Limited, a U.K. corporation.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXISTING PENTON SUBSIDIARIES" means Combination Subsidiary,
Curtin & Pease, Equity Information, Index, Penton Media and Service Exhibitions.
"FIRST REFERENCE PERIOD" means the period of thirty days
following the Penton 1999 Earnings Release Date.
"GOVERNMENTAL ACTIONS" means all authorizations, consents,
approvals, waivers, exceptions, variances, franchises, permissions, permits and
licenses of, and filings and declarations with, by or in respect of, any
Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any United States (federal,
state or local) or non-United States governmental Person, authority or agency,
court or regulatory commission or stock exchange or other self-regulatory body,
whether governmental or private.
"GUARANTEED AVERAGE MARKET PRICE" means $29.0 million divided
by the number of Merger Shares.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"ILLINOIS CORPORATION LAW" means the Business Corporation Act
of 1983 of the State of Illinois, as amended from time to time.
"INDEX" means Independent Exhibitions Limited, a U.K.
corporation.
"INTELLECTUAL PROPERTY" means all (a) patents, patent
applications, patent disclosures, and improvements thereto, (b) trademarks,
service marks, trade dress, logos, trade names, business names and corporate
names and registrations and
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<PAGE> 12
applications for registration thereof, (c) copyrights and registrations and
applications for registration thereof, (d) mask works and registrations and
applications for registration thereof, (e) computer software (and any source
code thereto), data and documentation, (f) trade secrets and confidential
business information (including ideas, formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, techniques, research and development information, software products in
development, drawings, specifications, designs, plans, manuals, proposals,
technical data, copyrightable works, financial, marketing, and business data,
pricing and cost information, business and marketing plans, and customer and
supplier lists and information), (g) other proprietary rights, (h) rights to
register or apply for registration of any of the foregoing, (i) copies and
tangible embodiments of any of the foregoing (in whatever form or medium) and
(j) other rights with respect to any of the foregoing.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means actual knowledge.
"KNOWLEDGE OF PENTON" means Knowledge of any of Thomas L.
Kemp, Daniel J. Ramella and Preston L. Vice, without independent investigation.
"KNOWLEDGE OF PITTWAY" means Knowledge of any of King Harris,
Paul R. Gauvreau and Edward J. Schwartz, without independent investigation.
"KNOWLEDGE OF THE D-M SHAREHOLDERS" means Knowledge of either
of the D-M Shareholders, after due inquiry of Joyce K. Drndak, D-M's current
Office Manager, and Ted Joseph, D-M's current accountant, but without any other
independent investigation.
"LETTER OF INTENT" means the Letter of Intent dated November
21, 1997 by and among Penton and the D-M Shareholders.
"LIABILITY" means any liability of any nature (whether known
or unknown, accrued or unaccrued, absolute or contingent, liquidated or
unliquidated, asserted or unasserted, choate or inchoate, due or to become due,
or otherwise), including any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means, with respect to any Person, a
material adverse effect on the financial condition, assets, business, or results
of operations of such Person. When used with respect to Penton, Material Adverse
Effect means a Material Adverse Effect on Penton and its Subsidiaries considered
as a whole; and when used with respect to Pittway, Material Adverse Effect means
a Material Adverse Effect on Pittway and the Post-Spinoff Pittway Subsidiaries
considered as a whole.
"MEEHAN" has the meaning set forth in the preface to this
Agreement.
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"MERGER" has the meaning set forth in Section 2.1.
"MERGER SHARES" means the shares of Penton Common issued to
the D-M Shareholders pursuant to Section 2.4(e)(ii)(A).
"1989 MERGER AGREEMENT" has the meaning set forth in Section
7.10.
"OLD PITTWAY" has the meaning set forth in Section 7.10.
"ORDINARY COURSE OF BUSINESS" with respect to any Person(s)
means the ordinary course of business of such Person(s) consistent with past
custom and practice of such Person(s) (including with respect to quantity and
frequency).
"OUTSTANDING EFFECTIVE TIME SHARES" means the number of shares
of Penton Common to be outstanding immediately after the Effective Time,
including the Merger Shares. It is expressly understood, however, that neither
shares contingently issuable under Section 2.4(h), shares issuable under
employee benefit plans as contemplated in Section 7.8, shares issuable under
options, warrants or other agreements, arrangements or commitments set forth
under the caption "Capitalization" in the Penton Disclosure Letter nor shares
issuable in connection with acquisitions referred to in the final paragraph of
Section 6.1 shall be counted as shares of Penton Common that are outstanding for
purposes of determining the Outstanding Effective Time Shares.
"PARTIES" has the meaning set forth in the preface to this
Agreement.
"PENTON " has the meaning set forth in the preface to this
Agreement.
"PENTON COMMON" means Common Stock, par value $.01 per share,
of Penton.
"PENTON DISCLOSURE LETTER" has the meaning set forth in
Section 3.2.
"PENTON FINANCIAL STATEMENTS" has the meaning set forth in
Section 3.5.
"PENTON 401(K) PLAN" has the meaning set forth in Section
7.8(b).
"PENTON INSIDERS" has the meaning set forth in Section 3.12.
"PENTON MEDIA" means Penton Media Limited, a U.K. corporation.
"PENTON 1998 DIRECTOR STOCK OPTION PLAN" means a stock option
plan under which non-employee directors of Penton may be awarded options to
purchase Penton Common.
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<PAGE> 14
"PENTON 1998 STOCK AWARDS PLAN" means an equity awards plan
(and programs thereunder) similar to the Pittway Corporation 1990 Stock Awards
Plan, as amended (and Pittway's programs thereunder), except that such plan may
include a special performance-related compensation program for Penton's top
executive officers.
"PENTON 1999 EARNINGS RELEASE DATE" means the date on which
Penton publicly releases its financial results for calendar year 1999.
"PENTON PENSION PLAN" has the meaning set forth in Section
7.8(b).
"PENTON RETIREE LIFE INSURANCE" means the Penton Retiree Life
Insurance Benefit portion of the Basic Group Life, Optional Life and AD&D Plan
for Employees of Pittway Corporation.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a Governmental Authority.
"PIGGYBACK REGISTRATION" has the meaning set forth in Section
7.2(b).
"PITTWAY" has the meaning set forth in the preface to this
Agreement.
"PITTWAY BLUE CHIP PLAN" means the Pittway Corporation Blue
Chip Profit Sharing and Savings Plan, as amended.
"PITTWAY DISCLOSURE LETTER" has the meaning set forth in
Section 5.2.
"PITTWAY 501(C)(9) TRUST" means the Pittway Corporation
Welfare Benefits Trust.
"PITTWAY INSIDERS" has the meaning set forth in Section 5.4.
"PITTWAY RETURNS" has the meaning set forth in Section 7.12.
"PITTWAY SALARIED PLAN" means the Pittway Corporation
Retirement Plan for Salaried Employees, as amended.
"POST-SPINOFF PITTWAY SUBSIDIARIES" means the Subsidiaries of
Pittway immediately after the consummation of the Spinoff.
"REGISTRATION EXPENSES" means all expenses incident to
Penton's performance of or compliance with Sections 7.2(a), (b) and (c), as
applicable, including without limitation all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for
Penton and all independent certified public
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<PAGE> 15
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by Penton. Registration Expenses shall not include fees and
disbursements of counsel for the holders of Registrable Shares or fees and
disbursements of any other Persons retained by the holders of Registrable
Shares.
"REGISTRABLE SHARES" means (i) the Merger Shares and (ii) any
Penton Common issued or issuable with respect to the shares described in (i)
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Shares, such securities will
cease to be Registrable Shares when they have been distributed to the public
pursuant to an offering registered under the Securities Act or transferred in a
transaction exempt from registration under the Securities Act; provided that in
the event either D-M Shareholder transfers as a block in a transaction exempt
from registration under the Securities Act all of the Merger Shares issued to
him, such Merger Shares shall not thereupon cease to be Registrable Shares, but
shall thereafter continue to be subject to the foregoing cessation provisions.
"RULING" means the private letter ruling dated May 8, 1998
received by Pittway from the IRS to the effect, among others, that the Spinoff
will constitute a tax-free (to Pittway and the stockholders of Pittway)
distribution under Section 355 of the Code.
"SECOND REFERENCE PERIOD" means the period of thirty days
ending on the second anniversary of the Effective Time.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien, any claim of any third party, or
any voting rights of any third party.
"SERVICE EXHIBITIONS" means Service Exhibitions Limited, a
U.K. corporation.
"SPINOFF" has the meaning set forth in the preface to this
Agreement.
"SUBSIDIARY" means, with respect to any particular parent
business entity, any business entity of which such parent business entity and/or
one or more business entities which are themselves Subsidiaries of such parent
business entity, (i) in the case of a corporation, have the power to vote or
direct the voting of sufficient securities to elect a majority of the directors
of such corporation and (ii) in the case of all other Persons, own an interest
in such Person which permits the owner thereof to control the management of such
Person.
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<PAGE> 16
"SURVIVING CORPORATION" has the meaning set forth in Section
2.1.
"SURVIVING CORPORATION'S PRE-TAX PROFITS" for any calendar
year means the sum of (i) Surviving Corporation's net income for such calendar
year PLUS (ii) Surviving Corporation's income Taxes deducted in determining such
net income (in the case of calendar year 1998, including D-M's net income
(excluding interest income) for the portion of such calendar year prior to the
Effective Time and taking into account D-M's income Taxes deducted in
determining such net income), determined in accordance with generally accepted
accounting principles applied on the same basis as in the preparation of the D-M
Financial Statements, subject to the following adjustments and understandings:
(a) depreciation expense will be determined as if there were no writeup of the
value of the Surviving Corporation's assets as a result of the Merger, and the
goodwill and other intangibles resulting from the Merger will not be amortized;
(b) any funds provided to the Surviving Corporation by Penton, whether as
capital or as a loan or advance, will be deemed provided without charge except
in the event that the amount of such funds outstanding at any time (net of
repayments thereof) exceeds the amount of funds withdrawn from the Surviving
Corporation by Penton, other than as payment for products or services provided
or as repayment of funds provided, then outstanding (net of repayments thereof)
- -- in which event such excess will be deemed lent to the Surviving Corporation
at an interest rate per annum equal to Penton's blended borrowing rate (or such
lower borrowing rate, if any, as is available to the Surviving Corporation on a
stand-alone basis from Persons other than the D-M Shareholders or their
Affiliates for a borrowing in the same amount) from time to time; (c) to the
extent that services of a type D-M currently obtains from an outside supplier
(e.g., services of a professional, an insurance broker or a printer) are
obtained from Penton, or from another outside supplier, at the direction of
Penton or of the Surviving Corporation's Board of Directors, such services will
be deemed provided at a cost equal to the lesser of the amount actually charged
to D-M for such services or the amount that would have been charged to D-M for
such services by D-M's current supplier; (d) to the extent that general and
administrative services of Penton's internal staff (e.g., accounting and
employee benefits) are provided at the direction of Penton or of the Surviving
Corporation's Board of Directors, such services will be deemed provided at a
cost equal to the lesser of Penton's allocated cost to provide them or D-M's
cost of providing such services under its current operation; provided that so
long as Joyce K. Drndak, D-M's current Office Manager, continues to be employed
by the Surviving Corporation, accounting services of Penton's internal staff
will be deemed provided at no cost; (e) any other business transactions between
the Surviving Corporation and Penton or any of its other Subsidiaries or
Affiliates will be accounted for on an arm's-length basis; (f) the salary of
Donohue and Meehan paid or accrued as Penton executives will be charged to the
Surviving Corporation; (g) any amounts paid or accrued under Penton employee
benefit plans and programs with respect to Donohue, Meehan and employees of the
Surviving Corporation (including, except in the cases of Donohue and Meehan, any
such amounts related to equity-based compensation) will be charged to the
Surviving Corporation, provided that such charges will not exceed, on a per
employee per annum basis, the charges per
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<PAGE> 17
employee per annum paid or accrued under D-M benefit plans and programs during
1997 and reflected in the D-M Financial Statements; and (h) no part of Penton's
general corporate overhead (e.g., the compensation of Penton executives other
than Donohue and Meehan, including without limitation the compensation of such
executives for serving on Surviving Corporation's board of directors or as its
officers), as opposed to Penton's costs specifically related to services
performed directly for the Surviving Corporation, will be charged to the
Surviving Corporation.
"TAX" or "TAXES" means (i) any income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax, assessment or governmental charge of any kind
whatsoever imposed by any Governmental Authority, including any interest,
penalty, or addition thereto, whether disputed or not, (ii) liability for the
payment of any amounts of the type described in (i) above arising as a result of
being (or having been) a member of any Affiliated Group or being (or having
been) included or required to be included in any Tax Return related thereto; and
(iii) liability for the payment of any amounts of the type described in (i)
above as a result of any express or implied obligation to indemnify or otherwise
assume or succeed to the liability of any other Person.
"TAX RETURN" means any return, declaration, report, claim for
refund, information return or other document (including any related or
supporting schedule, statement or information) filed or required to be filed in
connection with the determination, assessment or collection of Taxes or the
administration of any laws, regulations or administrative requirements relating
to any Taxes.
"UNCLAIMED PITTWAY SHARES" has the meaning set forth in
Section 7.10.
"UNDISCLOSED D-M MATTER" means any fact or circumstance
existing as of the date of this Agreement regarding the business, assets,
properties, condition (financial or otherwise), results of operations or
prospects of D-M which has not been disclosed in this Agreement, the attachments
and exhibits hereto, the D-M Shareholders Disclosure Letter (without giving
effect to any updating disclosures made by the D-M Shareholders pursuant to
Section 7.9) or the other written information heretofore furnished to Penton and
Pittway in connection with the transactions contemplated hereby.
"UNDISCLOSED PENTON MATTER" means any fact or circumstance
existing as of the date of this Agreement regarding the business, assets,
properties, condition (financial or otherwise), results of operations or
prospects of Penton and its Subsidiaries which has not been disclosed in this
Agreement, the attachments and exhibits hereto, the Penton Disclosure Letter or
the Pittway Disclosure Letter (in the
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<PAGE> 18
case of each such disclosure letter, without giving effect to any updating
disclosures made by Penton or Pittway pursuant to Section 7.9) or the other
written information heretofore furnished to the D-M Shareholders in connection
with the transactions contemplated hereby.
"UNPAID ADJUSTED D-M LIABILITIES" means, at any time, the then
unpaid balance of the Adjusted D-M Liabilities.
ARTICLE 2
THE COMBINATION
2.1 THE MERGER. On and subject to the terms and conditions of
this Agreement and in accordance with the Illinois Corporation Law, D-M shall
merge with and into the Combination Subsidiary (the "MERGER") at the Effective
Time. Following the Merger, the separate corporate existence of D-M shall cease
and the Combination Subsidiary shall be the surviving corporation (the
"SURVIVING CORPORATION") and shall succeed to and assume all of the rights and
obligations of D-M in accordance with the Illinois Corporation Law.
2.2 THE CLOSING. The closing of the Merger (the "CLOSING")
shall take place at the offices of Kirkland & Ellis, 200 East Randolph Drive,
Chicago, Illinois 60601, at 9:00 a.m. local time on the second business day
following the satisfaction or waiver of all conditions to the obligations of the
Parties to consummate the transactions contemplated hereby (other than
conditions with respect to actions the respective Parties are to take at the
Closing itself), or such other date as the Parties may mutually determine (the
"CLOSING DATE").
2.3 ACTIONS AT THE CLOSING; EFFECTIVE TIME. Subject to the
satisfaction or waiver of the conditions set forth in Article 8, at the Closing
D-M and the Combination Subsidiary shall cause the filing with the Secretary of
State of Illinois pursuant to Section 1.10 of the Illinois Corporation Law of
executed articles of merger with regard to the Merger meeting the requirements
of Section 11.25 of the Illinois Corporation Law (the "ARTICLES OF MERGER"). The
Merger shall become effective upon the issuance by the Illinois Secretary of
State of a certificate of merger with respect to the Merger (the "EFFECTIVE
TIME"). The Surviving Corporation may, at any time after the Effective Time,
take any action (including executing and delivering any document) in the name
and on behalf of either D-M or the Combination Subsidiary in order to carry out
and effectuate the transactions contemplated by this Agreement.
2.4 EFFECT OF MERGER.
(a) GENERAL. The Merger shall have the effect set
forth in Section 11.50 of the Illinois Corporation Law.
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(b) ARTICLES OF INCORPORATION. At the Effective
Time, the Articles of Incorporation of Combination Subsidiary in effect
immediately prior to the Effective Time (attached as EXHIBIT A hereto)
shall become the Articles of Incorporation of the Surviving
Corporation, without any modification or amendment, except that the
name of the Surviving Corporation set forth therein shall be changed to
Donohue Meehan Publishing Company.
(c) BYLAWS. At the Effective Time, the Bylaws of
Combination Subsidiary in effect immediately prior to the Effective
Time (attached as EXHIBIT B hereto) shall become the Bylaws of the
Surviving Corporation, without any modification or amendment, except
that the name of the Surviving Corporation set forth therein shall be
changed to Donohue Meehan Publishing Company.
(d) DIRECTORS AND OFFICERS. At the Effective Time,
the directors of the Surviving Corporation shall consist of the
following five members: Donohue, Meehan and three other members who
shall have been designated by Penton (one of which members designated
by Penton shall serve as chairman of the board of directors); and the
officers of the Surviving Corporation shall be Donohue as President,
Meehan as Executive Vice President and Preston Vice as Secretary;
provided that in the event that prior to the Effective Time Donohue or
Meehan becomes unable or unwilling to so serve, he shall be replaced by
another individual designated by the D-M Shareholders and reasonably
agreeable to Penton and in the event that prior to the Effective Time
Preston Vice becomes unable or unwilling to serve, he shall be replaced
by another individual designated by Penton and reasonably agreeable to
the D-M Shareholders.
(e) CONVERSION OF D-M SHARES. At and as of the
Effective Time:
(i) TREASURY SHARES. Shares of D-M Common
Stock held in the treasury of D-M immediately prior to the
Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect
thereto.
(ii) OUTSTANDING SHARES. The shares of D-M
Common Stock outstanding immediately prior to the Effective
Time held by each D-M Shareholder shall be converted
automatically and without any action on the part of such D-M
Shareholder into the following rights, subject to the
subsequent provisions of this Section 2.4, and shall have no
other rights:
(A) the right to receive from
Penton shares of Penton Common equal in number to
six and seven hundred sixty-seven thousandths
percent (6.767%) of the Outstanding Effective Time
Shares multiplied by such D-M Shareholder's D-M
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Ownership Fraction, rounded to the next lower
whole number of shares;
(B) the right to receive from
Penton cash equal in amount to $7.0 million
multiplied by such D-M Shareholder's D-M Ownership
Fraction;
(C) the contingent right to
receive from Penton additional cash equal in amount
to any Contingent Cash Payment that becomes payable
pursuant to Section 2.4(g) multiplied by such D-M
Shareholder's D-M Ownership Fraction; and
(D) the contingent right to
receive from Penton additional cash and/or Penton
Common set forth in Section 2.4(h).
After the Effective Time, upon each D-M Shareholder's surrender to Penton of the
certificates representing his shares of D-M Common Stock outstanding immediately
prior to the Effective Time, duly endorsed for surrender, such D-M Shareholder
shall be issued the shares, and paid the cash (without interest), provided for
in (ii)(A) and (B) above and shall become entitled to the contingent rights
provided for in (ii)(C) and (D) above.
No D-M Common Stock shall be deemed to be outstanding, or to have any rights
other than those set forth above in this Section 2.4(e), after the Effective
Time. Without limiting the generality of the foregoing, each of the D-M
Shareholders waives his right pursuant to Section 11.65 of the Illinois
Corporation Law to dissent from the Merger and obtain payment for the shares of
D-M Common Stock outstanding immediately prior to the Effective Time held by
him.
(f) CONVERSION OF CAPITAL STOCK OF COMBINATION
SUBSIDIARY. At the Effective Time, each share of Common Stock, par
value $0.01 per share, of the Combination Subsidiary shall be converted
automatically and without any action on the part of the holder thereof
into one share of Common Stock, par value $0.01 per share, of the
Surviving Corporation.
(g) CONTINGENT CASH PAYMENT(S).
(i) AMOUNT. In the event the Surviving
Corporation's Pre-Tax Profits for 1998 exceed $4.0 million,
the D-M Shareholders, in the aggregate, shall be entitled to
receive from Penton in cash an amount equal to four (4) times
the excess of such Pre-Tax Profits over $4.0 million (a
"CONTINGENT CASH PAYMENT"). In the event the Surviving
Corporation's Pre-Tax Profits for 1999 exceed $4.0 million,
the D-M Shareholders, in the aggregate, shall be entitled to
receive from Penton in cash an amount
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equal to (A) five (5) times the excess of such Pre-Tax Profits
over $4.0 million, LESS (B) the amount of any payment to which
the D-M Shareholders, in the aggregate, became entitled
pursuant to the preceding sentence (also a "CONTINGENT CASH
PAYMENT"). Notwithstanding the foregoing, (A) neither the
amount of any Contingent Cash Payment nor the total amount of
Contingent Cash Payments shall exceed $4.0 million; and (B) in
the event of the termination, effective as of a date prior to
December 31, 1999, of either D-M Shareholder's employment as
described in Paragraph 4(a)(iv) or (v) of his Employment
Agreement, or in the event of Penton's liquidation (i.e., the
sale of all or substantially all of Penton's assets and the
distribution of Penton's net assets to its stockholders)
effective as of a date prior to December 31, 1999, (I) if such
effective date precedes December 31, 1998, the Contingent Cash
Payment on account of the Surviving Corporation's Pre-Tax
Profits for each of 1998 and 1999 shall be $2.0 million and
(II) if such effective date is on or subsequent to December
31, 1998, the Contingent Cash Payment on account of the
Surviving Corporation's Pre-Tax Profits for 1999 shall be the
excess of $4.0 million over the amount of the Contingent Cash
Payment, if any, on account of the Surviving Corporation's
Pre-Tax Profits for 1998.
(ii) PAYMENT. The Contingent Cash Payment,
if any, on account of the Surviving Corporation's Pre-Tax
Profits for a particular calendar year shall be paid promptly
after (and in any event within 15 days after) the final
determination of such Pre-Tax Profits for such calendar year;
provided that any Contingent Cash Payment the amount of which
is determined pursuant to clause (B) of the final sentence of
(i) above on account of the liquidation of Penton shall be
paid at the time of such liquidation.
(iii) DETERMINATION OF SURVIVING
CORPORATION'S PRE-TAX PROFITS. Within ninety (90) days after
the end of each of calendar year 1998 and calendar year 1999,
Penton will deliver to the D-M Shareholders Penton's
calculation of Surviving Corporation's Pre-Tax Profits for
such calendar year (the "DRAFT CALCULATION"). Penton will (i)
make available to the D-M Shareholders and their agents,
attorneys and accountants upon reasonable advance notice all
records reasonably relating to the Draft Calculation and (ii)
allow the D-M Shareholders and their agents, attorneys and
accountants upon reasonable advance notice to interview any
Penton personnel significantly involved in the preparation of
the Draft Calculation regarding the Draft Calculation. If the
D-M Shareholders disagree with the computation of Surviving
Corporation's Pre-Tax Earnings for the calendar year reflected
on the Draft Calculation, the D-M Shareholders may, within 30
days after receipt of the Draft Calculation, deliver a notice
(an "OBJECTION NOTICE") to Penton setting forth
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<PAGE> 22
the D-M Shareholders' objections and, to the extent reasonably
possible, Surviving Corporation's Pre-Tax Profits for such
calendar year as determined by the D-M Shareholders. Penton
and the D-M Shareholders will use reasonable efforts to
resolve any disagreements as to the computation of Surviving
Corporation's Pre-Tax Profits for such calendar year, but if
they do not obtain a final resolution within 30 days after
Penton has received the Objection Notice, Penton and the D-M
Shareholders will jointly retain an independent accounting
firm of recognized national standing that is not a public
accountant of Penton or any of its Affiliates (an "INDEPENDENT
FIRM") to resolve any remaining disagreements. If Penton and
the D-M Shareholders are unable to agree on the choice of an
Independent Firm, the choice will be selected by lot from
those "big-six" accounting firms that are Independent Firms
or, if no "big-six" accounting firm is an Independent Firm or
is willing to serve, selected by lot from four Independent
Firms that are willing to serve, two of which shall be
designated by Penton and two of which shall be designated by
the D-M Shareholders. Penton and the D-M Shareholders will
direct the chosen Independent Firm to render a determination
within 20 days of its retention and Penton and the D-M
Shareholders and their respective agents will cooperate with
the chosen Independent Firm during its engagement. The chosen
Independent Firm will consider only those issues related to
the Draft Calculation set forth in the Objection Notice which
Penton and the D-M Shareholders have been unable to resolve.
The determination of the chosen Independent Firm will be based
on and consistent with the definition of Surviving
Corporation's Pre-Tax Profits included herein. The
determination of the chosen Independent Firm will be
conclusive and binding upon Penton and the D-M Shareholders.
In any proceeding described above in this paragraph (iii), all
of the reasonable costs and expenses of Penton (including
reasonable attorneys' fees), all of the reasonable costs and
expenses of the D-M Shareholders (including reasonable
attorneys' fees) and all costs and expenses of the chosen
Independent Firm shall be borne by Penton in the event the
Draft Calculation is lower than the amount of Surviving
Corporation's Pre-Tax Profits for such calendar year as
determined by the chosen Independent Firm; otherwise the D-M
Shareholders shall bear all such costs and expenses. It is
expressly understood and agreed that monthly operating
statements of the Surviving Corporation will not under any
circumstances be binding on either Penton or the D-M
Shareholders for purposes of calculating Surviving
Corporation's Pre-Tax Profits.
(iv) CONTROL OF SURVIVING CORPORATION.
(A) Until the close of its business on
December 31, 1999, the Surviving Corporation will be kept in
existence as a wholly-
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owned subsidiary of Penton, and none of its assets (other than
cash) will be transferred to Penton or any of Penton's
Affiliates.
(B) Unless an event described in clause (B)
of the final sentence of Section 2.4(g) (i) above has
occurred, the taking of any of the following actions during
1998 or 1999 shall require the prior written consent of each
D-M Shareholder who at the time continues to be employed by
the Surviving Corporation:
(I) Surviving Corporation's
incurrence of debt for purposes other than for
working capital requirements in excess of working
capital of D-M at the Effective Time and thereafter
generated by the Surviving Corporation;
(II) Surviving Corporation's
hiring of any employee (other than to fill a
vacancy at the prevailing compensation level) or
consultant, or termination (other than for cause)
of the employment of any of the persons who are
employees of D-M immediately prior to the Effective
Time;
(III) Surviving Corporation's
change in the salary or bonus of any of its
employees;
(IV) Surviving Corporation's
institution or termination of, or increase or
decrease in benefits under, any employee benefit
plan or program (it being understood and agreed
that Penton's institution or termination of, or
increase or decrease in benefits under, any
employee benefit plan or program provided generally
to employees of Penton and Surviving Corporation
shall not constitute Surviving Corporation's
institution or termination of, or increase or
decrease in benefits under, any employee benefit
plan or program);
(V) Surviving Corporation's
development or acquisition of a new Business
Information Product or discontinuation or
disposition of an existing Business Information
Product;
(VI) Surviving Corporation's
making of any change to a Business Information
Product that is material to such Business
Information Product;
(VII) Surviving Corporation's
incurrence of expenses outside the ordinary course
of D-M's business or inconsistent with D-M's past
practice;
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(VIII) Surviving Corporation's
discontinuation or reduction of its East Coast or
Midwest promotion accounts, each $35,000 per year,
or, provided such practices do not violate the
Foreign Corrupt Practices Act of 1977 or any other
applicable law and do not generate unreported
income to either D-M Shareholder, Surviving
Corporation's alteration of D-M's past practices
with respect to such promotion accounts; or
(IX) Surviving Corporation's
engaging in any other material transaction;
provided that no such written consent (other than with respect
to a termination of employment (other than for cause) or a
termination of, or decreases in benefits under, any employee
benefit plan or program) shall be required if such action
would have no adverse effect on Surviving Corporation's
Pre-Tax Profits for any remaining calendar year (or portion
thereof) during 1998 and 1999 or if the adverse effect of such
action on Surviving Corporation's Pre-Tax Profits for each
then remaining calendar year (or portion thereof) during 1998
and 1999 can be reliably measured and Penton agrees to exclude
such effect from the calculation thereof.
(C) Subject to (A) above, to any contrary
provision of either Employment Agreement and to obtaining any
consent required by (B) above, Penton, as the sole stockholder
of the Surviving Corporation, shall have the power and right
to control all aspects of the business and operations of the
Surviving Corporation.
(h) GUARANTEE OF VALUE.
(i) In the event that either the Average
Market Price during the First Reference Period or the Average Market
Price during the Second Reference Period is less than the Guaranteed
Average Market Price, Penton will, on the 15th day after the conclusion
of the Second Reference Period (or, if such day is not a business day,
on the first business day thereafter), pay to each D-M Shareholder cash
in an amount equal to (x) the excess of the Guaranteed Average Market
Price over the lower of such Average Market Prices (such excess being
referred to as the "SPREAD"), multiplied by (y) the number of Merger
Shares issued to such D-M Shareholder (whether or not held by him at
the time of payment); provided that the payment made with respect to
any Merger Share no longer held by such D-M Shareholder at the end of
the preceding day that has been sold by such D-M Shareholder (or by any
transferee that acquired such Merger Share from such D-M Shareholder in
a transaction not involving a sale) for a gross price, before expenses
of sale (including without limitation underwriters discounts or
commissions, broker commissions and fees and disbursements of counsel),
equal to or exceeding the
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<PAGE> 25
Guaranteed Average Market Price less the Spread shall be limited to the
excess of the Guaranteed Average Market Price over such gross price
(and thus, for example, no payment shall be made with respect to any
such Merger Share so sold for a gross price equal to or exceeding the
Guaranteed Average Market Price); and further provided that if and to
the extent the total amount payable to any D-M Shareholder, or to the
D-M Shareholders in the aggregate, would, in the reasonable judgment of
the D-M Shareholders or Penton, cause the Merger not to constitute a
"reorganization" within the meaning of Section 368(a) of the Code,
then, at the election of the D-M Shareholders (provided such election
is received by Penton at least five (5) business days prior to the due
date for payment of such cash) or at the election of Penton (provided
such election is given to the D-M Shareholders by Penton at least two
(2) business days prior to the due date for payment of such cash),
Penton will substitute for a portion of such cash shares of Penton
Common (valued at the Average Market Price during the Second Reference
Period) to the extent necessary to avoid such result (provided that no
fractional share of Penton Common shall be issued to either D-M
Shareholder, but in lieu thereof Penton shall pay to such D-M
Shareholder an amount in cash equal to the product of such fractional
share multiplied by the Average Market Price during the Second
Reference Period).
(ii) Each D-M Shareholder agrees to provide
to Penton, by 10:00 a.m., Cleveland, Ohio time on the due date for any
payment to him pursuant to (i) above, a written certification
identifying each sale of a Merger Share by him (or by any transferee
that acquired any Merger Share from him in a transaction not involving
a sale) prior to such date and the gross price for which such Merger
Share was sold, together with evidence supporting such certification
reasonably satisfactory to Penton. To expedite Penton's review of such
certification and evidence, each D-M Shareholder agrees to provide to
Penton, within 5 days after the conclusion of the Second Reference
Period, a written certification identifying each sale of a Merger Share
by him (or by any transferee that acquired any Merger Share from him in
a transaction not involving a sale) prior to the conclusion of the
Second Reference Period and the gross price for which such Merger Share
was sold, together with evidence supporting such certification
reasonably satisfactory to Penton.
(iii) Penton agrees that during the period
beginning sixty days prior to the Penton 1999 Earnings Release Date and
ending at the conclusion of the Second Reference Period, it will not
make any public disclosures except as required by law or consistent
with its public disclosure practices subsequent to the Spinoff. Penton
further agrees that during the period beginning twenty business days
prior to the First Reference Period and ending at the conclusion of
such Reference Period, and during the period beginning twenty business
days prior to the Second Reference Period and ending at the conclusion
of such Reference Period, neither it nor any of its Affiliates will
purchase any security of the same type as any Merger Share.
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<PAGE> 26
Each D-M Shareholder agrees that during the period beginning twenty
business days prior to the First Reference Period and ending at the
conclusion of such Reference Period, and during the period beginning
twenty business days prior to the Second Reference Period and ending at
the conclusion of such Reference Period, neither he nor any of his
Affiliates (excluding Penton notwithstanding the occurrence of the
Effective Time) will sell any Merger Share (or other security of the
same type as any Merger Share).
(iv) Notwithstanding the foregoing
provisions of this Section 2.4(h), in the event any significant portion
of the Average Market Price during the First Reference Period or during
the Second Reference Period is to be determined pursuant to clause
(iii) of the definition of "Average Market Price," then, in lieu of any
payment of cash and/or shares of Penton Common pursuant to clause (i)
above, Penton shall, on the 15th day after the conclusion of the Second
Reference Period (or, if such day is not a business day, on the first
business day thereafter), purchase from each D-M Shareholder the Merger
Shares held by him at the conclusion of the Second Reference Period by
paying to such D-M Shareholder, against surrender by him, free and
clear of any Security Interest, of the certificate(s) evidencing such
shares of Penton Common duly endorsed for surrender, an amount equal to
the Guaranteed Average Market Price multiplied by the number of such
shares.
(v) In the event that subsequent to the
Effective Time and prior to the conclusion of the Second Reference
Period any other security (including without limitation any other share
of Penton Common) is issued as a dividend or distribution on, or in a
split of, or in exchange for or in lieu of, any Merger Share: (x) such
Merger Share shall be treated for all purposes of this Section as
including such other security; and (y) the Average Market Price shall
include not only the Average Market Price of Penton Common as defined
in Article 1 but also an amount equal to the Average Market Price of
such other security determined in a manner corresponding to that used
in determining the Average Market Price of Penton Common.
(vi) Penton, Combination Subsidiary, D-M
and the D-M Shareholders acknowledge that any contingent rights to
payments of cash, and any payments other than payments of cash,
pursuant to the preceding provisions of this Section 2.4(h) do not
constitute "boot" for federal income tax purposes. Except insofar as a
portion of any such payment constitutes interest for such purposes, and
except as otherwise required on account of any change in law or the
interpretation thereof subsequent to the execution and delivery of this
Agreement, Penton and the Surviving Corporation agree not to provide
the D-M Shareholders with a Form 1099 relating to such contingent
rights or payments.
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(i) CLOSING OF TRANSFER RECORDS. After the
Effective Time, transfers of shares of D-M Common Stock shall not be
made on the stock transfer books of the Surviving Corporation.
(j) DELIVERY OF MERGER CONSIDERATION TO PUBLIC
OFFICIAL. None of Penton, the Combination Subsidiary, D-M, the
Surviving Corporation or any other Person shall be liable to any former
holder of shares of D-M Common Stock for any amount properly delivered
to a public official pursuant to applicable abandoned property, escheat
or similar laws.
(k) LOST, STOLEN OR DESTROYED CERTIFICATES. In the
event any certificate representing shares of D-M Common Stock shall
have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by
such Person of a bond in such reasonable amount as the Surviving
Corporation may direct as indemnity against any claim that may be made
against it with respect to such certificate, the Surviving Corporation
will issue in exchange for such lost, stolen or destroyed certificate a
new certificate that may be surrendered pursuant to this Section 2.4.
(l) TRANSFERABILITY RESTRICTION. The right of a D-M
Shareholder to receive any Contingent Cash Payment or to receive cash
and/or shares of Penton Common pursuant to Section 2.4(h) may not be
sold, assigned, pledged, gifted, conveyed, transferred or otherwise
disposed of (a "TRANSFER") by such D-M Shareholder, except by will or
the laws of descent and distribution (and in the case of any such
permitted Transfer, such right shall be subject to the continued
application of this Section to any Transfer by the transferee). Any
Transfer in violation of this Section 2.4(l) shall be null and void.
(m) PLAN OF MERGER. This Article 2 (and the
provisions of this Agreement defining terms used herein) shall
constitute the plan of merger with respect to the Merger for purposes
of Section 11.05 of the Illinois Corporation Law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PENTON
Penton hereby represents and warrants to the D-M Shareholders
as follows:
3.1 PENTON AND COMBINATION SUBSIDIARY ORGANIZATION AND
QUALIFICATION. Penton is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has the requisite
corporate and
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other power and authority (including all licenses, permits and authorizations)
to own and operate its properties and to carry on its business as now conducted.
Penton is qualified to do business in the State of Ohio and in every other
jurisdiction in which the nature of its business or its ownership of property
requires it to be so qualified, except where the failure to be so qualified
would not have a Material Adverse Effect on Penton. Combination Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois, and has the requisite corporate and other power and
authority (including all licenses, permits and authorizations) to own and
operate its properties and to carry on its business as now conducted.
Combination Subsidiary is qualified to do business in every jurisdiction in
which the nature of its business or its ownership of property requires it to be
so qualified, except where the failure to be so qualified would not have a
Material Adverse Effect on Combination Subsidiary.
3.2 PENTON AND COMBINATION SUBSIDIARY AUTHORITY RELATIVE TO
THIS AGREEMENT.
(a) Each of Penton and Combination Subsidiary has
the requisite corporate power to enter into this Agreement and to carry
out its obligations hereunder. The execution and delivery of this
Agreement by Penton and the consummation by Penton of the transactions
on its part contemplated by this Agreement have been duly authorized by
the board of directors of Penton and by Pittway as the sole stockholder
of Penton and no other corporate proceedings on the part of Penton are
necessary to authorize this Agreement or such transactions, other than
incidental implementing actions such as action to implement Section
7.14 and action with respect to Penton employee benefit plans described
in Section 7.8.
(b) The execution and delivery of this Agreement by
Combination Subsidiary and the consummation by Combination Subsidiary
of the transactions on its part contemplated by this Agreement have
been duly authorized by the board of directors of Combination
Subsidiary and by Penton as the sole stockholder of Combination
Subsidiary and no other corporate proceedings on the part of
Combination Subsidiary are necessary to authorize this Agreement or
such transactions, other than incidental implementing actions such as
action to implement Section 2.4(d).
(c) This Agreement has been duly executed and
delivered by Penton and Combination Subsidiary and constitutes a valid
and binding obligation of Penton and Combination Subsidiary,
enforceable against them in accordance with its terms, subject to
bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and general principles of equity.
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(d) Except as set forth under the caption
"Authority" in a letter delivered to the D-M Shareholders by Penton
simultaneously with the execution of this Agreement (the "PENTON
DISCLOSURE LETTER"), neither Penton nor Combination Subsidiary nor any
of Penton's other Subsidiaries is subject to, or obligated under, any
provision of
(i) its charter or bylaws,
(ii) any agreement, arrangement or
understanding (whether written or oral),
(iii) any license, franchise or permit or
(iv) subject to compliance with the
statutes referred to in (e) below, any law, regulation, order,
judgment or decree,
which would be breached or violated, or in respect of which a right of
termination or acceleration or any Security Interest on any of Penton's
stock or assets or on any of Combination Subsidiary's or any of
Penton's other Subsidiaries' stock or assets would be created, by
Penton's and Combination Subsidiary's execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby other than any such breach, violation, right of
termination or acceleration or Security Interest that would not have a
Material Adverse Effect on Penton.
(e) Other than under the Hart-Scott-Rodino Act, the
Securities Act, the Exchange Act, securities or "blue sky" laws and the
regulations under the foregoing and as set forth under the caption
"Authority" in the Penton Disclosure Letter, with the exception of
obtaining the approval required to fulfill the condition set forth in
Section 8.1(j) and the filing with the Secretary of State of the State
of Delaware of one or more amendments to Penton's certificate of
incorporation as required to fulfill the condition set forth in Section
8.2(e) and the filing with the Secretary of State of the State of
Illinois of the Articles of Merger, no Governmental Action is necessary
on the part of Penton or Combination Subsidiary for the consummation of
the transactions on its part contemplated by this Agreement except for
any Government Action the failure to obtain or take which would not
have a Material Adverse Effect on Penton.
3.3 PENTON CONSTITUENT INSTRUMENTS/CAPITALIZATION.
(a) The copies of the certificate of incorporation
and bylaws of Penton furnished to the D-M Shareholders by Penton prior
to the execution and delivery of this Agreement are correct and
complete copies thereof as amended as of the time of such execution and
delivery. As of the Effective Time, the
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certificate of incorporation and bylaws of Penton will be as set forth
on EXHIBIT C and EXHIBIT D hereto, respectively.
(b) As of the date of this Agreement, the
authorized capital stock of Penton consists of 1,000 shares of common
stock having a par value of $1.00 per share, 100 of which shares are
issued and outstanding and owned by Pittway. As of the Effective Time,
the authorized capital stock of Penton will be as set forth in EXHIBIT
C hereto (and each share of capital stock of Penton currently
outstanding will have become Penton Common). All of the issued and
outstanding shares of capital stock of Penton are validly issued, fully
paid and nonassessable. The holders of outstanding shares of capital
stock of Penton are not entitled to any preemptive or other similar
rights. Excluding this Agreement, the Penton 1998 Stock Awards Plan
(under which no awards are outstanding) and the Penton 1998 Director
Stock Option Plan (under which no awards are outstanding), and except
as set forth under the caption "Capitalization" in the Penton
Disclosure Letter, there are no options, warrants, conversion
privileges or other rights, agreements, arrangements or commitments
obligating Penton to issue or sell any shares of capital stock of
Penton or securities or obligations of any kind convertible into or
exchangeable for any shares of capital stock of Penton or of any other
Person, nor are there any stock appreciation, phantom or similar rights
outstanding based upon the book value or any other attribute of Penton.
When issued pursuant to this Agreement, the shares of Penton Common
issued to the D-M Shareholders will be duly authorized, validly issued,
fully paid and nonassessable.
3.4 SUBSIDIARIES. Penton owns, directly or indirectly, all of
the outstanding capital stock of each of its Subsidiaries (which, at the date of
this Agreement, consist solely of the Existing Penton Subsidiaries), free and
clear of all Security Interests; and there are no subscription rights, warrants,
options, conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire any equity interests in any of such Subsidiaries or any
securities or obligations of any kind convertible into or exchangeable for any
such equity interests. Except as set forth under the caption "Joint Ventures" in
the Penton Disclosure Schedule, neither Penton nor any of its Subsidiaries owns,
directly or indirectly, any stock, partnership interest, joint venture interest,
or other security issued by any corporation, organization or entity other than
interests in Subsidiaries of Penton. Each of Penton's Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of formation, is qualified to do business in every
jurisdiction in which the nature of its business or its ownership of property
requires it to be so qualified, except where the failure to so qualify would not
have a Material Adverse Effect on Penton, and has the requisite power and
authority (including all authorizations, licenses and permits) to own and
operate its properties and to carry on its business as now conducted.
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3.5 FINANCIAL STATEMENTS. The following unaudited consolidated
financial statements of Penton and its Subsidiaries (collectively the "PENTON
FINANCIAL STATEMENTS") have been delivered to the D-M Shareholders: balance
sheets and statements of operations, stockholders' equity and cash flows as of
and for the years ended December 31, 1996 and December 31, 1997. The Penton
Financial Statements have been prepared on the basis set forth in the notes
thereto and, subject to the disclosures made in the notes thereto, fairly
present in accordance with generally accepted accounting principles applied on a
consistent basis the financial condition and results of operations of Penton and
its Subsidiaries as of the dates and for the periods referred to therein.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Penton nor any
of its Subsidiaries has any Liabilities which are material to the financial
condition, assets, business or results of operations of Penton and its
Subsidiaries considered as a whole except for (a) Liabilities disclosed in the
Penton Financial Statements or in this Agreement, (b) Liabilities that have
arisen since December 31, 1997 in the Ordinary Course of Business of Penton and
its Subsidiaries (none of which is a Liability resulting from breach of
contract, fraud or other tort, infringement or lawsuit), and (c) Liabilities set
forth under the caption "Liabilities" in the Penton Disclosure Letter.
3.7 NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, there
has not been, occurred or arisen any event which has had or is reasonably likely
to have a Material Adverse Effect on Penton.
3.8 LITIGATION. Except as set forth under the caption
"Litigation" in the Penton Disclosure Letter, there are no actions, suits,
proceedings, orders or investigations pending or, to the Knowledge of Penton,
threatened against or relating to Penton or any of its Subsidiaries at law or in
equity, or before or by any Governmental Authority. Except as set forth under
such caption, neither Penton nor any of its Subsidiaries nor, to the Knowledge
of Penton, Pittway has ever received any written opinion or legal advice to the
effect that Penton is exposed from a legal standpoint to any Liability which is
reasonably likely to have a Material Adverse Effect on Penton.
3.9 BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Penton or any of its Subsidiaries.
3.10 EMPLOYEES; RETIREE WELFARE BENEFIT LIABILITIES. No key
executive employee of Penton or any of its Subsidiaries has given notice of
termination of his employment other than at normal retirement. Penton and its
Subsidiaries have complied in all material respects with, or have cured all
material non-compliances with, all laws relating to the employment of labor,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining and the payment of social security and other Taxes. Except
for Penton Retiree Life Insurance, neither Penton nor
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any of its Subsidiaries nor Pittway maintains any Employee Welfare Benefit Plan
which provides benefits to current or future retirees from Penton or any of its
Subsidiaries (or their spouses or dependents) of the type subject to Financial
Accounting Standards Board Statement No. 106 reporting requirements.
3.11 COMPLIANCE WITH LAWS; PERMITS; CERTAIN OPERATIONS. Penton
and its Subsidiaries and their respective officers, agents and employees have
complied in all material respects with, or have cured all material
non-compliances with, all applicable laws and regulations of United States
(federal, state and local) and non-United States governments and all agencies
thereof which affect the businesses or any owned or leased properties of Penton
or any of its Subsidiaries and to which Penton or any of its Subsidiaries may be
subject, and except as set forth under the caption "Compliance with Laws" in the
Penton Disclosure Letter, no claims have been filed against Penton or any of its
Subsidiaries alleging a violation of any such law or regulation, except for any
failures to so comply that would not, individually or in the aggregate, have a
Material Adverse Effect on Penton and except for any such claims that would not,
individually or in the aggregate, have a Material Adverse Effect on Penton.
3.12 AFFILIATE TRANSACTIONS. Except as set forth under the
caption "Affiliate Transactions" in the Penton Disclosure Letter, to the
Knowledge of Penton, no officer or director of Penton or any of its
Subsidiaries, no member of the immediate family of any such officer or director,
and no entity in which any of such persons owns any beneficial interest (other
than a publicly held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than 5% of the stock of
which is beneficially owned by any of such persons) (collectively "PENTON
INSIDERS"), has any agreement of any kind with Penton or any of its Subsidiaries
or any interest in any property, real, personal or mixed, tangible or
intangible, used in or pertaining to the business of Penton or any of its
Subsidiaries. For purposes of the preceding sentence, the members of the
immediate family of an officer or director shall consist of the spouse, parents,
children (natural and adopted), siblings, mothers-and fathers-in-law, sons-and
daughters-in-law, and brothers-and sisters-in-law of such officer or director.
3.13 TAX STATUS OF SPINOFF; TAX MATTERS RELATED TO THE MERGER.
Other than as set forth under the caption "Taxes" in the Penton Disclosure
Letter, no Tax is or will be payable by Penton or any of its Subsidiaries as a
result of the Spinoff. Prior to the Merger, Penton and its Subsidiaries have not
acquired any D-M Common Stock. Penton does not have any plan or intention: (a)
to cause Combination Subsidiary or Surviving Corporation to issue additional
shares of its stock, or take any other action, that would result in Penton
losing Control of it, (b) except as may be required by Section 2.4(h)(iv), to
reacquire any of the Penton Common issued pursuant to this Agreement, or (c) to
cause the Surviving Corporation to sell, distribute or otherwise dispose of any
of D-M's assets acquired in the Merger, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by the
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Surviving Corporation as described in Section 368(a)(2)(C) of the Code.
Combination Subsidiary has no plan or intention: (a) to issue additional shares
of its stock, or take any other action, that would result in Penton losing
Control of it or of the Surviving Corporation, or (b) to sell, distribute or
otherwise dispose of any of D-M's assets acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers of assets to a
corporation controlled by the Surviving Corporation as described in Section
368(a)(2)(C) of the Code.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE D-M SHAREHOLDERS
The D-M Shareholders jointly and severally hereby represent
and warrant to Penton that:
4.1 D-M ORGANIZATION AND QUALIFICATION. D-M is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, and has the requisite corporate and other power and authority
(including all licenses, permits and authorizations) to own and operate its
properties and to carry on its business as now conducted. D-M is qualified to do
business in every jurisdiction in which the nature of its business or its
ownership of property requires it to be so qualified, except where the failure
to be so qualified would not have a Material Adverse Effect on D-M.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Each of the D-M Shareholders has the requisite
power to enter into this Agreement and to carry out his obligations
hereunder.
(b) D-M has the requisite corporate power to enter
into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement by D-M and the consummation by
D-M of the transactions on its part contemplated by this Agreement have
been duly authorized by the board of directors of D-M and by the D-M
Shareholders as the sole stockholders of D-M and no other corporate
proceedings on the part of D-M are necessary to authorize this
Agreement or such transactions, other than incidental implementing
actions such as action pursuant to Section 7.8(i).
(c) This Agreement has been duly executed and
delivered by each of the D-M Shareholders and by D-M and constitutes a
valid and binding obligation of each of them, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, moratorium and other
similar laws affecting creditors' rights generally and general
principles of equity.
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(d) Except as set forth under the caption
"Authority" in a letter delivered to Penton by the D-M Shareholders
simultaneously with the execution of this Agreement (the "D-M
SHAREHOLDERS DISCLOSURE LETTER"), neither of the D-M Shareholders nor
D-M is subject to, or obligated under, any provision of
(i) its charter or bylaws (in the case of
D-M),
(ii) any agreement, arrangement or
understanding (whether written or oral),
(iii) any license, franchise or permit (in
the case of D-M), or
(iv) subject to compliance with the
statutes referred to in (e) below, any law, regulation, order,
judgment or decree,
which would be breached or violated, or in respect of which a right of
termination or acceleration or any Security Interest on any of D-M's
stock or assets would be created, by the D-M Shareholders' and D-M's
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby other than any
such breach, violation, right of termination or acceleration or
Security Interest that would not have a Material Adverse Effect on D-M.
(e) Other than under the Hart-Scott-Rodino Act or
as set forth under the caption "Authority" in the D-M Shareholders
Disclosure Letter, with the exception of the filing with the Secretary
of State of the State of Illinois of the Articles of Merger, no
Governmental Action is necessary on the part of either D-M Shareholder
or D-M for the consummation of the transactions on his or its part
contemplated by this Agreement except for any Governmental Action the
failure to obtain or take which would not have a Material Adverse
Effect on D-M.
4.3 INVESTMENT. Each D-M Shareholder (i) will be acquiring the
shares of Penton Common issued to him pursuant to this Agreement solely for his
own account for investment purposes and not with a view to any distribution
thereof which would violate the Securities Act; (ii) is a sophisticated investor
with knowledge and experience in business and financial matters; (iii) has not
been offered such Penton Common by any form of general advertising or general
solicitation; (iv) has been given access to such information regarding Penton
and its Subsidiaries as he has requested and has been given an opportunity to
ask questions and has received answers regarding such information; (v) is able
to bear the economic risk inherent in holding such Penton Common and (vi) is an
Accredited Investor by virtue of having (A) a net worth individually or jointly
with his spouse of at least $1,000,000 (without giving effect to any increase in
such net worth as a result of the transactions contemplated hereby), (B) income
individually in excess of $200,000 for each of 1996 and 1997 and an
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expectation of income in excess of such amount in 1998, or (C) income with his
spouse in excess of $300,000 for each of 1996 and 1997 and an expectation of
income with his spouse in excess of such amount in 1998.
4.4 D-M CONSTITUENT INSTRUMENTS/CAPITALIZATION.
(a) The copies of the articles of incorporation and
bylaws of D-M furnished to Penton by the D-M Shareholders prior to the
execution and delivery of this Agreement are correct and complete
copies thereof as amended as of the time of such execution and
delivery. There have been no subsequent amendments thereto.
(b) The authorized capital stock of D-M consists of
700 shares of D-M Common Stock, 300 shares of Common Stock-Series B,
without par value, and 200 shares of Preferred Stock, without par
value, of which 700 shares of D-M Common Stock are issued and
outstanding. Such shares of D-M Common Stock are owned by the D-M
Shareholders as follows: Donohue--350 shares; and Meehan--350 shares.
All of the issued and outstanding shares of D-M Common Stock are
validly issued, fully paid and nonassessable. The holders of
outstanding shares of D-M Common Stock are not entitled to any
preemptive or other similar rights. Excluding this Agreement, there are
no options, warrants, conversion privileges or other rights,
agreements, arrangements or commitments obligating D-M to issue or sell
any shares of capital stock of D-M or securities or obligations of any
kind convertible into or exchangeable for any shares of capital stock
of D-M or of any other Person, nor are there any stock appreciation,
phantom or similar rights outstanding based upon the book value or any
other attribute of D-M.
4.5 SUBSIDIARIES. D-M has no Subsidiary and owns no stock,
partnership interest, joint venture interest, or any other security issued by
any corporation, organization or entity.
4.6 TITLE TO ASSETS. D-M has good title to the Business
Information Products and other assets (including without limitation all tangible
and intangible assets, Intellectual Property, licenses and goodwill related to
such Business Information Products, mailing lists, lists of advertisers,
circulation lists and other lists, printed material, work in process, prepaid
expenses, receivables, furniture and equipment) used in its business that it
purports to own (and such title is free and clear of all Security Interests
except as set forth in the final paragraph of Section 6.2 and under the caption
"Security Interests" in the D-M Shareholders Disclosure Letter); and a valid
leasehold or license interest in the Business Information Products and other
assets used in its business that it purports to lease as lessee or license as
licensee. All such leases and licenses are legal, valid and binding and in full
force and effect, without default. Prior to the execution and delivery of this
Agreement, the D-M Shareholders have furnished to Penton a correct and complete
copy of each such
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lease and license to which a D-M Insider (as defined in Section 4.15) is a
party, as amended as of the time of such execution and delivery, identified as
being such a lease or license.
4.7 SUFFICIENCY OF ASSETS. Except as set forth under the
caption "Sufficency of Assets" in the D-M Shareholders Disclosure Letter, the
assets of D-M include all of the assets, other than the accounts receivable and
any cash to be distributed to the D-M Shareholders pursuant to the final
paragraph of Section 6.2, necessary to conduct the business of D-M as now
conducted and in the manner reflected in the D-M Financial Statements. The
accounts receivable so distributed to the D-M Shareholders (which the Surviving
Corporation will have certain obligations to attempt to collect on behalf of the
D-M Shareholders pursuant to Section 7.16) will be valid and enforceable,
subject to no counterclaim or right of setoff, and the Surviving Corporation's
efforts to collect such accounts receivable, provided they are consistent with
D-M's past practices with respect to efforts to collect its trade accounts
receivable, will not subject the Surviving Corporation to any Liability.
4.8 FINANCIAL STATEMENTS. The following unaudited financial
statements of D-M (collectively the "D-M FINANCIAL STATEMENTS") have been
delivered to Penton: balance sheets and statements of operations, stockholders'
equity and cash flows as of and for the years ended December 31, 1996 and
December 31, 1997. The D-M Financial Statements have been prepared on the basis
set forth in the notes thereto and, subject to the disclosures made in the notes
thereto, fairly present in accordance with generally accepted accounting
principles applied on a consistent basis the financial condition and results of
operations of D-M as of the dates and for the periods referred to therein.
4.9 ABSENCE OF UNDISCLOSED LIABILITIES. D-M does not have any
Liabilities which are material to the financial condition, assets, business or
results of operations of D-M, except for (a) Liabilities disclosed in the D-M
Financial Statements or in this Agreement, (b) Liabilities that have arisen
subsequent to December 31, 1997 in the Ordinary Course of Business of D-M (none
of which is a Liability resulting from breach of contract, fraud or other tort,
infringement or lawsuit), and (c) Liabilities set forth under the caption
"Liabilities" in the D-M Shareholders Disclosure Letter.
4.10 NO MATERIAL ADVERSE CHANGE. Since December 31, 1997,
there has not been, occurred or arisen any event which has had or is reasonably
likely to have a Material Adverse Effect on D-M.
4.11 LITIGATION. Except as set forth under the caption
"Litigation" in the D-M Shareholders Disclosure Letter, there are no actions,
suits, proceedings, orders or investigations pending or, to the Knowledge of the
D-M Shareholders, threatened against or relating to D-M, at law or in equity, or
before or by any Governmental Authority. Except as set forth under such caption,
to the Knowledge of the D-M Shareholders, D-M has never received any written
opinion or legal advice to the effect
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that D-M is exposed from a legal standpoint to any Liability which is reasonably
likely to have a Material Adverse Effect on D-M.
4.12 BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of D-M or the D-M Shareholders.
4.13 EMPLOYEES; RETIREE WELFARE BENEFITS LIABILITIES. No key
executive employee of D-M has given notice of termination of his employment. D-M
has complied in all material respects with, or has cured all material
non-compliances with, all laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other Taxes. D-M does not
maintain any Employee Welfare Benefit Plan which provides benefits to current or
future retirees from D-M (or their spouses or dependents) of the type subject to
Financial Accounting Standards Board Statement No. 106 reporting requirements.
4.14 COMPLIANCE WITH LAWS; PERMITS; CERTAIN OPERATIONS. D-M
and its officers, agents and employees have complied in all material respects
with, or have cured all material non-compliances with, all applicable laws and
regulations of U.S. and non-U.S. governments and all agencies thereof which
affect the business or any owned or leased properties of D-M and to which D-M
may be subject, and, except as set forth under the caption "Compliance with
Laws" in the D-M Shareholders Disclosure Letter, no claims have been filed
against D-M alleging a violation of any such law or regulation, except for any
failures to so comply that would not, individually or in the aggregate, have a
Material Adverse Effect on D-M and except for any such claims that would not,
individually or in the aggregate, have a Material Adverse Effect on D-M.
4.15 AFFILIATE TRANSACTIONS. Except as set forth under the
caption "Affiliate Transactions" in the D-M Shareholders Disclosure Letter, to
the Knowledge of the D-M Shareholders, no D-M Shareholder and no officer or
director of D-M and no member of the immediate family of any such D-M
Shareholder, officer or director, and no entity in which any of such persons
owns any beneficial interest (other than a publicly held corporation whose stock
is traded on a national securities exchange or in the over-the-counter market
and less than 5% of the stock of which is beneficially owned by any of such
persons) (collectively "D-M INSIDERS"), has any agreement of any kind with D-M
or any interest in any property, real, personal or mixed, tangible or
intangible, used in or pertaining to the business of D-M. For purposes of the
preceding sentence, the members of the immediate family of an officer or
director shall consist of the spouse, parents, children (natural and adopted),
siblings, mothers-and fathers-in-law, sons-and daughters-in-law, and brothers-
and sisters-in-law of such officer or director.
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4.16 TAX STATUS OF MERGER. Neither of the D-M Shareholders
has, nor has D-M, taken or agreed to take, or failed to take, any action that
would prevent the Merger from constituting a "reorganization" under Section
368(a) of the Code.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PITTWAY
Pittway hereby represents and warrants to Penton as follows:
5.1 ORGANIZATION AND QUALIFICATION. Pittway is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and is qualified to do business in the State of Illinois.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Pittway has the requisite corporate power to
enter into this Agreement and to carry out its obligations hereunder.
(b) The execution and delivery of this Agreement by
Pittway and the consummation by Pittway of the transactions on its part
contemplated hereby (including the Spinoff) have been duly authorized
by the Board of Directors of Pittway, and no other corporate
proceedings on the part of Pittway, other than incidental implementing
actions such as the setting of the record date and payment date for the
Spinoff, are necessary to authorize this Agreement and such
transactions.
(c) This Agreement has been duly executed and
delivered by Pittway and constitutes a valid and binding obligation of
Pittway, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and general principles of equity.
(d) Except as set forth under the caption
"Authority" in a letter delivered to Penton by Pittway simultaneously
with the execution of this Agreement (the "PITTWAY DISCLOSURE LETTER"),
neither Pittway nor any of the Post-Spinoff Pittway Subsidiaries is
subject to, or obligated under, any provision of
(i) its charter or bylaws,
(ii) any agreement, arrangement or
understanding (whether written or oral),
(iii) any license, franchise or permit or
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(iv) subject to compliance with the
statutes referred to in (e) below, any law, regulation, order,
judgment or decree,
which would be breached or violated, or in respect of which a right of
termination or acceleration or any Security Interest on any of Penton's
or any of its Subsidiaries' stock or assets would be created, by
Pittway's execution, delivery and performance of this Agreement and the
consummation of the transactions on its part contemplated hereby
(including the Spinoff), other than any such breach, violation, right
of termination or acceleration or Security Interest which will not,
individually or in the aggregate, have a Material Adverse Effect on
Penton.
(e) Other than under the Hart-Scott-Rodino Act, the
Exchange Act and the regulations under the foregoing, no Governmental
Action is necessary on the part of Pittway for the consummation by
Pittway of the transactions on its part contemplated by this Agreement,
except for such Governmental Actions the failure to obtain or make
which would not, individually or in the aggregate, have a Material
Adverse Effect on Pittway or Penton.
5.3 BROKERAGE. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Pittway or any Post-Spinoff Pittway Subsidiary.
5.4 AFFILIATE TRANSACTIONS. Except as set forth under the
caption "Affiliate Transactions" in the Pittway Disclosure Letter, to the
Knowledge of Pittway, no officer or director of Pittway or of any Post-Spinoff
Pittway Subsidiary, no member of the immediate family of any such officer or
director, and no entity in which any of such persons owns any beneficial
interest (other than a publicly held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than 5%
of the stock of which is beneficially owned by any of such persons)
(collectively "PITTWAY INSIDERS"), has any agreement of any kind with Penton or
any of its Subsidiaries or any interest in any property, real, personal or
mixed, tangible or intangible, used in or pertaining to the business of Penton
or any of its Subsidiaries. For purposes of the preceding sentence, the members
of the immediate family of an officer or director shall consist of the spouse,
parents, children (natural and adopted), siblings, mothers-and fathers-in-law,
sons-and daughters-in-law, and brothers-and sisters-in-law of such officer or
director.
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ARTICLE 6
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 CONDUCT OF PENTON BUSINESS PENDING THE MERGER. Penton
covenants and agrees that from and after the execution and delivery of this
Agreement and prior to the Effective Time, except as required to effect the
Spinoff or as otherwise expressly contemplated or permitted by this Agreement,
and with such additional exceptions as the D-M Shareholders shall have approved
in writing:
(a) The businesses of Penton and its Subsidiaries
shall be conducted only in the Ordinary Course of Business of Penton,
on an arms'-length basis and in accordance in all material respects
with all applicable laws, rules and regulations; and
(b) Penton and each of its Subsidiaries (i) shall
use all reasonable efforts to preserve intact its business organization
and goodwill, keep available the services of its officers and employees
as a group and maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with
it; (ii) shall confer on a regular basis with the D-M Shareholders to
report operational matters of Penton and its Subsidiaries and the
general status of ongoing operations of Penton and its Subsidiaries;
(iii) shall not take any action which would render, or which reasonably
may be expected to render, any representation or warranty made by
Penton in this Agreement untrue at, or at any time prior to, the
Effective Time in any material respect; (iv) shall notify the D-M
Shareholders of any emergency or other change in the normal course of
business of Penton or any of its Subsidiaries or in the operation of
the properties of Penton or any of its Subsidiaries and of any
governmental or third party complaints, investigations or hearings (or
communications indicating that the same may be contemplated) relating
to Penton or any of its Subsidiaries if such emergency, change,
complaint, investigation or hearing would have a Material Adverse
Effect on Penton or a material adverse effect on Penton's or
Combination Subsidiary's ability to consummate the transactions
contemplated by this Agreement; and (v) shall notify the D-M
Shareholders if it shall discover that any representation or warranty
made by it in this Agreement was when made, or has subsequently become,
untrue in any material respect.
Notwithstanding the foregoing, it is expressly understood and agreed
that (i) no distribution of cash may be made by Penton to Pittway, whether or
not in the Ordinary Course of Business of Penton, if such action would result in
Penton's cash immediately prior to the Spinoff being less than the sum of (x)
the aggregate amount of Penton's then outstanding checks and (y) the aggregate
amount of Penton's then trade show deposits (net of Penton's then deferred costs
incurred with respect to trade shows), (ii) subject to (i), Penton may
distribute cash to Pittway immediately prior to the Spinoff, (iii)
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Penton and its Subsidiaries may acquire (through the acquisition of stock, the
acquisition of assets, merger or otherwise) the businesses and/or Business
Information Products of other Persons, and in connection with such acquisitions
may incur indebtedness and may commit to issue Penton Common contingent upon the
Spinoff, provided that the aggregate amount of indebtedness incurred by Penton
and its Subsidiaries in connection with such acquisitions (including
indebtedness assumed in connection with direct acquisitions of assets or
Business Information Products, but not indebtedness of Persons whose stock is
acquired) does not exceed $50.0 million and further provided that any issuance
of Penton Common committed to would not result in Pittway failing to control
Penton immediately prior to the Spinoff as described in Section 368(c) of the
Code, (iv) Penton may enter into joint venture arrangements with unaffiliated
Persons, (v) Penton and its Subsidiaries may dispose of (through the sale of
stock, the sale of assets, merger or otherwise) (A) the businesses set forth
under the caption "Possible Dispositions" in the Penton Disclosure Letter and
(B) Business Information Products not included in such businesses, provided that
the aggregate annual revenue attributable to such Business Information Products
at their respective dates of disposition does not exceed $10.0 million and
further provided that after giving effect to such dispositions Penton continues
to conduct an active trade or business as defined in Section 355(a)(1)(C) of the
Code, (vi) Penton may enter into credit arrangements to enable it to repay at
the time of the Spinoff its then outstanding indebtedness to Pittway and to
provide it with sufficient working capital for its foreseeable post-Spinoff
needs taking into account the provisions of this Agreement, and (vii) Penton may
enter into employment agreements with key Penton personnel and may amend
existing employment agreements with Thomas L. Kemp and Daniel J. Ramella.
6.2 CONDUCT OF D-M BUSINESS PENDING THE MERGER. D-M and each
of the D-M Shareholders covenants and agrees that from and after the execution
and delivery of this Agreement and prior to the Effective Time, except as
expressly contemplated or permitted by this Agreement, and with such additional
exceptions as Penton and Pittway shall have approved in writing:
(a) The business of D-M shall be conducted only in,
and D-M shall not take any action except in, the Ordinary Course of
Business of D-M, on an arms'-length basis and in accordance in all
material respects with all applicable laws and rules and regulations;
(b) D-M shall not, directly or indirectly, do or
permit to occur any of the following: (i) issue or incur any obligation
to issue any shares of D-M; (ii) sell, pledge, dispose of or encumber
any of its assets, except in the Ordinary Course of Business of D-M;
(iii) acquire (by merger, exchange, consolidation, acquisition of stock
or assets or otherwise) any corporation, partnership, joint venture or
other business organization or division or material assets thereof;
(iv) develop or acquire a new Business Information Product, discontinue
or dispose of an existing Business Information Product or make any
change to a Business
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Information Product that is material to such Business Information
Product; or (v) incur any indebtedness for borrowed money or issue any
debt securities except the borrowing of working capital in the Ordinary
Course of Business of D-M and refinancings or replacements of
borrowings existing on the date hereof;
(c) D-M shall not, directly or indirectly, (i)
enter into, adopt or modify (A) any employment, severance, or similar
agreement or arrangement, (B) any bonus, profit sharing, compensation,
stock option, pension, retirement, deferred compensation or other plan,
agreement, trust, fund or arrangement (group or otherwise) for the
benefit or welfare of any employee(s) or director(s) or (ii) grant any
bonus, salary increase, severance or termination pay to any officer or
director; or in the case of employees who are not officers or directors
and who earn in excess of $40,000 per year, take any action with
respect to the grant of any bonus, salary increase, severance or
termination pay or with respect to any increase of benefits payable in
effect on the date of this Agreement (provided that nothing in this
Section 6.2(c) shall preclude bonus grants, salary increases, benefit
increases and benefit plan amendments and modifications made in the
Ordinary Course of Business of D-M);
(d) D-M shall not, directly or indirectly, enter
into or modify any contract, agreement or arrangement with any D-M
Insider;
(e) D-M shall use all reasonable efforts to cause
its current insurance (or reinsurance) policies not to be canceled or
terminated or any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse,
replacement policies providing coverage equal to or greater than the
coverage under the canceled, terminated or lapsed policies for
substantially similar premiums are in full force and effect;
(f) D-M (i) shall use all reasonable efforts to
preserve intact its business organization and goodwill, keep available
the services of its officers and employees as a group and maintain
satisfactory relationships with suppliers, distributors, customers and
others having business relationships with it and (ii) shall not take
any action which would render, or which reasonably may be expected to
render, any representation or warranty made by the D-M Shareholders in
this Agreement untrue at, or at any time prior to, the Effective Time
in any material respect; and
(g) Each of the D-M Shareholders (i) shall confer
on a regular basis with Penton and Pittway to report operational
matters of D-M and the general status of ongoing operations of D-M;
(ii) shall notify Penton and Pittway if he shall discover that any
representation or warranty made by the D-M Shareholders in this
Agreement was when made, or has subsequently become, untrue in any
material respect and (iii) shall notify Penton and Pittway of any
emergency or other change in the normal course of business of D-M or in
the
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operation of its properties and of any governmental or third party
complaints, investigations or hearings (or communications indicating
that the same may be contemplated) if such emergency, change,
complaint, investigation or hearing would have a Material Adverse
Effect on D-M or a material adverse effect on D-M's or the D-M
Shareholders' ability to consummate the transactions contemplated by
this Agreement.
Notwithstanding the foregoing, it is expressly understood and agreed
that (i) subject to the condition in Section 8.3(i) and provided such action is
not financed directly or indirectly with indebtedness, D-M may, at any time and
from time to time prior to the Effective Time, distribute cash to the D-M
Shareholders, and (ii) D-M may, immediately prior to the Effective Time,
distribute to the D-M Shareholders the then outstanding trade accounts
receivable of D-M (the "DISTRIBUTED D-M ACCOUNTS RECEIVABLE").
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 ACCESS AND INFORMATION; CORPORATE RECORDS;
CONFIDENTIALITY. Penton, on the one hand, and D-M, on the other hand, shall
afford each other and the accountants, counsel and other representatives of each
other full access upon reasonable notice and during normal business hours
throughout the period prior to the Effective Time to all of the properties and
Corporate Records of Penton and its Subsidiaries and of D-M, respectively, and,
during such period, Penton, on the one hand, and D-M, on the other hand, shall
furnish each other all information concerning the business, properties and
personnel of Penton and its Subsidiaries and of D-M, respectively, as may
reasonably be requested.
D-M shall afford Penton full access upon reasonable notice and
during normal business hours throughout the period prior to the Effective Time
to all of the personnel of D-M.
From and after the consummation of the Spinoff, Pittway shall
retain all Corporate Records owned by Pittway or under Pittway's control at the
time of the Spinoff (other than indirectly through Penton and its Subsidiaries)
relating to Penton and its Subsidiaries, shall provide Penton and the
accountants, counsel and other representatives of Penton full access upon
reasonable notice and during normal business hours to such Corporate Records for
the preparation of Tax Returns and other reasonable purposes and shall permit
Penton and such accountants, counsel and representatives to make copies thereof
at the expense of Penton. In the event that within seven years following the
Spinoff Pittway wishes to dispose of any such Corporate Records, Pittway shall
first give written notice thereof to Penton and Penton
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shall thereupon have 20 business days in which to take possession of such
Corporate Records (or any portion thereof) at the expense of Penton.
From and after the consummation of the Spinoff, Penton shall
(and shall cause its Subsidiaries to) retain all Corporate Records owned by it
and such Subsidiaries or under their control at the time of the Spinoff relating
to Penton and its Subsidiaries, shall provide Pittway and the accountants,
counsel and other representatives of Pittway full access upon reasonable notice
and during normal business hours to such Corporate Records for the preparation
of Tax Returns and other reasonable purposes and shall permit Pittway and such
accountants, counsel and representatives to make copies thereof at the expense
of Pittway. In the event that within seven years following the Spinoff Penton or
any of its Subsidiaries wishes to dispose of any such Corporate Records, Penton
shall first give written notice thereof to Pittway and Pittway shall thereupon
have 20 business days in which to take possession of such Corporate Records (or
any portion thereof) at the expense of Pittway.
Penton and Pittway will, and will cause their respective
Subsidiaries (in the case of Pittway, other than Penton and its Subsidiaries),
accountants, counsel and other representatives to, hold in strict confidence,
except to the extent disclosure is required by law, all non-public information
and Corporate Records obtained by them pursuant to this Section 7.1.
Penton and its Subsidiaries shall be entitled to continue to
use any stocks existing as of the consummation of the Spinoff of printed
materials currently used by Penton or its Subsidiaries which contain the name
"Pittway"; provided that (i) such materials may only be used in the same fashion
as used by Penton and its Subsidiaries prior to the Spinoff and only in
accordance with past practice; it being acknowledged and agreed by Penton that
such use of the name "Pittway" is being permitted solely as an accommodation by
Pittway to Penton and its Subsidiaries and (ii) in no event shall Penton or any
of its Subsidiaries use any such materials after the expiration of 90 days
following the consummation of the Spinoff. Nothing herein shall be deemed or
construed as giving Penton or any of its Subsidiaries any rights in or to the
name "Pittway".
7.2 REGISTRATION RIGHTS; CERTAIN FILINGS.
(a) DEMAND REGISTRATION. At any time during the 60
days immediately following the second anniversary of the Effective
Time, and provided no earlier request has been made by either or both
of the D-M Shareholders pursuant to this Section 7.2(a), either or both
of the D-M Shareholders may request the registration (the "DEMAND
REGISTRATION") under the Securities Act of then Registrable Shares
constituting at least 25% of the Merger Shares. The request for the
Demand Registration shall specify the number of Registrable Shares
requested to be registered. Within ten days after receipt of such
request, if such request is by fewer than both the D-M
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Shareholders, Penton will give written notice of such requested
registration to the other D-M Shareholder and will include in such
registration all Registrable Shares held by D-M Shareholders with
respect to which Penton has received written requests for inclusion
therein within 15 days after the sending of Penton's notice. If the
Demand Registration is an underwritten registration, and if the
managing underwriter(s) advise Penton that in their opinion the number
of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a
price range acceptable to the holders of Registrable Shares
participating in the Demand Registration, then, notwithstanding the
preceding provisions of this Section 7.2(a), Penton will include in the
Demand Registration only each D-M Shareholder's pro rata portion of the
Registrable Shares to be included therein, on the basis of the numbers
of Registrable Shares requested to be included in the Demand
Registration. Penton will pay all Registration Expenses incurred in
connection with the Demand Registration. The obligation of Penton to
effect the Demand Registration hereunder shall be satisfied when a
registration statement filed in accordance herewith becomes effective
under the Securities Act. Penton may use the shortest form of
registration statement (e.g., Form S-1, S-2 or S-3) which Penton is
then eligible to use. Penton will not include in the Demand
Registration any shares of Penton Common which are held by Persons
other than D-M Shareholders without the prior written consent of the
holders of at least a majority of the Registrable Shares held by D-M
Shareholders. Penton shall have the right to select the managing
underwriter(s) for the Demand Registration if it is an underwritten
registration, subject to the approval of the D-M Shareholders (which
approval will not be unreasonably withheld or delayed).
(b) PIGGYBACK REGISTRATIONS. Whenever Penton
proposes to register any Penton Common under the Securities Act (other
than on Form S-8 or S-4 or any similar or successor forms) within the
thirty (30) months following the Effective Time (a "PIGGYBACK
REGISTRATION"), Penton will give prompt written notice to each of the
D-M Shareholders known by it to hold Registrable Shares of its
intention to effect such a registration and will include in such
registration all Registrable Shares with respect to which Penton has
received written requests for inclusion therein within 15 days after
the sending of Penton's notice. Penton will pay all Registration
Expenses incurred in connection with any Piggyback Registration. If a
Piggyback Registration is an underwritten registration, and if the
managing underwriter(s) advise Penton that in their opinion the number
of securities requested to be included in such registration exceeds the
number which can be sold in an orderly manner in such offering within a
price range acceptable to Penton, then, notwithstanding the preceding
provisions of this Section 7.2(b), Penton will include in such
registration: first, the securities Penton proposes to sell; and
second, only each D-M Shareholder's pro rata portion of the Registrable
Shares to be included therein, on the basis of the numbers of
Registrable Shares requested to be included in such Piggyback
Registration. No holder of Registrable Shares may participate in any
Piggyback
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<PAGE> 46
Registration which is underwritten unless such Person (a) agrees to
sell such Person's securities on the basis provided in any underwriting
arrangements approved by Penton and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such
underwriting arrangements; provided that no holder of Registrable
Shares included in any underwritten registration shall be required to
make any representations or warranties to Penton or the underwriters,
or to agree to indemnify Penton or the underwriters, therein in the
capacity as a selling stockholder other than with respect to such
holder and such holder's intended method of distribution (but this
proviso shall not limit the obligations of such holder under Section
7.7(b)(i)).
(c) REGISTRATION COVENANTS. Whenever pursuant to
this Agreement the holders of Registrable Shares have requested that
any Registrable Shares be registered, and subject to the limitation on
the number of shares to be registered set forth in Section 7.2(a),
Penton will use all reasonable efforts to effect the registration of
the sale of such Registrable Shares in accordance with the intended
method of disposition thereof, and pursuant thereto Penton will as
expeditiously as possible:
(i) prepare and file with the Commission a
registration statement with respect to such Registrable Shares
and use all reasonable efforts to cause such registration
statement to become effective;
(ii) prepare and file with the Commission
such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a
period of 90 days and comply with the provisions of the
Securities Act with respect to the disposition of all
securities covered by such registration statement during such
period in accordance with the intended methods of disposition
by the sellers thereof set forth in such registration
statement;
(iii) furnish to each seller of Registrable
Shares covered by such registration statement such number of
copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such
registration statement (including each preliminary prospectus)
and such other documents as such seller may reasonably request
in order to facilitate the disposition of such seller's
Registrable Shares covered by such registration statement;
(iv) use all reasonable efforts to register
or qualify such Registrable Shares under such other securities
or blue sky laws of such United States jurisdictions as any
seller reasonably requests and do any and all other acts and
things which may be reasonably necessary or
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advisable to enable such seller to consummate the disposition
in such jurisdictions of such Registrable Shares owned by such
seller (provided that Penton will not be required to (i)
qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this
subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in
any such jurisdiction);
(v) notify each seller of such Registrable
Shares, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the
happening to its Knowledge of any event as a result of which
the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any
fact necessary to make the statements therein not misleading,
and, at the request of any such seller, prepare a supplement
or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such
prospectus will not to its Knowledge contain an untrue
statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
(vi) cause all such Registrable Shares to
be listed on each securities exchange, or accepted for trading
on each trading system, on which Penton Common shares are then
listed or traded;
(vii) cause all restrictive transfer
legends to be removed from the stock certificates evidencing
such Registrable Shares (subject to re-legending in the event
not sold pursuant to such registration statement) and cause
certificates evidencing the remaining Registrable Shares to be
issued to the holders of such Registrable Shares in such
denominations as such holders may reasonably request; and
(viii) otherwise use all reasonable efforts
to comply with all applicable rules and regulations of the
Commission; and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering
the period of at least twelve months beginning with the first
day of Penton's first full calendar quarter after the
effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
(d) HOLDBACK AGREEMENTS. Each of the D-M
Shareholders agrees not to effect any public sale or distribution
(including sales pursuant to Securities Act Rule 144) of equity
securities of Penton, or of any securities convertible into or
exchangeable or exercisable for such securities, during the seven days
prior to and the 90-day period beginning on the effective date of any
registration of Penton Common Stock under the Securities Act (other
than a
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registration on Form S-8, Form S-4 or any successor forms) except as
part of such registration, unless, in the case of such a registration
which is an underwritten registration, the underwriter(s) managing the
registered public offering otherwise agree. Penton agrees not to
effect any public sale or distribution of its equity securities, or
any securities convertible into or exchangeable or exercisable for
such securities, during the seven days prior to and during the 90-day
period beginning on the effective date of the Demand Registration
except pursuant to registrations on Form S-8, Form S-4 or any
successor forms, unless, in the case of such a registration which is
an underwritten registration, the underwriter(s) managing the
registered public offering otherwise agree.
(e) INDEMNIFICATION RELATING TO REGISTRATIONS.
(i) Penton agrees to indemnify, to the
extent permitted by law, each holder of Registrable Shares
included in the Demand Registration or any Piggyback
Registration against all losses, claims, damages, liabilities
and expenses arising out of, based upon or caused by any
untrue or alleged untrue statement of material fact contained
in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto
filed in connection with such Registration or any omission or
alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or
contained in any information furnished in writing to Penton by
such holder for use therein or by such holder's failure to
deliver a copy of the registration statement or prospectus or
any amendment or supplement thereto after Penton has furnished
such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, Penton will
indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning
of the Securities Act) to the comparable extent as provided
above with respect to the indemnification of the holders of
Registrable Shares.
(ii) In connection with any registration
statement in which a holder of Registrable Shares is
participating, each such holder will furnish to Penton in
writing such information and affidavits as Penton reasonably
requests for use in connection with such registration
statement and, to the extent permitted by law, will indemnify
Penton, its directors and officers and each Person who
controls Penton (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses
arising out of, based upon or caused by any untrue or alleged
untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto filed in
connection with the
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Demand Registration or such Piggyback Registration or any
omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement
or omission is contained in any information furnished in
writing to Penton by such holder for use therein.
(iii) Any Person entitled to
indemnification under this Section 7.2(e) will (i) give prompt
written notice to the indemnifying party of any claim with
respect to which it seeks indemnification and (ii) unless
in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying
party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such
defense is assumed, the indemnifying party will not be subject
to any liability for any settlement made by the indemnified
party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
(iv) The indemnification provided for under
this Section 7.2(e) will remain in full force and effect
regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling
Person of such indemnified party and will survive the transfer
of securities.
(v) If the indemnification provided for in
this Section 7.2(e) is unavailable to or insufficient to hold
harmless an indemnified party under subsection (i) or (ii)
above in respect of any losses, claims, damages, liabilities
or expenses (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to
reflect the relative fault of Penton, on the one hand, and the
D-M Shareholders who participated in the Demand Registration
or Piggyback Registration, on the other, in connection with
the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the
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omission or alleged omission to state a material fact relates
to information supplied by Penton, on the one hand, or such
D-M Shareholders, on the other, and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Penton and the
D-M Shareholders agree that it would not be just and equitable
if contribution pursuant to this subsection (v) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to above in this subsection (v). The
amount paid or payable by an indemnified party as a result of
the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above in this
subsection (v) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim.
(f) RESALE RESTRICTIONS. Each of the D-M
Shareholders hereby acknowledges that:
(i) the shares of Penton Common to be
issued to him pursuant to Section 2.4(e)(ii) and any shares of
Penton Common that may be issued to him pursuant to Section
2.4(h) cannot be resold except pursuant to a registration
statement which has become effective under the Securities Act
or unless an exemption from the registration requirements of
the Securities Act is legally available;
(ii) except as and to the extent expressly
provided in (a) and (b) above, Penton is not obligated to so
register any of such shares;
(iii) each certificate representing Penton
Common shares issued pursuant to this Agreement shall be
imprinted with a legend in substantially the following form:
"The securities represented by this certificate
have not been registered under the Securities Act
of 1933, as amended, or under the securities laws
of any state or other jurisdiction (together, the
"Securities Laws") and may not be offered for sale,
sold, transferred or otherwise disposed of except
after delivery to the issuer of a written opinion
reasonably satisfactory to the issuer from Skadden,
Arps, Slate, Meagher & Flom (Illinois) or other
counsel satisfactory to the issuer that the
proposed disposition will not require registration
under applicable Securities Laws"; and
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(iv) such D-M Shareholder has consulted
with his counsel, Skadden, Arps, Slate, Meagher & Flom
(Illinois), regarding the effect on such D-M Shareholder of
the foregoing clauses of this Section.
Penton agrees that promptly following its receipt of a written
request from a D-M Shareholder for removal of the legend described in clause
(f)(iii) above from some or all of his certificates referred to in such clause,
and provided such request is accompanied by such certificate(s) duly endorsed
for surrender and by a written opinion reasonably satisfactory to Penton from
Skadden, Arps, Slate, Meagher & Flom (Illinois) or other counsel reasonably
satisfactory to Penton that the shares represented by such certificate(s) may
thereafter be freely transferred under applicable Securities Laws, Penton will
cause a new certificate representing such shares, not imprinted with such
legend, to be issued to such D-M Shareholder.
Penton further agrees that for so long after the Effective
Time as such action remains a condition to the D-M Shareholders' ability to sell
under Securities Act Rule 144 shares of Penton Common issued pursuant to this
Agreement, Penton will remain current in its periodic filings under the Exchange
Act.
(g) OBLIGATION OF THE D-M SHAREHOLDERS TO SUPPLY
INFORMATION. Each of the D-M Shareholders shall as expeditiously as
practicable: (i) supply all information concerning him and his
Affiliates, and D-M and its Affiliates, and any other information
required by or under the rules and regulations or policies of the
Commission or any other Governmental Authority, as reasonably requested
by Pittway or Penton (A) in connection with filings to be made by
Pittway or Penton with the Commission under the Securities Act or the
Exchange Act in connection with the transactions contemplated by this
Agreement (including without limitation any registration statement
filed by Penton under the Securities Act in connection with the
registration of the Penton Common to be issued in the Spinoff, any
registration statement filed by Penton under the Securities Act
pursuant to the Demand Registration or any Piggyback Registration, the
registration statement to be filed by Penton under the Exchange Act to
register the Penton Common and any registration statement filed under
the Securities Act in connection with any post-Merger issuance to raise
capital), and (B) in connection with any blue sky or state securities
filings made by Penton in connection with the transactions contemplated
by this Agreement; (ii) take such actions as reasonably may be required
to respond to any comments received from the Commission or any other
Governmental Authority with respect to any of the foregoing; and (iii)
take all such other actions which may reasonably be necessary to
satisfy any requirements imposed by any Governmental Authority in
connection with the Spinoff or the Merger or by any stock exchange or
quotation system in connection with the listing or inclusion in a
quotation system of the Penton Common. The D-M Shareholders warrant
that the information supplied by the D-M Shareholders pursuant to this
Section 7.2(g) will not contain an untrue statement of material fact,
or omit to state a material
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fact required to be stated or necessary in order to make the statements
contained therein not misleading. The D-M Shareholders agree to notify
Pittway and Penton promptly in the event any information provided by
them for use in the filings described in this Section 7.2(g) become
false or misleading and agree to promptly furnish corrected
information.
(h) OBLIGATION OF PENTON TO SUPPLY INFORMATION.
Penton shall as expeditiously as practicable: (i) supply all
information concerning it and its Affiliates (other than Pittway or any
Post-Spinoff Pittway Subsidiaries) and any other information required
by or under the rules and regulations of the Commission or any other
Governmental Authority, as reasonably requested by Pittway in
connection with filings to be made by Pittway with the Commission under
the Exchange Act in connection with the transactions contemplated by
this Agreement; (ii) take such actions as reasonably may be required to
respond to any comments received from the Commission or any other
Governmental Authority with respect to any of the foregoing; and (iii)
take all such other actions which may reasonably be necessary to
satisfy any requirements imposed by any Governmental Authority in
connection with the Spinoff or the Merger. Penton warrants that the
information supplied by Penton pursuant to this Section 7.2(h) will not
contain an untrue statement of material fact, or omit to state a
material fact required to be stated or necessary in order to make the
statements contained therein not misleading. Penton agrees to notify
Pittway promptly in the event any information provided by it for use in
the filings described in this Section 7.2(h) shall become false or
misleading and agrees to promptly furnish corrected information.
(i) OBLIGATION TO DELIVER CERTAIN FILINGS. Prior to
filing any registration statement or filing made by Penton or Pittway
of the kind described in this Section 7.2, and prior to filing any
amendment or supplement to any of the foregoing, Penton or Pittway, as
the case may be, shall deliver or cause to be delivered to the D-M
Shareholders and their counsel drafts of the documents to be filed. The
information in such documents as it relates to, or as it includes
information that relates to, D-M or its Affiliates, or the D-M
Shareholders or their Affiliates, shall be deemed approved by the D-M
Shareholders if both D-M Shareholders shall approve it or if neither
D-M Shareholder shall have objected in writing to such information
within ten (10) days after receiving such documents. All such documents
shall be deemed to have been delivered: when delivered by hand, if
personally delivered; three business day after being deposited with a
reputable express courier service (charges prepaid); five business days
after being deposited in the mail, postage prepaid, if delivered by
mail; when answered back, if telexed; and when receipt acknowledged (by
a telecopy machine or otherwise), if telecopied.
7.3 OTHER NECESSARY ACTION; FURTHER ASSURANCE. Subject to the
terms and conditions herein provided, Penton, Combination Subsidiary, D-M and
the D-M Shareholders agree to use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable to cause the satisfaction of the conditions to the obligations of
the other Parties to effect the Merger (or, in the case of Pittway, the
conditions to its obligation to effect the Spinoff) and to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, including using reasonable efforts to obtain all necessary waivers,
consents and approvals (including without limitation, in the case of Penton, any
third party consents or assignments necessary to consummate the Spinoff and, in
the case of D-M and the D-M
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<PAGE> 53
Shareholders, any third party consents or assignments necessary to consummate
the Merger) and to effect all necessary registrations and filings, including,
but not limited to, filings under the Securities Act and the Exchange Act and
submissions of information requested by Governmental Authorities. Such actions
by Penton and D-M shall include, without limitation, the preparation and
delivery of their respective financial statements, and the delivery of the
reports thereon and related consents, required for the registration statement
referred to in Section 8.1(i). Subject to the terms and conditions herein
provided, Pittway agrees to use all reasonable efforts to take, or cause to be
taken, all action and to use all reasonable efforts to do, or cause to be done,
all things necessary, proper or advisable to cause the Spinoff to be consummated
and to cause the satisfaction of the conditions set forth in Sections 8.2 and
8.3 that are to be satisfied by Pittway.
Without limiting the generality of the preceding paragraph,
each of the Parties shall promptly file any Notification and Report Forms and
related material that it may be required to file in connection with the
transactions contemplated hereby with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the
Hart-Scott-Rodino Act, and shall promptly make any further filings pursuant
thereto that may be necessary, proper or advisable.
Each of the Parties agrees that at any time and from time to
time after the Effective Time such Party will execute and deliver to any other
Party such further instruments or documents, and will take all such other
action, as may be reasonably required to give effect to the transactions
contemplated hereunder.
Penton agrees to use all reasonable efforts to seek the
release at or prior to the consummation of the Spinoff of Pittway from any
guarantee or other arrangement under which Pittway is obligated with respect to
any Liability of Penton or any of its Subsidiaries and agrees to use its best
efforts to seek such release after such consummation to the extent not obtained
prior thereto. "Reasonable efforts" shall include Penton's delivery of
substitute guarantees or other arrangements.
7.4 CERTAIN TAX MATTERS. Penton agrees not to take (directly
or indirectly), and not to permit any of its Subsidiaries to take (directly or
indirectly), any action (whether prior to, at the time of or after the Spinoff)
which would cause the Spinoff not to be tax free to Pittway, the Post-Spinoff
Pittway Subsidiaries and the stockholders of Pittway under the provisions of
Section 355 of the Code.
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Each of the D-M Shareholders agrees not to take (directly or
indirectly) or fail to take (directly or indirectly) any action (whether prior
to, at the time of or after the Effective Time) and not to permit D-M to take
(directly or indirectly) or fail to take (directly or indirectly) any action
prior to the Effective Time which would cause the Merger (i) to give rise to any
Tax to D-M or the Surviving Corporation or (ii) not to constitute a
"reorganization" under Section 368(a) of the Code. The failure of the D-M
Shareholders to give their optional notice described in Section 2.4(h) shall not
constitute a breach of this agreement.
Penton agrees not to take (directly or indirectly) any action
after the Effective Time which would cause the Merger (i) to give rise to any
Tax to the Surviving Corporation, D-M or the D-M Shareholders or (ii) not to
constitute a "reorganization" under Section 368(a) of the Code. Neither the
failure of Penton to give its optional notice described in Section 2.4(h) nor
any payment by Penton pursuant to Section 2.4(e)(ii)(B), 2.4(g), 2.4(h) or 7.16
shall constitute a breach of this agreement.
After the consummation of the Spinoff, Penton will not take
(directly or indirectly), or permit any of its Subsidiaries to take (directly or
indirectly), any action that would increase the Tax Liability of any of the
companies included in Pittway's Affiliated Group for any period ending at or
prior to or including the consummation of the Spinoff.
After the Effective Time, the D-M Shareholders will not take
(directly or indirectly) any action that would increase the Tax Liability of D-M
for any period ending at or prior to or including the Effective Time.
7.5 NO NEGOTIATIONS, ETC.
(a) During the period prior to the consummation of
the Spinoff, except as permitted by the final paragraph of Section 6.1,
Pittway shall not, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage submission
of any proposal or offer from any Person (including any of its officers
or employees) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of
all or a material portion of the assets of, or any equity interest in,
Penton or any of its Subsidiaries or other similar transaction or
business combination involving Penton or any of its Subsidiaries or
participate in any negotiations regarding, or furnish to any other
Person any information with respect to, or otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other Person to do or seek any of the
foregoing. Pittway shall promptly notify Penton and the D-M
Shareholders if any such proposal or offer, or any inquiry from or
contact with any Person with respect thereto, is made and shall
promptly provide Penton and the D-M Shareholders with such information
regarding such proposal, offer, inquiry or contact as Penton and the
D-M Shareholders may request.
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<PAGE> 55
(b) During the period prior to the Effective Time,
except as permitted by the final paragraph of Section 6.1, Penton shall
not, directly or indirectly, through any officer, director, agent or
otherwise, solicit, initiate or encourage submission of any proposal or
offer from any Person (including any of its officers or employees)
relating to any liquidation, dissolution, recapitalization, merger,
consolidation or acquisition or purchase of all or a material portion
of the assets of, or any equity interest in, Penton or any of its
Subsidiaries or other similar transaction or business combination
involving Penton or any of its Subsidiaries or participate in any
negotiations regarding, or furnish to any other Person any information
with respect to, or otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any
other Person to do or seek any of the foregoing. Penton shall promptly
notify the D-M Shareholders and Pittway if any such proposal or offer,
or any inquiry from or contact with any Person with respect thereto, is
made and shall promptly provide the D-M Shareholders and Pittway with
such information regarding such proposal, offer, inquiry or contact as
the D-M Shareholders and Pittway may request.
(c) During the period prior to the Effective Time,
the D-M Shareholders shall not (nor shall they permit D-M to), directly
or indirectly, through any officer, director, agent or otherwise,
solicit, initiate or encourage submission of any proposal or offer from
any Person (including any officers or employees of D-M) relating to any
liquidation, dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the assets of,
or any equity interest in, D-M or other similar transaction or business
combination involving D-M or participate in any negotiations regarding,
or furnish to any other Person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to
do or seek any of the foregoing. The D-M Shareholders shall promptly
notify Penton and Pittway if any such proposal or offer, or any inquiry
from or contact with any Person with respect thereto, is made and shall
promptly provide Penton and Pittway with such information regarding
such proposal, offer, inquiry or contact as Penton and Pittway may
request.
7.6 EXPENSES. Subject to Section 9.2, and provided that Penton
will bear the costs and expenses of the audit of D-M's financial statements
required for the registration statement referred to in Section 8.1(i), the D-M
Shareholders, jointly and severally, will bear the costs and expenses (including
legal fees and expenses) incurred by D-M or the D-M Shareholders in connection
with the transactions contemplated hereby, Pittway will bear its costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby and Penton will bear its
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
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7.7 INDEMNIFICATION AND HOLD HARMLESS AGREEMENTS.
(a) PENTON INDEMNIFICATION PROVISIONS FOR BENEFIT
OF THE D-M SHAREHOLDERS. Penton agrees to indemnify, defend and hold
harmless the D-M Shareholders from and against any Adverse Consequences
asserted against or imposed upon or incurred by either of them
resulting from, relating to, or by reason of
(i) any breach by Penton of any of the
representations and warranties set forth in Article 3 (after
giving effect to any disclosures made by Penton pursuant to
Section 7.9) or any breach by Penton or Combination Subsidiary
of any covenant thereof in this Agreement, or
(ii) any liability of any former Subsidiary of
Penton (as of immediately prior to the Effective Time) other
than any Subsidiary referred to under the caption "Possible
Dispositions" in the Penton Disclosure Letter (it being
understood that such Liabilities shall include without
limitation any Tax Liabilities of any such former Subsidiary,
but only to the extent not directly attributable to Penton or
its Subsidiaries (as of immediately prior to the Effective
Time), and any Control Group Liability of Penton to the extent
it is directly attributable to any such former Subsidiary).
(b) D-M SHAREHOLDERS INDEMNIFICATION PROVISIONS FOR
BENEFIT OF PENTON AND COMBINATION SUBSIDIARY. The D-M Shareholders,
jointly and severally, agree to indemnify, defend and hold harmless
Penton and Combination Subsidiary and their respective directors,
officers, employees and agents from and against any Adverse
Consequences asserted against or imposed upon or incurred by any of
them resulting from, relating to, or by reason of
(i) any breach by the D-M Shareholders of
any of the representations and warranties set forth in Article
4 (after giving effect to any disclosures made by the D-M
Shareholders pursuant to Section 7.9) or any breach by D-M or
either D-M Shareholder of any covenant thereof in this
Agreement,
(ii) any Liability of any current or former
Affiliate of D-M (as of immediately prior to the Effective
Time) (it being understood that such Liabilities shall include
without limitation any Tax Liabilities of any such Affiliate,
but only to the extent not directly attributable to D-M, and
any Control Group Liability of D-M to the extent it is
directly attributable to any such Affiliate), or
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(iii) any untrue or alleged untrue
statement of material fact contained in any registration
statement or filing made by Penton of the kind described in
Section 7.2(g), or any amendment or supplement to any of the
foregoing, or any omission or alleged omission of a material
fact required to be stated in any of the foregoing or
necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or alleged
untrue statement or such omission or alleged omission relates
to D-M or its Affiliates or the D-M Shareholders or their
respective Affiliates (in each case not including Penton
notwithstanding the occurrence of the Effective Time) and is
contained in any information furnished in writing by a D-M
Shareholder pursuant to Section 7.2(g) or is deemed approved
by the D-M Shareholders pursuant to Section 7.2(i).
(c) PITTWAY INDEMNIFICATION PROVISIONS FOR BENEFIT
OF PENTON. Pittway agrees to indemnify, defend and hold harmless Penton
and its Subsidiaries and its and their directors, officers, employees
and agents from and against the entirety of any Adverse Consequences
asserted against or imposed upon or incurred by any of them resulting
from, relating to, or by reason of
(i) any breach by Pittway of any of the
representations and warranties set forth in Article 5 (after
giving effect to any disclosures made by Pittway pursuant to
Section 7.9) or any covenant of Pittway in this Agreement,
(ii) except as provided under the caption
"Possible Dispositions" in the Penton Disclosure Letter, any
Tax Liabilities of Pittway's Affiliated Group for periods (or
portions thereof) ended at the time of or prior to the
consummation of the Spinoff which are not directly
attributable to Penton or its then or former Subsidiaries, and
any Control Group Liability arising out of events occurring or
circumstances existing as of or prior to the Spinoff which is
not directly attributable to Penton or its then or former
Subsidiaries, or
(iii) any Tax imposed on Penton or its
Subsidiaries resulting from the failure, as a result of the
failure of Pittway to maintain control of Penton until the
Spinoff as described in Section 368(c) of the Code or of
actions taken after the Spinoff by Pittway or any company
which after the Spinoff is a Subsidiary of Pittway, of the
Spinoff to qualify as a tax-free (to Pittway and the
stockholders of Pittway) distribution under Section 355 of the
Code.
Notwithstanding the foregoing or any other provision of this Agreement, in no
event shall Pittway be obligated to indemnify, defend and hold harmless under
this Section 7.7(c) or otherwise be obligated with respect to any Adverse
Consequences arising out of the condition or sufficiency of the assets or stock
of Penton or any of its Subsidiaries
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or the existence of any Security Interests relating to such assets or stock, it
being expressly understood that Pittway is making no representations or
warranties directly or indirectly with respect to such assets or stock.
(d) PENTON INDEMNIFICATION PROVISIONS FOR BENEFIT
OF PITTWAY. Penton agrees to indemnify, defend and hold harmless
Pittway, the Post-Spinoff Pittway Subsidiaries, its and their
directors, officers, employees and agents, and any Person who or which
because of a relationship to Pittway or one of its Subsidiaries at the
time of or prior to the consummation of the Spinoff would be liable
(jointly and severally or otherwise) with respect to Liabilities of
Pittway or of any Subsidiary of Pittway, from and against any Adverse
Consequences asserted against or imposed upon or incurred by any of
them resulting from, relating to, or by reason of
(i) any Liability arising out of the
operations, acts, omissions or status of Penton or any of its
Subsidiaries (including without limitation any such Liability
arising out of events occurring or circumstances existing
prior to the Spinoff),
(ii) any breach by Penton of any covenant
of Penton in this Agreement (including without limitation any
covenant set forth in Section 7.4), or
(iii) any untrue or allegedly untrue
statement of material fact contained in any filing of Pittway
of the kind described in Section 7.2(h), or any amendment or
supplement to any of the foregoing, or any omission or alleged
omission of a material fact required to be stated in any of
the foregoing or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement
or alleged untrue statement or such omission or alleged
omission relates to Penton or any of its Subsidiaries or their
respective Affiliates (other than Pittway or any Post-Spinoff
Pittway Subsidiary), or to D-M or an Affiliate of D-M, or to
either D-M Shareholder or his Affiliates, or is contained in
any information furnished in writing by Penton or a D-M
Shareholder pursuant to Section 7.2(g) or (h) or is deemed
approved by the D-M Shareholders pursuant to Section 7.2(i).
Notwithstanding the foregoing, in no event shall Penton be obligated to
indemnify, defend and hold harmless under this Section 7.7(d) with respect to
any Adverse Consequences from and against which Pittway has agreed to indemnify,
defend and hold harmless Penton and its Subsidiaries and its and their
directors, officers, employees and agents pursuant to Section 7.7(c) or with
respect to any Adverse Consequences by reason of Taxes which Pittway has agreed
to pay pursuant to the final sentence of Section 7.12(a).
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(e) D-M SHAREHOLDERS INDEMNIFICATION PROVISIONS FOR
BENEFIT OF PITTWAY. The D-M Shareholders, jointly and severally, agree
to indemnify, defend and hold harmless Pittway and its directors,
officers, employees and agents from and against any Adverse
Consequences asserted against or imposed upon or incurred by any of
them resulting from, relating to, or by reason of any untrue or
allegedly untrue statement of material fact contained in any filing of
Pittway of the kind described in Section 7.2(g), or any amendment or
supplement to any of the foregoing, or any omission or alleged omission
of a material fact required to be stated in any of the foregoing or
necessary to make the statements therein not misleading, but only to
the extent that such untrue statement or alleged untrue statement or
such omission or alleged omission relates to D-M or an Affiliate of
D-M, or to either D-M Shareholder or his Affiliates (in each case not
including Penton notwithstanding the occurrence of the Effective Time),
and is contained in any information furnished in writing by a D-M
Shareholder pursuant to Section 7.2(g) or is deemed approved by the D-M
Shareholders pursuant to Section 7.2(i).
(f) MATTERS INVOLVING THIRD PARTIES. If any third
party shall notify any Party (the "INDEMNIFIED PARTY") with respect to
any matter which may give rise to a claim for indemnification against
any other Party (the "INDEMNIFYING PARTY") under this Section 7.7, then
the Indemnified Party shall notify each Indemnifying Party thereof
promptly; PROVIDED, HOWEVER, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any liability or obligation hereunder unless
(and then solely to the extent that) the Indemnifying Party is damaged
by such delay. In the event any Indemnifying Party notifies the
Indemnified Party, within 15 days after the Indemnified Party has given
notice of the matter, that the Indemnifying Party is assuming the
defense thereof, (i) the Indemnifying Party will defend the Indemnified
Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party, (ii) the Indemnified Party may
retain separate co-counsel at its sole cost and expense (except that
the Indemnifying Party will be responsible for the fees and expenses of
the separate co-counsel to the extent the counsel the Indemnifying
Party has selected has a conflict of interest), (iii) the Indemnified
Party will not consent to the entry of any judgment or enter into any
settlement with respect to the matter without the written consent of
the Indemnifying Party (not to be withheld or delayed unreasonably),
and (iv) the Indemnifying Party will not consent to the entry of any
judgment with respect to the matter, or enter into any settlement,
which does not include a provision whereby the plaintiff or claimant in
the matter releases the Indemnified Party from all Liability with
respect thereto, without the written consent of the Indemnified Party
(not to be withheld or delayed unreasonably). In the event no
Indemnifying Party notifies the Indemnified Party, within 15 days after
the Indemnified Party has given notice of the matter, that such
Indemnifying Party is assuming the defense thereof, the Indemnified
Party may defend against, or
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enter into any settlement with respect to, the matter in any manner the
Indemnified Party may deem appropriate.
(g) DETERMINATION OF ADVERSE CONSEQUENCES. The
Parties shall make appropriate adjustments for Tax benefits and
detriments and insurance proceeds (reasonably certain of receipt and
utility in each case) and for the time cost of money (using a discount
rate of 8% per annum) in determining the amount of Adverse Consequences
for purposes of this Section 7.7.
(h) DETERMINATION OF INDEMNIFICATION REMEDIES. The
Parties agree that a representation or warranty shall be breached if it
is untrue or inaccurate, and that the Adverse Consequences resulting
from such breach shall be the Adverse Consequences that would not have
arisen had such representation or warranty been true and accurate in
all respects. Penton, D-M and the D-M Shareholders further agree that
notwithstanding any other provision of this Agreement, none of them
shall be obligated to indemnify the other with respect to a breach of
representation or warranty relating to the applicability to the
transactions contemplated by this Agreement of, or relating to such
transactions' not violating, any law regarding antitrust or the
competitive impact of business combinations, it being acknowledged that
the risk of any such applicability or violation is viewed by Penton,
D-M and the D-M Shareholders as negligible.
(i) LIMITATIONS.
(i) No claim for indemnification under this
Section 7.7 arising out of the breach of any representation or
warranty, including without limitation any claim related to
shares of Penton Common that have been sold, shall be made by
either D-M Shareholder until after the 15th day after the
conclusion of the Second Reference Period (or, if such day is
not a business day, the first business day thereafter).
(ii) No claim for indemnification under
this Section 7.7 arising out of the breach of any
representation or warranty shall be made after the expiration
of the applicable survival period set forth in Section 10.1.
(iii) Except to the extent such limitation
is prohibited by applicable law and such prohibition is not
waivable by the indemnitee, the indemnification provisions of
this Section 7.7 shall constitute the exclusive remedy of each
indemnitee in connection with this Agreement or the
transactions contemplated herein, including without limitation
for any of the matters described in Sections 7.7(a), (b), (c),
(d) and (e). To the
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maximum extent permitted by applicable law, each indemnitee
waives the benefit of any such prohibition.
(j) BASKET FOR CERTAIN INDEMNIFICATION CLAIMS.
Penton shall have no obligation to indemnify the D-M Shareholders from
and against any Adverse Consequences resulting from, relating to or by
reason of any breach by Penton of the representations and warranties
set forth in Article 3 (other than in the last sentence of Section
3.3(b) or in Section 3.9) until the D-M Shareholders have suffered
aggregate Adverse Consequences by reason of all such breaches as to
which claims for indemnification are permitted hereunder and have been
timely made against Penton within the period provided therefor
hereunder in excess of $.5 million (at which point Penton shall be
obligated to indemnify the D-M Shareholders from and against the
Adverse Consequences exceeding $.5 million resulting from, relating to
or by reason of all such breaches as to which claims for
indemnification are permitted hereunder and have been timely made;
which indemnification obligation shall be discharged in full by
Penton's payment of an amount equal to such excess Adverse
Consequences). The D-M Shareholders shall have no obligation to
indemnify Penton from and against any Adverse Consequences resulting
from, relating to or by reason of any breach by the D-M Shareholders of
the representations and warranties contained in Article 4 (other than
in the last four sentences of Section 4.4(b) or in Section 4.12) until
Penton has suffered aggregate Adverse Consequences by reason of all
such breaches as to which claims for indemnification have been timely
made against the D-M Shareholders within the period provided therefor
hereunder in excess of $.5 million (at which point the D-M Shareholders
shall be obligated to indemnify Penton from and against the Adverse
Consequences exceeding $.5 million resulting from, relating to or by
reason of all such breaches as to which claims for indemnification have
been timely made).
7.8 EMPLOYEE MATTERS.
(a) EMPLOYEE BENEFIT LIABILITIES. Except as
otherwise set forth in this Agreement, as of the date of consummation
of the Spinoff, Penton shall assume, and Penton shall thereafter bear
and discharge, all Liabilities (whether or not such Liabilities arose
prior to or arise on or after the date of consummation of the Spinoff)
of Pittway and the Post-Spinoff Pittway Subsidiaries relating to
employee benefits with respect to all Covered Penton
Employees/Dependents, including but not limited to Liability for
continuation medical benefits coverage pursuant to Section 4980B of the
Code, Part 6, Subtitle B of Title I of ERISA or applicable state law
and all other post-employment medical benefits coverage; provided,
however, that such Liabilities with respect to employee benefits shall
exclude any Liability directly resulting from Pittway's or a
Post-Spinoff Pittway Subsidiary's willful or negligent failure, if any,
to comply with ERISA or the Code, unless such failure of Pittway or
such Subsidiary is, in whole or in part, caused or contributed to by
any employee or
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former employee of Penton or any of its Subsidiaries. Assets equal to
certain of such Liabilities shall be transferred to Penton in
accordance with the terms of this Section 7.8.
(b) PENTON PENSION PLANS. Effective as of the date
of consummation of the Spinoff, Penton shall establish new Employee
Pension Benefit Plans that meet the qualification requirements of
Section 401(a) of the Code (and related trusts that meet the
requirements of Section 501(a) of the Code) and that are (except as
hereinafter provided in this Section 7.8) identical in all material
respects to the Employee Pension Benefit Plans of Pittway that covered
Penton Employees/Dependents immediately prior to the date of
consummation of the Spinoff. Each Penton Employee Pension Benefit Plan
shall contain terms and conditions sufficient to fulfill the
requirements of Section 411(d)(6) of the Code concerning the
preservation of optional forms of benefits in qualified plan asset
transfers with respect to assets and Liabilities transferred from any
Employee Pension Benefit Plan of Pittway to any such Employee Pension
Benefit Plan of Penton in accordance with this Section 7.8.
(i) PENTON 401(k) PLAN. The new Employee
Pension Benefit Plan of Penton that is a Defined Contribution
Plan intended to be qualified under Section 401(a) of the Code
and intended to meet the requirements of Section 401(k) of the
Code (the "PENTON 401(K) PLAN") need not include as an
investment option the stock of any of Pittway, Penton or
AptarGroup, Inc. The Penton 401(k) Plan and each corresponding
tax exempt trust thereunder shall accept transfers of account
balances of the Covered Penton Employees/Dependents from the
Pittway Blue Chip Plan and the trust or trusts established
thereunder. As soon as practicable after the date of
consummation of the Spinoff, but in any event not earlier than
the date as of which Penton submits to Pittway evidence
reasonably acceptable to Pittway that the Penton 401(k) Plan
meets the requirements of Sections 401(a), 401(k), 401(m) and
411(d)(6) of the Code, Pittway shall cause the trustees of the
trust or trusts under the Pittway Blue Chip Plan to transfer
to the trust or trusts established under the Penton 401(k)
Plan assets equal to the account balances (including all
vested and unvested portions thereof) of Covered Penton
Employees/Dependents under the Pittway Blue Chip Plan valued
as of the day before the date of transfer. Such account
balances shall include all employee salary reduction
contributions, employer matching contributions and employer
contributions from the prior Penton profit-sharing plan
previously combined with the Pittway BlueChip Plan (and
earnings thereon, if any) made or to be made under the Pittway
Blue Chip Plan with respect to all periods ending on the date
of consummation of the Spinoff. Such transfer of account
balances shall be made in cash or property, or a combination
of cash and property, as mutually agreed upon by Pittway and
Penton. Each Covered Penton Employee/Dependent who,
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as of the date of transfer, has a loan outstanding under the
Pittway Blue Chip Plan shall have such loan transferred to the
Penton 401(k) Plan, and the Penton 401(k) Plan shall provide
for such loan to continue on the same terms established under
the Pittway Blue Chip Plan (but in any event in accordance
with applicable law). Pittway shall cause the plan loan
provisions of the Pittway Blue Chip Plan to be timely amended
to provide that, effective as of the date of consummation of
the Spinoff, each Covered Penton Employee/Dependent with a
loan outstanding as of such date shall be permitted to
continue repayment of such loan until the earliest of the date
of the asset transfer contemplated in this Section 7.8(b)(i),
the date on which an event of default occurs with respect to
the loan, or the date the loan (plus all accrued interest
thereon) is fully repaid in accordance with its terms. From
the date of consummation of the Spinoff until the date of the
asset transfer contemplated in this Section 7.8(b)(i), Pittway
agrees to administer and timely pay benefits from the Pittway
Blue Chip Plan and the trust or trusts thereunder with respect
to Covered Penton Employees/Dependents to the extent that any
such benefits become due and payable.
(ii) PENTON PENSION PLAN. The new Employee
Pension Benefit Plan of Penton that is a Defined Benefit Plan
covering Covered Penton Employees/Dependents on and
immediately after the date of consummation of the Spinoff
shall be referred to hereinafter as the "PENTON PENSION PLAN."
As soon as practicable after the date of consummation of the
Spinoff, but in any event not earlier than the date as of
which Penton submits to Pittway evidence reasonably acceptable
to Pittway that the Penton Pension Plan meets the requirements
of Sections 401(a) and 411(d)(6) of the Code, Pittway shall
cause the trustees of the trust under the Pittway Salaried
Plan to transfer to the trust under the Penton Pension Plan
assets (in cash and/or property mutually agreed upon between
Pittway and Penton) equal to $45,000,000 (which will exceed
the aggregate Accumulated Benefit Obligation (as defined in
Financial Accounting Standards Board Statement No. 87 ("FAS
87")) as of the date of consummation of the Spinoff for each
Covered Penton Employee/Dependent (and beneficiary of any
deceased such former employee, as the case may be)) plus a pro
rata portion, based on such amount, of the earnings (or less a
pro rata portion, based on such amount, of the losses) during
the period from January 1, 1998 to the actual date of transfer
on the total assets in the trust under the Pittway Salaried
Plan, adjusted to reflect any benefits payments made during
such period from the Pittway Salaried Plan and the trust
thereunder with respect to Covered Penton Employees/Dependents
pursuant to the final sentence of this Section 7.8(b)(ii) or
otherwise. For purposes of this Section 7.8(b)(ii), the
determination of such Accumulated Benefit Obligation shall be
based on the actuarial assumptions set forth in the
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most recent FAS 87 actuarial valuation for the Pittway
Salaried Plan. The final determination of such Accumulated
Benefit Obligation shall be made by agreement of Pittway and
Penton. If within a reasonable period of time Pittway and
Penton cannot agree on the determination of the amount of
assets to be transferred, such determination shall be made by
a third party mutually agreeable to Pittway and Penton, whose
fees and expenses shall be borne equally by Pittway and Penton
and whose determination shall be binding on Pittway and
Penton. From the date of consummation of the Spinoff until the
date of the asset transfer contemplated in this Section
7.8(b)(ii), Pittway and Penton, in accordance with past
practice, shall administer and cause the timely payment of
benefits from the Pittway Salaried Plan and the trust
thereunder with respect to Covered Penton Employees/Dependents
to the extent that any such benefits become due and payable.
(iii) ADDITIONAL ASSET TRANSFER COVENANTS.
Notwithstanding the foregoing provisions of this Section
7.8(b), each transfer of assets and Liabilities provided for
in this section shall satisfy the requirements of Section
414(l) of the Code. In connection with each such transfer of
assets and Liabilities, Pittway and Penton agree to execute
such documents, to adopt such plan amendments, and to make
such governmental filings as may be necessary or desirable to
effectuate the transfer in a timely manner and in accordance
with applicable law.
(c) PENTON EMPLOYEE WELFARE BENEFIT PLANS.
Effective as of the date of consummation of the Spinoff, Penton shall
establish new Employee Welfare Benefit Plans that are identical in all
material respects to the Employee Welfare Benefit Plans of Pittway that
covered the Covered Penton Employees/Dependents on or immediately prior
to the date of consummation of the Spinoff. Penton's Employee Welfare
Benefit Plans shall credit toward 1998 deductible and co-payment
requirements all deductibles and co-payments made by Covered Penton
Employees/Dependents under Pittway's Employee Welfare Benefit Plans
during the 1998 calendar year, including all such payments made prior
to the date of consummation of the Spinoff.
(i) PENTON 501(c)(9) TRUST. Prior to the
date of consummation of the Spinoff, Penton shall take all
steps necessary to establish the Penton 501(c)(9) Trust (which
shall be identical in all material respects to the Pittway
501(c)(9) Trust) for the purpose of funding medical plan
benefits for Covered Penton Employees/Dependents and Pittway
shall take all steps necessary to transfer to the Penton
501(c)(9) Trust from the Pittway 501(c)(9) Trust an
appropriate amount of assets equal to employee and employer
contributions (plus earnings, if any, thereon) in the Pittway
501(c)(9) Trust as of the date of transfer that are
attributable to Covered Penton Employees/Dependents.
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(ii) HEALTH AND DENTAL EXPENSE CLAIMS. With
respect to Covered Penton Employees/Dependents, Penton shall
assume, bear and discharge all Liabilities with respect to all
health and dental expense claims, whether incurred on, prior
to or after the date of consummation of the Spinoff and
whether reported on, prior to, or after such date.
(iii) OTHER WELFARE BENEFIT CLAIMS. Penton
shall be responsible, under Employee Welfare Benefit Plans of
Penton that provide group universal or other life, accidental
death and dismemberment, business travel accident, personal
accident and/or long-term disability insurance, for all
Liabilities that arise on or after the date of consummation of
the Spinoff for Incidents with respect to the Covered Penton
Employees/Dependents (and Pittway shall not have any Liability
whatsoever for any of such Liabilities) and Pittway shall
retain all Liabilities (and Penton shall not assume any
Liability) under Pittway's Employee Welfare Benefit Plans that
provide group universal or other life, accidental death and
dismemberment, business travel accident, personal accident
and/or long-term disability insurance for Incidents occurring
prior to the date of consummation of the Spinoff with respect
to such individuals; except that Penton shall assume, bear and
discharge all Liabilities with respect to claims under Penton
Retiree Life Insurance regardless of when the related
Incidents occur. For purposes of the preceding sentence,
"Incident" includes, without limitation, injury, disability,
death, and accident.
(d) DISPUTED EMPLOYEE BENEFIT CLAIMS. With respect
to any disputed employee benefit plan claim of any Covered Penton
Employee/ Dependent with respect to any period ending on or prior to
the date of consummation of the Spinoff, Penton shall have the right to
prepare any response or defense thereto (or approve or deny approval of
any response or defense prepared by Pittway) to the extent such claim
is in connection with a Liability assumed by Penton pursuant to this
Agreement.
(e) WORKERS' COMPENSATION CLAIMS. Penton shall be
responsible for all Liabilities for workers' compensation claims made
by any Covered Penton Employee/Dependent, whether made on, prior to or
after the date of consummation of the Spinoff. From and after the
Spinoff, Penton shall be responsible for maintaining any and all
insurance with respect to such Liabilities and/or claims required by
applicable law.
(f) PENTON 1998 STOCK AWARDS PLAN. Effective as of
the date of consummation of the Spinoff, Penton shall establish the
Penton 1998 Stock Awards Plan.
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(g) PENTON 1998 DIRECTOR STOCK OPTION PLAN.
Effective as of the date of consummation of the Spinoff, Penton shall
establish the Penton 1998 Director Stock Option Plan.
(h) PENTON SERP. Effective as of the date of
consummation of the Spinoff, Penton shall establish a Supplemental
Executive Retirement Plan with terms as favorable to Thomas L. Kemp and
Daniel J. Ramella as under the respective supplemental executive
retirement plans of Pittway in which they participate pursuant to their
existing Employment Agreements with Penton.
(i) COVERAGE OF SURVIVING CORPORATION'S EMPLOYEES.
Prior to the Effective Time: (i) D-M shall take such action as is
necessary to cause each of its employee benefit plans and programs to
terminate immediately prior to the Effective Time and to cause any
distributions required upon such termination pursuant to the terms of
such plans and programs to be made promptly thereafter, it being
understood that D-M has terminated its Employee Profit Sharing Plan as
of December 31, 1997 and that no distributions will be made thereunder
in respect of any profits of D-M in 1998 or thereafter; and (ii) Penton
shall take such action as is necessary to cause the active full-time
employees of D-M immediately prior to the Effective Time to commence
coverage as employees of Surviving Corporation immediately after the
Effective Time under each of Penton's then employee benefit plans and
programs, subject to satisfaction of such requirements for eligibility
and coverage as may be in force from time to time. For purposes of each
of such employee benefit plans and programs of Penton, each such
employee of the Surviving Corporation shall be credited with his or her
years of service with D-M for eligibility, waiting period and vesting
requirements and (except in the case of any Penton Employee Benefit
Pension Plan) for purposes of benefit levels, and shall be credited
with all deductibles and co-payments made by him or her under D-M's
Employee Welfare Benefit Plans during the 1998 calendar year, including
all such payments made prior to the Effective Time, for corresponding
1998 deductible and co-payment requirements under Penton's Employee
Welfare Benefit Plans, and any exclusion of a pre-existing condition
from coverage under any medical plan or program shall be waived except
(to the extent permitted by applicable law) to the extent such
exclusion applies to a particular employee immediately prior to the
Effective Time under D-M's medical plans and programs.
7.9 UPDATE OF DISCLOSURE LETTERS. Immediately prior to the
Effective Time, each of Penton, the D-M Shareholders and Pittway shall update
its or their respective Disclosure Letter so that, had such updated disclosures
been included in such Disclosure Letter, its or their representations in this
Agreement would be true and correct as of the Effective Time.
7.10 AGREEMENT REGARDING DISTRIBUTION OF PENTON COMMON ON
CERTAIN PITTWAY SHARES. Harris Trust and Savings Bank, in its capacity as
successor merger
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exchange agent in connection with the 1989 Merger Agreement (as defined below),
holds certificates representing shares of Pittway capital stock (the "UNCLAIMED
PITTWAY SHARES") for which certificates representing shares of common stock of
Pittway Corporation, a Pennsylvania corporation ("OLD PITTWAY"), have not yet
been surrendered in the manner required in connection with the merger of Old
Pittway into Pittway in December of 1989. Under the terms of the Amended and
Restated Merger Agreement and Plan of Reorganization dated as of October 11,
1989 between Pittway (then known as Standard Shares, Inc.) and Old Pittway (the
"1989 MERGER AGREEMENT"), the Unclaimed Pittway Shares are required to be held
by an exchange agent selected by Pittway until certificates representing such
shares are surrendered to such exchange agent. In the event that any Unclaimed
Pittway Shares are issued upon the surrender of such certificates, however,
Pittway is obligated under the 1989 Merger Agreement to deliver certificates
representing such Unclaimed Pittway Shares along with all dividends that have
been paid with respect thereto after the date of the merger of Old Pittway into
Pittway (including stock dividends such as the distribution of Penton Common in
the Spinoff as well as all dividends paid with respect to shares issued in any
stock dividend such as dividends that may be paid with respect to Penton Common
issued in the Spinoff). Penton Common shall be issued in the Spinoff with
respect to Unclaimed Pittway Shares outstanding as of the record date for the
Spinoff and such Penton Common shall be delivered to Harris Trust and Savings
Bank, in its capacity described above. Penton agrees to treat such shares of
Penton Common as outstanding for all purposes, including the payment of
dividends (which shall be paid to Harris Trust and Savings Bank in its capacity
described above).
7.11 AGREEMENT REGARDING TRANSITIONAL SERVICES. Pittway agrees
to provide assistance to Penton subsequent to the Effective Time in connection
with Penton's preparation of its Tax returns for periods ending on or prior to
December 31, 1998 and in connection with its other Tax matters for such periods,
as reasonably requested by Penton reasonably in advance. Pittway and Penton
shall negotiate on an arm's length basis an appropriate fee to be paid for any
such assistance so provided. In no event shall Pittway be required to provide,
nor shall it provide, assistance in any tax year (including any short tax year)
of Penton for which fees in excess of $60,000 would be payable.
7.12 AGREEMENT REGARDING POST-SPINOFF TAX RETURNS AND OTHER
POST-SPINOFF TAX MATTERS.
(a) Pittway shall include Penton and its
Subsidiaries in Pittway's federal income Tax Returns (and any state,
local or foreign income Tax Returns) hereafter filed by Pittway
("PITTWAY RETURNS") to the extent permitted by law. To the extent that
they relate to Penton and its Subsidiaries, Pittway shall prepare such
Pittway Returns in a manner consistent with past Pittway Returns.
Pittway shall allow Penton an opportunity to review and comment on such
Pittway Returns to the extent that they relate to Penton and its
Subsidiaries. Pittway shall pay all Taxes reported on such Pittway
Returns and Pittway shall
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pay the cost of preparing such Pittway Returns (it being expressly
understood that Pittway shall not be obligated with respect to any
Taxes arising out of the operations of Penton and its Subsidiaries
that for any reason whatsoever are not reported on such Pittway
Returns).
(b) Pittway and Penton shall cooperate fully, as
and to the extent reasonably requested by the other party, in
connection with any audit, litigation or other proceeding with respect
to Taxes. Such cooperation shall include the retention and (upon the
other party's request) the provision of records and information which
are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. Pittway and Penton agree (A) to retain all books
and records with respect to Tax matters pertinent to Penton and its
Subsidiaries relating to any taxable period beginning before the
consummation of the Spinoff until the expiration of the statute of
limitations (and, to the extent notified by Pittway or Penton, any
extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements related to such books and records
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so
requests, to allow the other party to take possession of such books and
records. Pittway shall promptly notify Penton upon receipt by Pittway
of notice of any pending audits of, or assessments relating to, a
Pittway Return which may result in a Liability of Penton or any of its
Subsidiaries. Pittway shall consult with Penton from time to time with
respect to any such audit or administrative or judicial proceeding to
the extent such audit or proceeding involves a Liability of Penton or
any of its Subsidiaries and will give Penton such information with
respect thereto as Penton may reasonably request.
7.13 D-M SHAREHOLDERS NON-COMPETE, NON-SOLICITATION. Each of
the D-M Shareholders hereby acknowledges and agrees that:
(a) The assets of D-M include trade secrets and
customer lists of and other confidential information concerning D-M.
(b) During the period of three years after the
Effective Time such D-M Shareholder shall not in any manner, directly
or indirectly, through any person, firm or corporation, alone or as a
member of a partnership or as an officer, director, stockholder,
investor or employee of or in any other corporation or enterprise or
otherwise, engage or be engaged in, or assist any other person, firm,
corporation or enterprise in engaging or being engaged in, anywhere in
the United States, the publishing or production of any Business
Information Product that competes with a Business Information Product
being published or produced by D-M immediately prior to the Effective
Time.
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(c) During the period of three years following the
Effective Time, such D-M Shareholder shall not in any manner, directly
or indirectly, (i) induce or attempt to induce any employee of Penton,
the Surviving Corporation or any of Penton's other Subsidiaries to quit
or abandon his employ, or any customer of Penton, the Surviving
Corporation or any of Penton's other Subsidiaries to quit or abandon
its relationship, for any purpose whatsoever, or (ii) in connection
with any business to which (b) above applies, call on, service, solicit
or otherwise do business with any then current or prospective customer
of Penton, the Surviving Corporation or any of Penton's other
Subsidiaries.
Nothing in this Section 7.13 shall prohibit either D-M
Shareholder from being: (i) a stockholder in a mutual fund or a diversified
investment company, (ii) a passive owner of not more than 5% of the outstanding
stock of any class of a corporation which is publicly traded, so long as he has
no active participation in the business of such corporation and (iii) a passive
owner of any or all of the outstanding stock of a corporation which is not
publicly traded, so long as such corporation, if it were such D-M Shareholder,
would not be in breach of the provisions of (b) and (c) above.
If, at the time of enforcement of this Section against a D-M
Shareholder, a court holds that the restrictions stated herein are unreasonable
under circumstances then existing, such D-M Shareholder agrees that the maximum
period, scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
Each D-M Shareholder agrees that Penton would be damaged
irreparably in the event any of the provisions of this Section 7.13 were not
performed in accordance with its specific terms or were otherwise breached and
that money damages would be an inadequate remedy for any such non-performance or
breach. Therefore, Penton or its successors or assigns shall be entitled, in
addition to other rights and remedies existing in their favor, to an injunction
or injunctions to prevent any breach or threatened breach of any of such
provisions and to enforce such provisions specifically (without posting a bond
or other security).
7.14 PENTON DIRECTORS. At the Effective Time, the Board of
Directors of Penton shall consist of the following eleven members: Donohue and
Meehan (each of whom shall be elected to serve until Penton's 2000 annual
meeting), King Harris, Thomas L. Kemp, Daniel J. Ramella and six other members
who shall have been designated by Pittway and each of whom shall have agreed to
serve as such, to be so identified in the registration statement registering the
Spinoff under the Securities Act and to provide the information with respect to
him or her required to be included in such registration statement. At the
Effective Time, King Harris shall be non-executive Chairman of the Board of
Penton. Notwithstanding the foregoing, in the event that prior
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to the Effective Time Meehan or Donohue becomes unable to serve, he shall be
replaced by another individual designated by the D-M Shareholders and reasonably
agreeable to Pittway, and in the event that prior to the Effective Time Mr.
Harris, Mr. Kemp or Mr. Ramella becomes unable to serve, he shall be replaced by
another individual designated by Pittway. Following the Effective Time and prior
to December 31, 1999, the Board of Directors shall at no time consist of more
than fifteen members.
7.15 POST-EFFECTIVE TIME CASH CONTRIBUTIONS/RETURN.
(a) In the event that at any time during the period
of 120 days after the Effective Time the Surviving Corporation's cash
and cash equivalents (including for this purpose funds theretofore
withdrawn from the Surviving Corporation by Penton, other than as
payment for products or services provided or as repayment of funds
provided, net of returns thereof) are insufficient to pay its
liabilities and obligations which would then have been paid in the
Ordinary Course of Business of D-M while maintaining a cash and cash
equivalents balance equal to the then Unpaid Adjusted D-M Liabilities,
without any capital contribution, loan, advance or other cash infusion
from any other source (including without limitation from the collection
of the Distributed D-M Accounts Receivable), the D-M Shareholders,
jointly and severally, will immediately pay to the Surviving
Corporation the amount of the deficit. No such payment shall create any
interest of any D-M Shareholder in, or claim of any D-M Shareholder
against, the Surviving Corporation nor shall any such payment be repaid
by the Surviving Corporation, except as provided in (b) below.
(b) In the event that, due to estimating error, at
each time during the period of 120 days after the Effective Time the
Surviving Corporation's cash and cash equivalents (including for this
purpose funds theretofore withdrawn from the Surviving Corporation by
Penton, other than as payment for products or services provided or as
repayment of funds provided, net of returns thereof) exceed an amount
sufficient to pay its liabilities and obligations which would then have
been paid in the Ordinary Course of Business of D-M while maintaining a
cash and cash equivalents balance equal to the then Unpaid Adjusted D-M
Liabilities, without any capital contribution, loan, advance or other
cash infusion from any other source (including without limitation from
the collection of the Distributed D-M Accounts Receivable), the
Surviving Corporation will return to the D-M Shareholders promptly
following the expiration of such period, without any interest thereon,
an amount equal to the smallest such excess.
7.16 POST-EFFECTIVE TIME RECEIVABLES COLLECTION. During the
period of 180 days after the Effective Time (the "COLLECTION PERIOD"), the
Surviving Corporation, as the agent of the D-M Shareholders, will use efforts to
collect the Distributed D-M Accounts Receivable comparable to those efforts the
Surviving Corporation uses to collect its own trade accounts receivable of
similar amounts and ages; provided
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however, that the Surviving Corporation will not be required to retain or
utilize legal counsel or any collection service, or to institute legal
proceedings, as a part of its efforts to collect the Distributed D-M Accounts
Receivable.
If an obligor on any of the Distributed D-M Accounts
Receivable is also an obligor on one or more trade accounts receivable of the
Surviving Corporation at the time such obligor makes a payment to the Surviving
Corporation to be applied toward such obligor's trade accounts payable, such
payment will be applied as indicated by such obligor. It is understood that an
obligor may indicate an application of an amount paid by it toward its accounts
payable either expressly by reference to a particular invoice or implicitly
because the amount paid corresponds to one or more of such accounts payable. It
is further understood that an express indication regarding the application of a
payment may arise subsequent to the Surviving Corporation's receipt of such
payment, as it will be the Surviving Corporation's practice to request direction
from obligors on its accounts receivable (and the Distributed D-M Accounts
Receivable) in the event payments on such obligors' accounts payable are not
accompanied by express directions regarding the application thereof.
Within 5 business days after the end of each calendar month
included in the Collection Period, and within 5 business days after the end of
the Collection Period, the Surviving Corporation will pay to the D-M
Shareholders an amount equal to the amounts received by the Surviving
Corporation in good funds as of the end of such calendar month or the end of the
Collection Period, as the case may be, from its collection of the Distributed
D-M Accounts Receivable which the Surviving Corporation has not theretofore paid
to the D-M Shareholders.
Subsequent to the Collection Period, if either the Surviving
Corporation or the D-M Shareholders receives a payment on a receivable owned by
the other, it or they will promptly forward such payment to the owner.
ARTICLE 8
CONDITIONS
8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of Penton, Combination Subsidiary, D-M and the D-M Shareholders to
effect the Merger shall be subject to the condition that the Spinoff shall have
been consummated at or prior to the Effective Time. The respective obligations
of Penton, Combination Subsidiary, D-M and the D-M Shareholders to effect the
Merger shall also be subject to, and the obligation of Pittway to effect the
Spinoff shall be subject to, the fulfillment at or prior to the Effective Time
of the following conditions:
(a) all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired;
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(b) all Governmental Actions (other than routine
qualifications to do business intended to be obtained as needed)
required to be taken, given or obtained that are necessary in
connection with the transactions contemplated by this Agreement shall
(i) have been taken, given or obtained, (ii) be in full force and
effect as of the Effective Time and (iii) not be subject to any pending
proceedings or appeals, administrative, judicial or otherwise (and the
time for appeal with respect to any Governmental Action shall have
expired, or, if an appeal shall have been taken, it shall have been
dismissed);
(c) there shall not be threatened, instituted or
pending any action or proceeding before any court or Governmental
Authority, whether within or outside the United States, (i) challenging
or seeking to make illegal, or to delay or otherwise directly or
indirectly to restrain or prohibit, the consummation of the Spinoff or
the Merger, or seeking to obtain material damages in connection with
the Spinoff or the Merger, (ii) seeking to prohibit direct or indirect
ownership or operation by Penton of all or a material portion of the
business or assets of D-M, or to compel Penton or any of its
Subsidiaries to dispose of or to hold separately all or a material
portion of the business or assets thereof, (iii) seeking to impose or
confirm limitations on the ability of Penton effectively to exercise
directly or indirectly full rights of ownership of the shares of
capital stock of the Surviving Corporation or any of its other
Subsidiaries, including without limitation the right to vote such
shares on all matters properly presented to the shareholders of any
such company, (iv) seeking to require direct or indirect divestiture by
Penton of any shares of capital stock of the Surviving Corporation or
any of its other Subsidiaries, (v) seeking or causing any material
diminution in the direct or indirect benefits expected to be derived by
Penton or the D-M Shareholders as a result of the transactions
contemplated by this Agreement, (vi) invalidating or rendering
unenforceable any material provision of this Agreement (including
without limitation any of the exhibits or attachments hereto), (vii)
which otherwise is reasonably likely to have a Material Adverse Effect
on Penton or the Surviving Corporation, or (viii) otherwise relating in
any material respect to the Spinoff or the Merger;
(d) there shall not be any action taken, or any
statute, rule, regulation, judgment, order or injunction proposed,
enacted, entered, enforced, promulgated, issued or deemed applicable to
the Spinoff or the Merger by any Governmental Authority which is
reasonably likely to, directly or indirectly, result in any of the
consequences referred to in (c) above;
(e) Penton shall have entered into credit
arrangements sufficient to enable it to repay at the time of the
Spinoff its then outstanding indebtedness to Pittway and to provide it
with sufficient working capital for its foreseeable post-Spinoff needs
taking into account the provisions of this Agreement;
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(f) there shall not have occurred and be continuing
(i) any general suspension of, or limitation on prices for, trading in
securities on the New York Stock Exchange or on the National
Association of Securities Dealers Automated Quotation System, National
Markets System, or in the United States over-the-counter market, or
(ii) any action by any Governmental Authority which would limit or
adversely affect the extension of credit to Penton pursuant to the
credit arrangements referred to in (e) above;
(g) the Penton Common shall have been registered
under the Exchange Act pursuant to a registration statement of Penton
and such registration statement shall have become effective and shall
not be subject to any stop order and no stop order proceeding with
respect thereto shall have been initiated or threatened by the
Commission;
(h) if necessary, the Penton Common to be issued to
the D-M Shareholders pursuant to this Agreement shall have been
registered under all applicable United States state securities or blue
sky laws;
(i) a registration statement of Penton registering
the Spinoff under the Securities Act shall have become effective and
shall not be subject to any stop order and no stop order proceeding
with respect thereto shall have been initiated or threatened by the
Commission;
(j) the Penton Common to be issued in the Spinoff
and to be issued or contingently issued to the D-M Shareholders
pursuant to this Agreement shall have been approved for listing on the
New York Stock Exchange, or for trading on the National Association of
Securities Dealers Automated Quotation System, National Market System,
upon official notice of issuance;
(k) Pittway shall not have been notified by the IRS
that the Ruling has been withdrawn, invalidated or modified in any way
adverse to Pittway or its stockholders; and Pittway shall not have
determined in good faith that the representations and assumptions
underlying the Ruling are untrue or incorrect in any material respect;
(l) Pittway, and Penton and each of its
Subsidiaries, shall have obtained each consent and approval necessary
in order that the Spinoff and the Merger not constitute a breach or
violation of, or result in a right of termination or acceleration or
any encumbrance on the stock or assets of Penton or any of its
Subsidiaries pursuant to the provisions of, any agreement, arrangement,
understanding, license, franchise or permit to which any of them is a
party or by which any of them is bound, which individually or in the
aggregate would be material;
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(m) D-M shall have obtained each consent and
approval necessary in order that the Merger not constitute a breach or
violation of, or result in a right of termination or acceleration or
any encumbrance on the stock or assets of the Surviving Corporation
pursuant to the provisions of, any agreement, arrangement,
understanding, license, franchise or permit to which D-M is a party or
by which it is bound, which individually or in the aggregate would be
material;
(n) except as contemplated in Sections 2.4(d) and
7.14, each person who is a director, officer or employee of Pittway or
any Post-Spinoff Pittway Subsidiary shall have resigned from each
office and directorship held by him at Penton and its Subsidiaries;
(o) at the Closing, Donohue and Penton, and Meehan
and Penton, shall have entered into Employment Agreements in the forms
of EXHIBIT E and EXHIBIT F, respectively (the "EMPLOYMENT AGREEMENTS");
and
(p) no party hereto shall have terminated this
Agreement as permitted herein.
8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF D-M AND THE D-M
SHAREHOLDERS. The obligations of D-M and the D-M Shareholders to effect the
Merger are also subject to the following conditions:
(a) except as contemplated by this Agreement, the
representations and warranties of Penton in Article 3 shall be true and
correct in all material respects as of the Effective Time as if made at
and as of the Effective Time (without giving effect to any updating
disclosures made by Penton pursuant to Section 7.9), and each of
Pittway, Penton and Combination Subsidiary shall in all material
respects have performed each obligation and agreement and complied with
each covenant to be performed and complied with by it hereunder at or
prior to the Effective Time;
(b) the D-M Shareholders shall not have discovered
any Undisclosed Penton Matter, and there shall not have occurred any
Adverse Penton Change, the effect of which, individually or in the
aggregate, is materially adverse to the value of Penton and its
Subsidiaries taken as a whole compared to the value of Penton and its
Subsidiaries reflected in the Penton Financial Statements;
(c) Penton shall have furnished to the D-M
Shareholders a certificate in which Penton shall certify that an
appropriate inquiry has been made of the executive officers of Penton
and its Subsidiaries having principal responsibilities for the matters
as to which representations and warranties have been made by Penton in
this Agreement and for the performance of the
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covenants of Penton set forth in this Agreement, and that after
completion of such inquiry, Penton has no reason to believe that the
conditions set forth in Sections 8.2(a) and (b) have not been
fulfilled;
(d) Penton shall have furnished to the D-M
Shareholders (i) copies of the text of the resolutions by which the
corporate action on the part of Penton necessary to approve this
Agreement and the Merger was taken, (ii) certificates executed on
behalf of Penton and Combination Subsidiary by their respective
corporate secretaries or one of their respective assistant corporate
secretaries certifying to the D-M Shareholders that such copies are
true, correct and complete copies of such resolutions and that such
resolutions were duly adopted and have not been amended or rescinded,
and (iii) incumbency certificates executed on behalf of Penton and
Combination Subsidiary by their respective corporate secretaries or one
of their respective assistant corporate secretaries certifying the
signature and office of each officer thereof executing this Agreement
or any other agreement, certificate or other instrument executed
pursuant hereto;
(e) the Certificate of Incorporation and By-Laws of
Penton shall have been amended and restated to read as set forth in
EXHIBITS C AND D attached hereto;
(f) the D-M Shareholders shall have received a
letter addressed to them from Jones, Day, Reavis & Pogue, ongoing
counsel to Penton, or as to certain of the matters in (vii) below from
local counsel to Penton, dated the date of the Closing, based on
customary reliance and subject to customary qualifications, to the
effect that:
(i) Penton is a corporation existing and in
good standing under the laws of the State of Delaware and is
duly qualified to conduct business as a foreign corporation in
the State of Ohio.
(ii) Combination Subsidiary is a
corporation existing and in good standing under the laws of
the State of Illinois.
(iii) Each of Penton and Combination
Subsidiary has the corporate power to consummate the
transactions on its part contemplated by this Agreement. Each
of Penton and Combination Subsidiary has duly taken all
requisite corporate action to authorize this Agreement and
such transactions; and this Agreement and the Employment
Agreements, insofar as they purport to obligate Penton or
Combination Subsidiary to the D-M Shareholders, have been duly
executed and delivered by Penton and Combination Subsidiary
and constitute the valid, binding and enforceable obligations
of Penton or Combination Subsidiary.
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(iv) The authorized capital of Penton
consists of 60,000,000 shares of capital stock designated
"Common Stock," of which the number of shares indicated in
such letter (including shares transferred in the Spinoff) are
outstanding, and 2,000,000 shares of capital stock designated
"Preferred Stock," none of which are outstanding, all of which
outstanding shares of Common Stock were duly and validly
issued and are fully paid and non-assessable (for purposes of
which such counsel may rely upon a certificate of the
Secretary of Pittway as to the number of shares of Pittway
stock outstanding immediately prior to the consummation of the
Spinoff and may assume that such shares are duly and validly
issued and fully paid and non-assessable).
(v) The registration statement pursuant to
which the Penton Common is registered under the Exchange Act
has become effective under the Exchange Act and to such
counsel's knowledge no stop order suspending its effectiveness
has been issued and no proceedings for that purpose are
pending before or are contemplated by the Commission.
(vi) The Penton Common to be issued or
contingently issued to the D-M Shareholders pursuant to this
Agreement has been duly authorized and will, at the time of
its issuance pursuant to this Agreement, be validly issued,
fully paid and nonassessable.
(vii) Penton wholly owns, directly or
indirectly, all of the outstanding capital stock of each of
its Subsidiaries; and
(g) each of the conditions set forth in Sections
8.3(e), (f) and (h) shall have been satisfied (without giving effect to
any waiver by Penton).
8.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PENTON AND
COMBINATION SUBSIDIARY. The obligations of Penton and Combination Subsidiary to
effect the Merger are also subject to the following conditions:
(a) except as contemplated by this Agreement, the
representations and warranties of the D-M Shareholders in Article 4
shall be true and correct in all material respects as of the Effective
Time as if made at and as of the Effective Time (without giving effect
to any updating disclosures made by the D-M Shareholders pursuant to
Section 7.9), the representations and warranties of Pittway in Article
5 shall be true and correct in all material respects as of the
Effective Time as if made at and as of the Effective Time (without
giving effect to any updating disclosures made by Pittway pursuant to
Section 7.9), and D-M, the D-M Shareholders and Pittway shall in all
material respects have performed each obligation and agreement of it,
them and it, respectively, and
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complied with each covenant to be performed and complied with by it,
them and it, respectively, hereunder at or prior to the Effective Time;
(b) Penton shall not have discovered any
Undisclosed D-M Matter, and there shall not have occurred any Adverse
D-M Change, the effect of which, individually or in the aggregate, is
materially adverse to the value of D-M compared to the value of D-M
reflected on the D-M Financial Statements;
(c) the D-M Shareholders shall have furnished to
Penton a certificate in which each of the D-M Shareholders shall
certify that an appropriate inquiry has been made of the executive
officers of D-M having principal responsibilities for the matters as to
which representations and warranties related to D-M have been made by
the D-M Shareholders in this Agreement and for the performance of the
covenants of D-M and the D-M Shareholders related to D-M set forth in
this Agreement, and that after completion of such inquiry, neither of
the D-M Shareholders has any reason to believe that the conditions
relating to the representations and warranties of the D-M Shareholders
and such performance set forth in Section 8.3(a) and the condition set
forth in Section 8.3(b) have not been fulfilled;
(d) the D-M Shareholders shall have furnished to
Penton (i) copies of the text of the resolutions by which the corporate
action on the part of D-M necessary to approve the Merger was taken,
(ii) a certificate executed on behalf of D-M by its corporate secretary
or one of its assistant corporate secretaries certifying to Penton that
such copy is a true, correct and complete copy of such resolutions and
that such resolutions were duly adopted and have not been amended or
rescinded, and (iii) an incumbency certificate executed on behalf of
D-M by its corporate secretary or one of its assistant corporate
secretaries certifying the signature and office of each officer of D-M
executing any agreement, certificate or other instrument executed
pursuant hereto;
(e) Pittway shall have furnished to Penton a
certificate in which Pittway shall certify that an appropriate inquiry
has been made of the executive officers of Pittway having principal
responsibilities for the matters as to which representations and
warranties have been made by Pittway in this Agreement and for the
performance of the covenants of Pittway set forth in this Agreement,
and that after completion of such inquiry, Pittway has no reason to
believe that the conditions relating to such representations and
warranties and such performance set forth in Section 8.3(a) have not
been fulfilled;
(f) Pittway shall have furnished to Penton (i)
copies of the text of the resolutions by which the corporate action on
the part of Pittway necessary to approve this Agreement and the Spinoff
was taken, (ii) a certificate executed on behalf of Pittway by its
corporate secretary or one of its assistant corporate secretaries
certifying to Penton that such copy is a true, correct and complete
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copy of such resolutions and that such resolutions were duly adopted
and have not been amended or rescinded, and (iii) an incumbency
certificate executed on behalf of Pittway by its corporate secretary or
one of its assistant corporate secretaries certifying the signature and
office of each officer of Pittway executing this Agreement or any other
agreement, certificate or other instrument executed pursuant hereto;
(g) Penton shall have received a letter addressed
to it from Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for
D-M and the D-M Shareholders, dated the date of the Closing, based on
customary reliance and subject to customary qualifications, to the
effect that:
(i) D-M is a corporation existing and in
good standing under the laws of the State of Illinois.
(ii) D-M has the corporate power to
consummate the transactions on its part contemplated by this
Agreement. D-M has duly taken all requisite corporate action
to authorize this Agreement; and this Agreement, insofar as it
purports to obligate D-M to Penton, has been duly executed and
delivered by D-M and constitutes the valid, binding and
enforceable obligation of D-M.
(iii) The authorized capital of D-M
consists of 700 shares of D-M Common Stock, 300 shares of
Common Stock - Series B, without par value, and 200 shares of
Preferred Stock, without par value, of which 700 shares of D-M
Common Stock are outstanding, all of which outstanding shares
were validly issued and are fully paid and non-assessable.
(iv) This Agreement, insofar as it purports
to obligate the D-M Shareholders to Penton, has been duly
executed and delivered by each of the D-M Shareholders and
constitutes a valid, binding and enforceable obligation of
each of them.
(v) The D-M Shareholders own of record all
of the outstanding capital stock of D-M, as follows: Donohue -
350 shares of D-M Common Stock; Meehan - 350 shares of D-M
Common Stock;
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(h) Penton shall have received a letter addressed
to it from Kirkland & Ellis, counsel for Pittway, dated the date of the
Closing, based on customary reliance and subject to customary
qualifications, to the effect that:
(i) Pittway is a corporation existing and
in good standing under the laws of the State of Delaware and
is duly qualified to conduct business as a foreign corporation
in the State of Illinois.
(ii) Pittway has duly taken all requisite
corporate action to authorize this Agreement; and this
Agreement has been duly executed and delivered by Pittway and,
insofar as this Agreement purports to obligate Pittway to
Penton, constitutes the valid, binding and enforceable
obligation of Pittway; and
(i) D-M's cash and cash equivalents shall be in an
amount sufficient, in the good faith estimate of the D-M Shareholders,
to enable the Surviving Corporation to pay its liabilities and
obligations as and when they would be paid in the Ordinary Course of
Business of D-M at all times during the period of 120 days after the
Effective Time while maintaining at all times during such period a cash
and cash equivalents balance equal to the Unpaid Adjusted D-M
Liabilities, without any capital contribution, loan, advance or other
cash infusion from any other source (including without limitation from
the collection of the Distributed D-M Accounts Receivable).
8.4 ADDITIONAL CONDITIONS TO OBLIGATION OF PITTWAY. The
obligation of Pittway to effect the Spinoff is also subject to the following
conditions:
(a) Penton, Combination Subsidiary, D-M and the D-M
Shareholders shall in all material respects have performed each
obligation and agreement and complied with each covenant to be
performed and complied with by it or them hereunder at or prior to the
Spinoff;
(b) Penton shall have furnished to Pittway a
certificate in which Penton shall certify that an appropriate inquiry
has been made of the executive officers of Penton and Combination
Subsidiary having principal responsibilities for the performance of the
covenants of Penton and Combination Subsidiary set forth in this
Agreement, and that after completion of such inquiry, Penton has no
reason to believe that the condition relating to Penton and Combination
Subsidiary set forth in Section 8.4(a) has not been fulfilled;
(c) the D-M Shareholders shall have furnished to
Pittway a certificate in which each of the D-M Shareholders shall
certify that an appropriate inquiry has been made of the executive
officers of D-M having principal responsibilities for the performance
of the covenants of D-M and of the
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D-M Shareholders related to D-M set forth in this Agreement, and that
after completion of such inquiry, neither of the D-M Shareholders has
any reason to believe that the condition relating to D-M and the D-M
Shareholders set forth in Section 8.4(a) has not been fulfilled;
(d) Penton shall have furnished to Pittway (i) a
copy of the text of the resolutions by which the corporate action on
the part of Penton and Combination Subsidiary necessary to approve this
Agreement was taken, (ii) a certificate executed on behalf of Penton
and Combination Subsidiary by their respective corporate secretaries or
one of their respective assistant corporate secretaries certifying to
Pittway that such copy is a true, correct and complete copy of such
resolutions and that such resolutions were duly adopted and have not
been amended or rescinded, and (iii) an incumbency certificate executed
on behalf of Penton and Combination Subsidiary by their respective
corporate secretaries or one of their respective assistant corporate
secretaries certifying the signature and office of each officer of
Penton or Combination Subsidiary executing this Agreement or any other
agreement, certificate or other instrument executed pursuant hereto;
(e) Pittway shall have received a letter addressed
to it from Jones, Day, Reavis & Pogue, ongoing counsel for Penton,
dated the date of the Closing, based on customary reliance and subject
to customary qualifications, to the effect that:
(i) Penton is a corporation existing and in
good standing under the laws of the State of Delaware and is
duly qualified to conduct business as a foreign corporation in
the State of Ohio.
(ii) Penton has duly taken all requisite
corporate action to authorize this Agreement; and this
Agreement has been duly executed and delivered by Penton and,
insofar as this Agreement purports to obligate Penton to
Pittway, constitutes the valid, binding and enforceable
obligation of Penton;
(f) Pittway shall have received a letter addressed
to it from Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for
D-M and the D-M Shareholders, dated the date of the Closing, based on
customary reliance and subject to customary qualifications, to the
effect that this Agreement has been duly executed and delivered by each
of the D-M Shareholders and, insofar as this Agreement purports to
obligate the D-M Shareholders to Pittway, constitutes a valid, binding
and enforceable obligation of each of them;
(g) Thomas L. Kemp and Daniel J. Ramella shall each
have resigned as an officer of Pittway and of any Post-Spinoff Pittway
Subsidiaries;
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(h) Thomas L. Kemp and Daniel J. Ramella shall have
released Pittway from all obligations under the respective Employment
Agreements in effect on the date hereof between them and Penton,
including without limitation all obligations under the supplemental
executive retirement plans provided for therein; and
(i) Penton shall have repaid its indebtedness to
Pittway outstanding immediately prior to the time of the Spinoff.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by mutual consent of a duly authorized officer
of Penton, the D-M Shareholders and a duly authorized officer of
Pittway; or
(b) by Penton, the D-M Shareholders or Pittway if
the Merger shall not have been consummated by August 31, 1998;
provided, however, that no Party shall have the right to terminate this
Agreement unilaterally if the event giving rise to such right shall be
primarily attributable to such Party or to any Affiliate of such Party.
9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement, this Agreement shall become void and there shall be no liability or
further obligation hereunder on the part of any Party or any Party's
stockholders, officers or directors, except as set forth in Section 7.6 and the
second to last paragraph of Section 7.1 and except that:
(i) in the event Pittway declines to effect
the Spinoff for any reason other than the exercise of its
rights under Sections 8.1, 8.4 and 9.1, or in the event Penton
or Combination Subsidiary declines to effect the Merger for
any reason other than the exercise of its rights under
Sections 8.1, 8.3 and 9.1, Pittway shall reimburse the D-M
Shareholders for their damages resulting therefrom (including
but not limited to $250,000 plus all reasonable legal and
other costs and expenses incurred by the D-M Shareholders in
connection with this Agreement and the transactions
contemplated hereby); and
(ii) in the event either D-M Shareholder or
D-M declines to effect the Merger for any reason other than
the exercise of his or its rights under Sections 8.1, 8.2 and
9.1, the D-M Shareholders shall
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reimburse Pittway, Penton and Combination Subsidiary for their
damages resulting therefrom (including but not limited to all
reasonable legal and other costs and expenses incurred by them
in connection with this Agreement and the transactions
contemplated hereby); and
(iii) in the event any Party terminates
this Agreement pursuant to Section 9.1(b) on account of
non-satisfaction of a condition set forth in Section
8.1(e),(i) or (j) or the first clause of Section 8.1(k),
Penton shall reimburse the D-M Shareholders for all reasonable
legal and other costs and expenses incurred by the D-M
Shareholders in connection with this Agreement and the
transactions contemplated hereby.
9.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of each of the Parties.
9.4 WAIVER. At any time prior to the Effective Time, Penton
may (a) extend the time for the performance of any of the obligations or other
acts of Pittway, D-M or any D-M Shareholder or (b) waive compliance with any of
the agreements of Pittway, D-M or any D-M Shareholder or with any conditions to
the obligations of Penton, in each case only to the extent such obligations,
agreements and conditions are intended for the benefit of Penton. At any time
prior to the Effective Time, the D-M Shareholders may (a) extend the time for
the performance of any of the obligations or other acts of Pittway, Penton or
Combination Subsidiary or (b) waive compliance with any of the agreements of
Pittway, Penton or Combination Subsidiary or with any conditions to the
obligations of D-M and the D-M Shareholders, in each case only to the extent
such obligations, agreements and conditions are intended for the benefit of D-M
and the D-M Shareholders. At any time prior to the Effective Time, Pittway may
(a) extend the time for the performance of any of the obligations or other acts
of Penton, Combination Subsidiary, D-M or either D-M Shareholder or (b) waive
compliance with any of the agreements of Penton, Combination Subsidiary, D-M or
either D-M Shareholder or with any conditions to the obligations of Pittway, in
each case only to the extent such obligations, agreements and conditions are
intended for the benefit of Pittway.
ARTICLE 10
GENERAL PROVISIONS
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Penton contained in Article 3 and of Pittway
contained in Article 5 shall survive the consummation of the Spinoff and the
Merger (even if the Party or any of the Parties to which or to whom such
representation or warranty is made knew or had reason to know of any
misrepresentation or breach of
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warranty at the Effective Time) and shall continue in full force and effect
until the third anniversary of the Effective Time; and each of the
representations and warranties of the D-M Shareholders contained in Article 4
shall survive the consummation of the Spinoff and the Merger (even if the Party
or any of the Parties to which or to whom such representation or warranty is
made knew or had reason to know of any misrepresentation or breach of warranty
at the Effective Time) and shall continue in full force and effect until the
20th day after the conclusion of the Second Reference Period (or, if such day is
not a business day, the first business day thereafter); in each case, other than
any representation and warranty relating to Taxes, each of which shall to the
extent it relates to Taxes continue in full force and effect until 30 days after
the applicable statute of limitations has expired.
10.2 PUBLIC STATEMENTS. Except as required by applicable law
(including, without limitation, in any Schedule 13D of any D-M Shareholder, or
amendment thereto, required by applicable law), no Party shall make or permit
any Affiliate of such Party to make any public announcement or statement with
respect to this Agreement, the Spinoff, the Merger or any of the other
transactions contemplated herein without the approval of each other Party (for
purposes of which, any approval given by the D-M Shareholders shall be deemed
also given by D-M and any approval given by Penton shall be deemed also given by
Combination Subsidiary), which approval will not be unreasonably withheld or
delayed. It is expressly understood, however, that the Parties will issue a
mutually agreed upon press release promptly following the execution and delivery
of this Agreement and that Pittway shall have the right to make and permit
public announcements and statements with respect to the Spinoff and the Merger
without the approval of any other Party.
10.3 DESIGNATION OF D-M SHAREHOLDERS AS REPRESENTATIVE. D-M
hereby designates the D-M Shareholders as its representative for all purposes
under this Agreement, including without limitation the receipt of disclosures,
the granting of all consents and waivers by D-M under this Agreement and the
receiving of all notices given to D-M pursuant to this Agreement.
10.4 NOTICES. All notices and other communications hereunder
shall be given to each of the Parties in all cases, shall be in writing, and
shall be sufficiently given if made by hand delivery, by reputable express
courier service (charges prepaid), by telecopier, or by registered or certified
mail (postage prepaid and return receipt requested) to the Parties at the
following addresses (or at such other address for a Party as shall be specified
to the other Parties by it by like notice):
if to Penton, Combination Subsidiary or the Surviving Corporation:
1100 Superior Avenue
Cleveland, OH 44114
Attention: Thomas L. Kemp
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with a copy to:
Jones, Day, Reavis & Pogue
Northpoint
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Christopher M. Kelly
if to Pittway:
200 South Wacker Drive
Suite 700
Chicago, Illinois 60606-0808
Attention: King Harris
with a copy to:
Kirkland & Ellis
200 E. Randolph Drive
Chicago, Illinois 60601
Attention: Brian D. Hogan
if to D-M or the D-M Shareholders prior to the Effective Time
or to the D-M Shareholders after the Effective Time:
2700 River Road
Suite 418
Des Plaines, Illinois 60018
with a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 W. Wacker Drive
Suite 2100
Chicago, Illinois 60606
Attention: Brian W. Duwe
All such notices and other communications shall be deemed to
have been duly given: when delivered by hand, if personally delivered; three
business day after being deposited with a reputable express courier service
(charges prepaid); five business days after being deposited in the mail, postage
prepaid, if delivered by mail; when answered back, if telexed; and when receipt
acknowledged (by a telecopy machine or otherwise), if telecopied.
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10.5 INTERPRETATION. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated. Words such as
"herein", "hereinafter", "hereof", "hereto", "hereby" and "hereunder", and words
of like import, unless the context requires otherwise, refer to this Agreement
(including the exhibits and attachments hereto). As used in this Agreement, the
masculine, feminine and neuter genders shall be deemed to include the others if
the context requires and the singular shall include the plural and the plural
the singular if the context requires.
10.6 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated and the Parties
shall negotiate in good faith to modify this Agreement to preserve each Party's
anticipated benefits under this Agreement.
10.7 DISPUTES.
(a) In the event any dispute between or among any
Parties shall arise relating to this Agreement or the transactions
contemplated hereby, such Parties shall use their reasonable good faith
efforts to resolve such dispute. At the request of any such Party, the
other Party or Parties to the dispute shall provide such Party with
written notice describing in reasonable detail the nature of such
dispute and such other Party's or Parties' proposed resolution of such
dispute. If and to the extent that such dispute is not resolved to the
mutual satisfaction of all Parties thereto within 45 days of the
delivery of such notice, the Parties thereto agree to resolve such
dispute pursuant to Section 10.7(b).
(b) Any Party may submit to arbitration any
disputed matter which may arise relating to this Agreement or the
transactions contemplated hereby which remains unresolved after the
Parties to such dispute have fulfilled their obligations under Section
10.7(a). The arbitration procedure set forth in this Section 10.7(b)
shall be the sole and exclusive method for resolving any such
remaining disputed matter and no Party to such dispute shall commence
any litigation on the basis of any such remaining disputed matter
except litigation to enforce a decision made by the arbitrators
selected in accordance with this Section 10.7(b). In each case in
which it shall become necessary to resort to arbitration, the Party or
Parties desiring arbitration of a disputed matter (the "CLAIMANT(S)")
shall give written notice to that effect to the other Party or Parties
to such dispute (the "RESPONDENT(S)"), specifying in such notice the
name and address of the person designated to act as arbitrator on
behalf of the Claimant(s), which arbitrator shall be a competent and
impartial person. Within ten (10) days after its or their receipt of
such notice, the Respondent(s) shall
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give written notice to the Claimant(s) specifying the name and address
of the person designated to act as arbitrator on behalf of the
Respondent(s), which arbitrator shall be a competent and impartial
person. If the Respondent(s) fail to notify the Claimant(s) of the
person designated to act as arbitrator on behalf of the Respondent(s),
as aforesaid, within the time above specified, then the appointment of
the second arbitrator shall be made in the same manner as hereinafter
provided for the appointment of a third arbitrator in a case where the
two arbitrators appointed hereunder are unable to agree upon such
appointment. The arbitrators so chosen shall meet within ten (10)
days after the second arbitrator is appointed and if, within thirty
(30) days after the second arbitrator is appointed, such two
arbitrators shall not agree upon the resolution of the matter in
dispute, they shall themselves appoint a third arbitrator, who shall
be a competent and impartial person. In the event such two arbitrators
are unable to agree upon such appointment within ten (10) days after
the time aforesaid, then either the Claimant(s) or the Respondent(s),
on behalf of both the Claimant(s) and the Respondent(s), may request
such appointment by the American Arbitration Association in accordance
with its rules then prevailing or in the event of the failure for ten
(10) days, refusal or inability of the American Arbitration
Association to appoint said third arbitrator, then either the
Claimant(s) or the Respondent(s) may apply to the Chief Judge of the
United States District Court for the Northern District of Illinois for
the appointment of such third arbitrator, and the Respondent(s) or the
Claimant(s), as the case may be, shall not raise any question as to
the Court's full power and jurisdiction to entertain the application
and make the appointment. The decision of the arbitrators so chosen
(or the majority decision of the arbitrators so chosen if three
arbitrators are so chosen) shall, if practicable, be given within the
period of thirty (30) days after the appointment of the final
arbitrator and such decision shall in all cases be binding and
conclusive upon the Parties. Unless otherwise determined by the
decision of the arbitrators (or the majority decision of the
arbitrators if three arbitrators are chosen): (i) each Party shall pay
the fees and expenses of the one of the two original arbitrators
appointed by such Party, or in whose stead as above provided such
arbitrator was appointed; and (ii) the fees and expenses of the third
arbitrator, if any, shall be borne equally by the Claimant(s) and the
Respondent(s). All arbitration hereunder shall, unless otherwise
agreed to by each of the Claimant(s) and Respondent(s), be conducted
in Chicago, Illinois in accordance with the then-current rules of the
American Arbitration Association. Anything herein contained to the
contrary notwithstanding, the Parties to a disputed matter shall have
the right to waive the provisions of this Section 10.7 calling for the
appointment of two or three arbitrators, and by mutual agreement may
select one arbitrator whose decision as to the disputed matter shall
be binding and conclusive upon such Parties.
10.8 JURISDICTION AND SERVICE OF PROCESS. Any suit, action or
proceeding against any Party to enforce a decision made by the arbitrators
selected in accordance with Section 10.7(b) or to enforce the obligations of any
Party to resolve
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disputes pursuant to the arbitration procedure set forth in Section 10.7 shall
be brought in state court in the State of Illinois, or in the United States
District Court for the Northern District of Illinois, and each Party hereby
irrevocably waives, to the fullest extent permitted by law, any objection that
such Party may have, whether now or in the future, to the laying of venue in or
to the jurisdiction of, any and each of such courts for the purpose of any such
suit, action or proceeding and further waives any claim that any such suit,
action or proceeding has been brought in an inconvenient forum, and each Party
hereby submits to such jurisdiction. Each of the D-M Shareholders hereby further
irrevocably consents to the service of process in any suit, action or proceeding
with respect to this Agreement in any such court by the mailing thereof by
Penton or Pittway by registered or certified mail, charges prepaid, to such D-M
Shareholder at the then current address for notices to such D-M Shareholder
pursuant to Section 10.4. Nothing herein shall in any way be deemed to limit the
ability of Penton or Pittway to serve such writs, process or summonses in any
other manner permitted by applicable law or to obtain jurisdiction over any D-M
Shareholder in such other jurisdictions, and in such manner, as may be permitted
by applicable law.
10.9 MISCELLANEOUS. The representations and warranties
contained in this Agreement, in any Disclosure Letters, in any Exhibits attached
hereto and in other documents and agreements executed in connection herewith are
the sole and exclusive representations and warranties made by the Parties in
connection herewith, and no other representation or warranty shall be implied
hereunder or thereunder. This Agreement (together with the Confidentiality
Agreement and all other documents and instruments referred to herein): (a)
constitutes the entire agreement, and supersedes all other prior agreements and
undertakings, both written and oral, among the Parties, with respect to the
subject matter hereof (including, without limitation, the Letter of Intent); (b)
shall be binding upon the Parties and their respective heirs, executors,
personal representatives, successors and assigns and shall inure to the benefit
of the Parties and their respective heirs, executors, personal representatives,
successors and permitted assigns; (c) is not intended to confer upon any other
Person any rights or remedies hereunder; (d) shall not be assigned by operation
of law or otherwise except that this Agreement may be assigned by operation of
law to the Surviving Corporation and, provided such corporation assumes all of
the obligations of Pittway or Penton (as the case may be) hereunder, to any
corporation with or into which Pittway or Penton may be merged; and (e) shall be
governed by and construed in accordance with the domestic laws of the State of
Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Illinois. This Agreement may be executed in two or more counterparts
which together shall constitute a single agreement.
* * * * *
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IN WITNESS WHEREOF, each of the undersigned has hereunto subscribed on
this the date first written above.
Penton Media, Inc.
Attest:
By: /s/ Preston L. Vice By: /s/ Thomas L. Kemp
----------------------------- -----------------------------
Its: Assistant Secretary Its: Chief Executive Officer
----------------------------- -----------------------------
D-M Acquisition Corp.
Attest:
By: /s/ William Zermuehlein By: /s/ Phil McCanna
----------------------------- -----------------------------
Its: Secretary Its: Vice President
----------------------------- -----------------------------
Pittway Corporation
Attest:
By: /s/ William Zermuehlein By: /s/ Edward J. Schwartz
----------------------------- -----------------------------
Its: Assistant Secretary Its: Vice President
----------------------------- -----------------------------
Donohue Meehan Publishing Company
Attest:
By: /s/ John J. Meehan By: /s/ William C. Donohoe
----------------------------- -----------------------------
Its: Executive Vice President Its: President
----------------------------- -----------------------------
/s/ William C. Donohoe
---------------------------------
William C. Donohue
/s/ John J. Meehan
---------------------------------
John J. Meehan
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PENTON MEDIA, INC.
---------------------------------------------
Duly adopted in accordance with Sections 242 and 245 of
the General Corporation Law of the State of Delaware
ARTICLE I
The name of the corporation is Penton Media, Inc. (the "Corporation").
The Corporation was originally incorporated under the name Penton-IPC, Inc. and
its original certificate of incorporation was filed on June 28, 1976.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801. The name of the registered agent of the Corporation at such address is
The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware (the
"General Corporation Law").
ARTICLE IV
4.1 CAPITAL STOCK. The total number of shares of stock which the
Corporation has authority to issue is Sixty-Two Million (62,000,000) shares,
consisting of Two Million (2,000,000) shares of Preferred Stock, par value $.01
per share, and Sixty Million (60,000,000) shares of Common Stock, par value $.01
per share.
4.2 PREFERRED STOCK. The Board of Directors of the Corporation
may, subject to the limitations prescribed by law and the provisions of this
Amended and Restated Certificate of Incorporation, provide for the issuance of
shares of Preferred Stock or provide for the issuance of shares of Preferred
Stock in one or more series, establish from time to time the number of shares to
be included in each such series and fix the designations, voting powers,
preferences, rights and qualifications, limitations or restrictions of the
shares of Preferred Stock of each such series.
<PAGE> 2
4.3 COMMON STOCK. Except as otherwise provided by the General
Corporation Law or this Amended and Restated Certificate of Incorporation or any
amendments hereto and subject to the rights of holders of Preferred Stock, all
of the voting power of the stockholders of the Corporation shall be vested in
the holders of Common Stock, and each holder of Common Stock shall have one (1)
vote for each share of Common Stock held by such holder on all matters voted
upon by the stockholders. Except as otherwise provided by the General
Corporation Law or this Amended and Restated Certificate of Incorporation or any
amendments hereto and subject to the rights of holders of Preferred Stock, the
holders of record of Common Stock shall share ratably in all dividends payable
in cash, stock or otherwise and other distributions, whether in respect of liqui
dation or dissolution (voluntary or involuntary) or otherwise. No holder of
Common Stock shall have any preemptive, subscription, redemption, conversion or
sinking fund rights with respect to the Common Stock, or to any obligations
convertible (directly or indirectly) into stock of the Corporation whether now
or hereafter authorized. The Common Stock shall be subject to all the powers,
rights, privileges, preferences and priorities of any Preferred Stock as
provided herein or in any resolution or resolutions adopted by the Board of
Directors of the Corporation pursuant to authority expressly vested in it by the
provisions of this ARTICLE IV.
ARTICLE V
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the By-Laws of the Corporation. The stockholders shall
also have power to adopt, amend or repeal the By-Laws of the Corporation by the
affirmative vote of the holders of at least two-thirds (66-2/3%) of the voting
power of the then outstanding shares of capital stock of the Corporation
entitled to vote with respect thereto. The provisions set forth in this Article
V may not be amended, altered, changed or repealed in any respect unless such
action is approved by the affirmative vote of the holders of not less than
two-thirds (662/3%) of the voting power of the then outstanding shares of
capital stock of the Corporation entitled to vote with respect thereto.
ARTICLE VI
Meetings of stockholders may be held within or without the State
of Delaware, as the By-Laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the By-Laws
of the Corporation. All elections of directors shall be by written ballot.
ARTICLE VII
7.1 NUMBER OF DIRECTORS AND CLASSES. Subject to any rights of the
holders of Preferred Stock or any series thereof to elect additional directors
under specified circumstances, the number of directors which shall constitute
the whole Board of Directors of the Corporation shall be such number as shall
from time to time be fixed by resolution of the Board of Directors; provided
that under no circumstance shall the number of directors exceed thirteen (13).
The Board shall be divided into three classes, as nearly equal in number as
possible, with the term of office of the first class to expire at the 1999
annual meeting of stockholders, the term of office of the second class to
<PAGE> 3
expire at the 2000 annual meeting of stockholders and the term of office of the
third class to expire at the 2001 annual meeting of stockholders. If the number
of directors which shall constitute the whole Board of Directors of the
Corporation is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case shall a decrease
in such number of directors shorten the term of any incumbent director. At each
annual meeting of stockholders beginning with the 1999 annual meeting of
stockholders, directors elected to succeed those directors whose terms expire
shall be elected for a term of office to expire at the third succeeding annual
meeting of stockholders after their election. The foregoing notwithstanding,
each director shall serve until his successor shall have been duly elected and
qualified, unless he shall resign, die, become disqualified or be removed. The
provisions set forth in this Section 7.1 which (i) establish the maximum size of
the Board of Directors at thirteen (13) and (ii) establish and relate to the
division of the Board of Directors into three classes may not be amended,
altered, changed or repealed in any respect unless such action is approved by
the affirmative vote of two-thirds (66-2/3%) of the voting power of the then
outstanding shares of capital stock of the Corporation entitled to vote with
respect thereto.
7.2 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to any
rights of the holders of Preferred Stock or any series thereof to fill such
newly created directorships or vacancies, any newly created directorships
resulting from any increase in the authorized number of directors and any
vacancies in the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall, unless otherwise provided by
law, be filled by the Board of Directors of the Corporation, and any director so
chosen shall hold office until the next election of the class for which such
director shall have been chosen, and until his successor shall have been duly
elected and qualified, unless he shall resign, die, become disqualified or be
removed.
7.3 POWERS, QUALIFICATIONS AND REMOVAL. The business of the
Corporation shall be managed by or under the direction of the Board of
Directors. Any director may tender his resignation at any time. Subject to any
rights of the holders of Preferred Stock or any series thereof, any director or
the entire Board of Directors may be removed at any time, but only for cause.
ARTICLE VIII
8.1 SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of
stockholders of the Corporation may be called only by the Board of Directors.
8.2 NO STOCKHOLDER ACTION BY CONSENT. No action required to be
taken or which may be taken at any annual or special meeting of stockholders of
the Corporation may be taken without a meeting.
8.3 ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS. Advance notice of
stockholder nominations of persons for election to the Board of Directors of the
Corporation and of business to be brought before any meeting of the stockholders
by the stockholders of the Corporation shall be given in the manner provided in
the By-Laws of the Corporation. The provisions set forth in this Section 8.3 may
not be amended, altered, changed or repealed in any respect unless such action
is approved by the affirmative vote of the holders of not less than two-thirds
(66-2/3%) of the voting
<PAGE> 4
power of the then outstanding shares of capital stock of the Corporation
entitled to vote with respect thereto.
ARTICLE IX
To the fullest extent permitted by the General Corporation Law as
the same exists or may hereafter be amended, a director of the Corporation shall
not be liable to the Corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director. Any repeal or modification of this
Article IX shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE X
10.1 INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS. The
Corporation shall 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 the Corporation) (a "Proceeding") by reason of
the fact that he is or was a director, officer or employee of the Corporation,
or is or was serving at the request of the Corporation as a director, officer or
employee of another corporation, partnership, limited liability company, 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 him in connection with such Proceeding to the fullest
extent permitted by the General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide prior to such amendment). The
indemnification provided by this Article X shall not be deemed exclusive of any
other rights to which any person may be entitled under any By-Law of the
Corporation, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity, and shall continue as to a person who has ceased to be a
director, officer or employee and shall inure to the benefit of the heirs,
executors, administrators and personal representatives of such a person. It is
expressly understood that, notwithstanding the foregoing, no director, officer
or employee shall have any rights under this Article X if the Proceeding giving
rise to the claim for indemnification hereunder arises as a result of actions or
failures to act in any capacity other than those set forth in this Section 10.1,
and, as such, no such person shall have any rights under this Article X if the
Proceeding giving rise to the claim for indemnification arises as a result of
such person's purchase and/or sale of securities of the Corporation (other than
on behalf of the Corporation).
10.2 PROCEDURE FOR INDEMNIFICATION OF DIRECTORS, OFFICERS AND
EMPLOYEES. Any indemnification of a director, officer or employee of the
Corporation or advance of expenses under this Article X shall be made promptly
upon the written request of the director, officer or employee, and in any event
within 30 days after such request (or, if a determination as described below is
required, within 30 days after such determination has been made or deemed made).
If a determination by the Corporation that the director, officer or employee is
entitled to indemnification pursuant to this Article X is required, and the
Corporation fails to respond within 60 days to a written request for indemnity,
the Corporation shall be deemed to have approved the request. If the
<PAGE> 5
Corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or payment in full pursuant to such request is
not made within 30 days after such request (or, if a determination as described
above is required, within 30 days after such determination has been made or
deemed made), the right to indemnification or advances as granted by this
Article X shall be enforceable by the director, officer or employee in any court
of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any Proceeding in advance of its final
disposition where the required undertaking has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it permissible
under the General Corporation Law for the Corporation to indemnify the claimant
for the amount claimed, but the burden of such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
10.3 INSURANCE. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer or employee of the Corporation or was serving at the request
of the Corporation as a director, officer or employee of another corporation,
partnership, limited liability company, joint venture, trust or other enterprise
(including service with respect to any employee benefit plan) against any
liability asserted against him and incurred by him in any such capacity, whether
or not the Corporation would have the power to indemnify such person against
such liability under this Article X.
10.4 EXPENSES. Expenses incurred by any person described in this
Article X in defending a Proceeding shall be paid by the Corporation in advance
of such Proceeding's final disposition upon receipt of an undertaking by or on
behalf of the director, officer or employee to repay such amount without
interest if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation.
10.5 CONTRACT RIGHTS. The provisions of this Article X shall be
deemed to be a contract between the Corporation and each director, officer or
employee who serves in any such capacity at any time, and any repeal or
modification of this Article X or of any relevant provisions of the General
Corporation Law or other applicable law shall not affect any rights or
obligations then existing with respect to any state of facts or Proceeding then
existing.
10.6 INDEMNIFICATION OF AGENTS. The Corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to the advancement of expenses to any agent of the
Corporation to the fullest extent of the provisions of this Article X with
respect to the indemnification and advancement of expenses of directors,
officers and employees of the Corporation.
ARTICLE XI
<PAGE> 6
The Corporation is to have perpetual existence.
ARTICLE XII
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed herein and by the laws
of the State of Delaware, and all rights conferred upon stockholders herein are
granted subject to this reservation.
<PAGE> 1
Exhibit 3.2
PENTON MEDIA, INC.
A DELAWARE CORPORATION
-----------------------
AMENDED AND RESTATED
BY-LAWS
-----------------------
NAME
----
SECTION 1. NAME. The name of the Corporation is Penton Media, Inc. (the
"Corporation").
SEAL
----
SECTION 2. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware." One or more duplicate dies for impressing such seal may be kept
and used.
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 3. PLACE OF MEETING. All meetings of the stockholders shall be
held at such place, within or without the State of Delaware, as is fixed in the
notice of the meeting.
SECTION 4. ANNUAL MEETING. An annual meeting of the stockholders of the
Corporation for the election of directors and the transaction of such other
business as may properly come before the meeting shall be held on a date
specified by the Board of Directors and at the time and place specified by the
Board of Directors. If for any reason any annual meeting shall not be held
during any year, the business thereof may be transacted at any special meeting
of the stockholders.
SECTION 5. SPECIAL MEETINGS. Special meetings of stockholders may be
called only in the manner provided in the Amended and Restated Certificate of
Incorporation.
SECTION 6. NOTICE OF MEETINGS. Notice of the date, time and place of
each annual and each special meeting of the stockholders shall be given to each
of the stockholders entitled to vote at such meeting by mailing the same in a
postage prepaid wrapper addressed to each such stockholder at his address as it
appears on the books of the Corporation, or by delivering the same personally to
any such stockholder, in lieu of such mailing, at least ten (10) days prior to,
and not more than sixty (60) days before, such meeting, and meetings may be held
without notice if all of
<PAGE> 2
the stockholders entitled to vote thereat are present in person or by proxy, or
if notice thereof is waived by all such stockholders not present in person or by
proxy, before or after the meeting. The notice of each special meeting of the
stockholders shall set forth the purposes thereof and the business transacted at
all special meetings of stockholders shall be confined to the purposes stated in
the notice thereof.
SECTION 7. SETTING OF RECORD DATE. The Board of Directors shall have the
power to fix in advance a date not exceeding sixty (60) days and not less than
ten (10) days preceding the date of any meeting of stockholders, or the date for
the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go into
effect, or (in the event the Amended and Restated Certificate of Incorporation
is amended to permit action to be taken by stockholders by consent) the final
date for obtaining the consent of stockholders for any purpose, as a record date
for the determination of the stockholders entitled to notice of and to vote at
such meeting, entitled to receive payment of such dividend or to such allotment
of rights or to exercise the right in respect of such change, conversion or
exchange of capital stock, or to give such consent, and in such case only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of and to vote at such meeting or to receive payment of
such dividend or to receive such allotment of rights or to exercise such rights
or to give such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the Corporation after such record date fixed as aforesaid.
SECTION 8. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board, or in the absence of the Chairman of the Board, the Chief
Executive Officer, shall act as chairman, and the Secretary, or, in the absence
of the Secretary, an Assistant Secretary, or in the absence of both the
Secretary and Assistant Secretaries, a person appointed by the chairman, shall
act as secretary.
SECTION 9. VOTING AT STOCKHOLDERS' MEETINGS. At each meeting of the
stockholders, every stockholder having the right to vote thereat shall be
entitled to vote in person or by proxy. Stockholders shall have the voting
rights specified in the Amended and Restated Certificate of Incorporation. The
vote for directors and the vote upon any question before a meeting may be, but
need not be, by written ballot.
SECTION 10. QUORUM AND ADJOURNMENT. Except as otherwise provided by law
or the Amended and Restated Certificate of Incorporation, at any meeting of the
stockholders the presence, in person or by proxy, of the holders of shares of
stock of the Corporation entitled to cast at least a majority of the votes which
the outstanding stock entitled to vote thereat is entitled to cast on a
particular matter shall be requisite and shall constitute a quorum entitled to
take action with respect to that vote on that matter. If at any meeting of
stockholders there shall be, with respect to a particular matter, less than a
quorum so present, the stockholders present in person or by proxy and entitled
to vote thereat on such matter may without further notice, except as required by
law, following the completion of such action, if any, with respect to other
matters as the stockholders present in person or by proxy and constituting a
quorum to vote thereat on such matters desire to take, adjourn the meeting from
time to time until a quorum with respect to such matter shall be
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<PAGE> 3
present, but no business shall be transacted at any such adjourned meeting
except such as might have been lawfully transacted had the meeting not been
adjourned.
SECTION 11. LIST OF STOCKHOLDERS. The Secretary shall prepare, at least
10 days before every meeting of the stockholders, a complete list of the
stockholders entitled to vote at such meeting arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder, and such list shall be open to examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 12. ADVANCE NOTICE OF STOCKHOLDER NOMINATIONS. Nominations of
persons for election to the Board of Directors and the proposal of business to
be transacted by the stockholders may be made at an annual or special meeting of
the stockholders only (a) pursuant to the Corporation's notice with respect to
such meeting, (b) by or at the direction of the Board of Directors or (c) by any
stockholder of the Corporation who was a stockholder of record on the record
date set with respect to such meeting as provided for in Section 7, who is
entitled to vote at the meeting and who has complied with the notice procedures
set forth in this Section 12. For nominations or other business to be properly
brought before an annual or special meeting by a stockholder pursuant to clause
(c) above, the stockholder must give timely notice thereof in writing to the
Secretary of the Corporation and such business must be a proper matter for
stockholder action under the General Corporation Law of the State of Delaware
(the "General Corporation Law") and a proper matter for consideration at such
meeting under the Amended and Restated Certificate of Incorporation and these
By-Laws. To be timely, (i) in the case of special meetings of the stockholders
and in the case of the Corporation's 1999 annual meeting of stockholders, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the 90th day prior to such
meeting and not later than the close of business on the later of the 60th day
prior to such meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made and (ii) in the case of
all annual meetings of stockholders subsequent to the 1999 annual meeting, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting of
stockholders; provided, however, that in the event that the date of the annual
meeting is more than 30 days prior to or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of the 60th day prior to such annual meeting
or the 10th day following the day on which public announcement of the date of
such meeting is first made. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including, if so required, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the
3
<PAGE> 4
meeting, a brief description of such business, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder and of such beneficial owner as they appear on the
Corporation's books and (ii) the class and number of shares of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner. Persons nominated by stockholders to serve as directors of the
Corporation who have not been nominated in accordance with this Section 12 shall
not be eligible to serve as directors. Only such business shall be conducted at
an annual or special meeting of stockholders as shall have been brought before
the meeting in accordance with this Section 12. The chairman of the meeting
shall determine whether a nomination or any business proposed to be transacted
by the stockholders has been properly brought before the meeting and, if any
proposed nomination or business has not been properly brought before the
meeting, the chairman shall declare that such proposed business or nomination
shall not be presented for stockholder action at the meeting. For purposes of
this Section 12, "public announcement" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable
national news service. Nothing in this Section 12 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
DIRECTORS
---------
SECTION 13. NUMBER OF DIRECTORS AND CHAIRMAN OF THE BOARD. Subject to
any rights of the holders of Preferred Stock or any series thereof to elect
additional directors under specified circumstances and to the provisions of the
Amended and Restated Certificate of Incorporation of the Corporation, the number
of directors which shall constitute the whole Board of Directors of the
Corporation shall be such number as shall from time to time be fixed by the
Board of Directors. The Board of Directors shall appoint from among the
directors a Chairman of the Board, who shall not be an officer of the
Corporation but who shall preside at all meetings of the Board of Directors at
which he is present. If the Chairman of the Board is not present at a meeting of
the Board of Directors, the Chief Executive Officer (if the Chief Executive
Officer is a director and is not also the Chairman of the Board) shall preside
at such meeting, and, if the Chief Executive Officer is not present at such
meeting, a majority of the directors present at such meeting shall elect one of
their members to so preside.
SECTION 14. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Subject to any
rights of the holders of Preferred Stock or any series thereof to fill such
newly created directorships or vacancies, any newly created directorships
resulting from any increase in the authorized number of directors and any
vacancies in the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall, unless otherwise provided by
law, be filled by the Board of Directors, and any director so chosen shall hold
office until the next election of the class for which such director shall have
been chosen, and until his successor shall have been duly elected and qualified,
unless he shall resign, die, become disqualified or be removed.
4
<PAGE> 5
SECTION 15. POWERS, QUALIFICATIONS AND REMOVAL. The business of the
Corporation shall be managed by or under the direction of the Board of
Directors. Any director may tender his resignation at any time. Subject to any
rights of the holders of Preferred Stock or any series thereof, any director or
the entire Board of Directors may be removed at any time, but only for cause.
SECTION 16. REGULAR AND SPECIAL MEETINGS OF THE BOARD. The Board of
Directors may hold its meetings, whether organizational, regular or special,
either within or without the State of Delaware. Regular meetings of the Board
may be held with or without notice at such time and place as shall from time to
time be determined by resolution of the Board. Whenever the time or place of
regular meetings of the Board shall have been determined by resolution of the
Board, no regular meetings shall be held pursuant to any resolution of the Board
altering or modifying its previous resolution relating to the time or place of
the holding of regular meetings without first giving three (3) days' notice to
each director, either personally or by facsimile telecommunication, or five (5)
days' written notice to each director by mail, of the substance and effect of
such new resolution relating to the time and place at which regular meetings of
the Board may thereafter be held without notice. Special meetings of the Board
shall be held whenever called in writing by the Chairman of the Board, the Chief
Executive Officer, the President and Chief Operating Officer or any three (3)
directors. Notice of each special meeting of the Board shall be delivered
personally to each director or sent by telegraph to his residence or usual place
of business at least three (3) days before the meeting, or mailed to him to his
residence or usual place of business at least five (5) days before the meeting.
Meetings of the Board, whether regular or special, may be held at any time and
place, and for any purpose, without notice, when all the directors are present
or when all directors not present shall, in writing, waive notice of and consent
to the holding of such meeting, which waiver and consent may be given after the
holding of such meeting.
SECTION 17. ORGANIZATION. At every meeting of the Board, the Chairman of
the Board shall preside, and the Secretary, or, in the absence of the Secretary,
an Assistant Secretary, or in the absence of the Secretary and the Assistant
Secretaries, any person appointed by the chairman of the meeting, shall act as
secretary.
SECTION 18. QUORUM AND ADJOURNMENT. At all meetings of the Board a
majority of the whole Board of Directors shall be necessary and sufficient to
constitute a quorum for the transaction of business except as may otherwise be
specifically provided in the Amended and Restated Certificate of Incorporation
or in these By-Laws; provided, that if a quorum of directors shall not be
present at any duly called or regular meeting thereof, the directors present may
adjourn said meeting from time to time for a period of not exceeding two (2)
weeks in the aggregate and notice of any such adjourned meeting shall not be
necessary unless an adjournment was taken SINE DIE.
COMMITTEES
----------
SECTION 19. EXECUTIVE COMMITTEE. There shall be a committee of the Board
of Directors designated as the Executive Committee, to consist of three (3) or
more of the directors, as shall from time to time be appointed by the Board of
Directors. Except as otherwise limited by resolution adopted by the Board of
Directors or by law, the Amended and Restated Certificate of Incorporation
5
<PAGE> 6
or these By-Laws, the Executive Committee shall have and may exercise, when the
Board is not in session, all the powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but the Executive Committee shall not, except to the extent both
permitted by law and expressly so authorized by resolution adopted by the Board
of Directors, have power (i) to fill vacancies in the Board, (ii) to change the
membership of or to fill vacancies in the Executive Committee, (iii) to remove
or replace the chairman of the Executive Committee, (iv) to authorize the
Corporation to sell, lease or otherwise dispose of assets of the Corporation,
(v) to authorize the Corporation to liquidate, dissolve or effect a
recapitalization or reorganization in any form of transaction, (vi) to authorize
the Corporation to acquire any interest in any business (whether by a purchase
of assets, purchase of stock, merger or otherwise) or enter into any joint
venture, (vii) to adopt a bonus or other compensation plan in which directors or
officers of the Corporation are eligible to participate, (viii) to authorize the
Corporation to create, incur, assume or suffer to exist any indebtedness or (ix)
to amend these By-Laws. The Board of Directors shall have the power at any time
to change the size, membership or powers of the Executive Committee, to fill
vacancies in it, or to dissolve it. The Executive Committee may make rules for
the conduct of its business and may appoint such assistants as it shall from
time to time deem necessary. A majority of the members of the Executive
Committee shall constitute a quorum. A member of the Executive Committee shall
be appointed chairman of the Executive Committee by resolution of the Board of
Directors and shall preside at all meetings of the Executive Committee; provided
that in the case of vacancy in office or absence of the Chairman of the
Executive Committee at the time of any such meeting, a member of the Executive
Committee selected by a majority of the members of the Executive Committee shall
preside at such meeting.
SECTION 20. AUDIT COMMITTEE. There shall be a committee of the Board of
Directors designated as the Audit Committee, to consist of not fewer than two
members of the Board as shall from time to time be appointed by the Board of
Directors. No member of the Board who is an officer or an employee of the
Corporation or any subsidiary of the Corporation shall be eligible to serve on
the Audit Committee. The Audit Committee shall review and, as it shall deem
appropriate, approve internal accounting and financial controls for the
Corporation and auditing practices and procedures to be employed in the
preparation and review of financial statements of the Corporation. The Audit
Committee shall make recommendations to the Board concerning the engagement of
independent public accountants to audit the annual financial statements of the
Corporation and its subsidiaries and shall arrange with such accountants the
scope of the audit to be undertaken by such accountants. The Board shall have
the power at any time to change the membership of the Audit Committee, to fill
vacancies in it, or to dissolve it. The Audit Committee may make rules for the
conduct of its business and may appoint such assistants as it shall from time to
time deem necessary. A majority of the members of the Audit Committee shall
constitute a quorum.
SECTION 21. COMPENSATION COMMITTEE. There shall be a committee of the
Board of Directors designated as the Compensation Committee, to consist of not
fewer than two members of the Board as shall from time to time be appointed by
the Board of Directors. No member of the Board who is an officer or an employee
of the Corporation or any subsidiary of the Corporation shall be eligible to
serve on the Compensation Committee. The Compensation Committee shall review and
determine the compensation of executive officers of the Corporation, review and
make
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<PAGE> 7
recommendations to the Board with respect to salaries, bonuses and deferred
compensation of other officers and executives of the Corporation, compensation
of directors and management succession, and make such determinations and perform
such other duties as are expressly delegated to it from time to time pursuant to
the terms of any stock option, equity bonus or other employee benefit plan of
the Corporation. The Board shall have the power at any time to change the size,
membership or powers of the Compensation Committee, to fill vacancies in it, or
to dissolve it. The Compensation Committee may make rules for the conduct of its
business and may appoint such assistants as it shall from time to time deem
necessary. A majority of the members of the Compensation Committee shall
constitute a quorum.
SECTION 22. INVESTMENT COMMITTEE. There shall be a committee of the
Board of Directors designated as the Investment Committee, to consist of not
fewer than two members of the Board as shall from time to time be appointed by
the Board of Directors. The Investment Committee shall provide objectives and
guidelines for the investment of funds held in trust under the various pension
plans of the Corporation and its subsidiaries, act as the investment committee
for purposes of any 401(k) plans of the Corporation and review the performance
of the investment managers charged with investing the funds held in trust under
the various pension plans of the Corporation and its subsidiaries. The Board
shall have the power at any time to change the membership of the Investment
Committee, to fill vacancies in it, or to dissolve it. The Investment Committee
may make rules for the conduct of its business and may appoint such assistants
as it shall from time to time deem necessary. A majority of the members of the
Investment Committee shall constitute a quorum.
SECTION 23. NOMINATING COMMITTEE. There shall be a committee of the
Board of Directors designated as the Nominating Committee, to consist of not
fewer than two members of the Board as shall from time to time be appointed by
the Board of Directors. The Nominating Committee shall make recommendations to
the Board with respect to the size and composition of the Board and its
committees and with respect to nominees for election as directors. The Board
shall have the power at any time to change the membership or powers of the
Nominating Committee, to fill vacancies in it, or to dissolve it. The Nominating
Committee may make rules for the conduct of its business (including, without
limitation, rules as to whether and on what basis, if any, it will consider
suggestions regarding candidates for election submitted by stockholders) and may
appoint such assistants as it shall from time to time deem necessary. A majority
of the members of the Nominating Committee shall constitute a quorum.
SECTION 24. OTHER COMMITTEES; DESIGNATION OF REPLACEMENT MEMBERS OF
COMMITTEES. The Board of Directors may also designate one or more other
committees, which, to the extent provided by resolution of the Board of
Directors, shall have and may exercise, when the Board is not in session, the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors. A majority of the members of any
such committee may determine its action and fix the time and place of its
meetings. The Board of Directors shall have power at any time to fill vacancies
in, to change the size, membership or powers of, or to dissolve any such
committee. The Board of Directors may designate in advance a person to replace a
specified director as a member of any committee of the Board of
7
<PAGE> 8
Directors in the event that such director shall for any reason cease to be a
member of such committee. In the event that any member of any committee of the
Board of Directors shall for any reason cease to be a member of such committee,
the person designated in advance to replace such member, if any, shall, without
any further action on the part of the Board of Directors and so long as such
person is at that time a member of the Board of Directors, become a member of
such committee. Such person shall also assume the chairmanship of such committee
if held by the member such person in replacing immediately prior to such member
ceasing to be a member of such committee.
SECTION 25. COMPENSATION OF DIRECTORS. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, for attendance at
each regular or special meeting of the Board or of any committee designated in
these By-Laws or by the Board pursuant to these By-Laws and, by resolution of
the Board of Directors, may be paid a fixed sum for attendance at such meeting,
or a stated salary as director, or both, or may be paid other compensation for
acting as directors. Nothing herein contained shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor; provided however that directors who are also salaried
officers of the Corporation or any subsidiary of the Corporation shall not
receive fees or salaries as directors.
SECTION 26. COMMUNICATIONS EQUIPMENT. Members of the Board of Directors
or any committee thereof may participate in and act at any meeting of the Board
or such committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
SECTION 27. WAIVER OF NOTICE AND PRESUMPTION OF ASSENT. Any member of
the Board of Directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his dissent shall be entered in the minutes of the
meeting or unless his written dissent to such action shall be filed with the
person acting as the secretary of the meeting before the adjournment thereof or
shall be forwarded by registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to any member who voted in favor of such action.
SECTION 28. ACTION BY WRITTEN CONSENT. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
OFFICERS
--------
8
<PAGE> 9
SECTION 29. DESIGNATION, TERM AND VACANCIES. The officers of the
Corporation shall be a Chief Executive Officer, a President and Chief Operating
Officer, one or more Vice Presidents, a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers, and such other
officers as the Board of Directors may from time to time deem necessary. Such
officers may have and perform the powers and duties usually pertaining to their
respective offices, the powers and duties respectively prescribed by law and by
these By-Laws, and such additional powers and duties as may from time to time be
prescribed by the Board. The same person may hold any two (2) or more offices.
As soon as practicable after the election of the Board at the annual
meeting of stockholders, the Board shall elect the Chief Executive Officer, the
President and Chief Operating Officer, the Secretary and the Treasurer and, at
their discretion, such Vice-Presidents as they shall determine, all of whom
shall hold office until the regular annual meeting of the Board of Directors
following their appointment or until their successors are appointed and
qualified, provided that they, or any of them, may be removed at any time, with
or without cause, by the Board of Directors. All other agents and employees of
the Corporation shall hold office during the pleasure of the Board of Directors.
Vacancies occurring among the officers of the Corporation shall be filled by the
Board of Directors. The salaries of all officers of the Corporation shall be
fixed by the Board of Directors.
SECTION 30. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
be the chief executive officer of the Corporation and shall exercise such other
powers as may from time to time be specifically delegated to him by these
By-Laws or by resolution of the Board of Directors. Subject to the Board of
Directors, he shall have general charge of the entire business of the
Corporation. He may sign certificates of stock and may sign and seal bonds,
debentures, contracts or other obligations authorized by the Board, and may,
without previous authority of the Board, make such contracts as the ordinary
conduct of the Corporation's business requires. He shall have the usual powers
and duties vested in a chief executive officer of a corporation. He shall have
power to select and appoint all necessary officers and employees of the
Corporation, except those selected by the Board of Directors, and to remove all
such officers and employees, except those selected by the Board of Directors,
and make new appointments to fill vacancies. He may delegate any of his powers
to the President and Chief Operating Officer or a Vice-President of the
Corporation. He shall at all times be subject to the direction of the Board of
Directors.
SECTION 31. PRESIDENT AND CHIEF OPERATING OFFICER. The President and
Chief Operating Officer shall be the chief operating officer of the Corporation
and shall have such powers as may from time to time be specifically delegated to
him by these By-Laws or by resolution of the Board of Directors. He may sign
certificates of stock and may sign and seal bonds, debentures, contracts or
other obligations authorized by the Board, and may, without previous authority
of the Board, make such contracts as the ordinary conduct of the Corporation's
business requires. He shall have the usual powers and duties vested in a chief
operating officer of a corporation.
SECTION 32. VICE-PRESIDENTS. Each Vice-President shall have such of the
Chief Executive Officer's and the President and Chief Operating Officer's powers
and duties as the Chief Executive Officer and the President and Chief Operating
Officer, respectively, may from time to time delegate
9
<PAGE> 10
to him, and each Vice-President shall have such other powers and perform such
other duties as may be assigned to him by these By-Laws or by resolution of the
Board of Directors.
SECTION 33. TREASURER. The Treasurer shall have custody of such funds
and securities of the Corporation as may come to his hands or be committed to
his care by the Board of Directors. Whenever necessary or proper, he shall
endorse on behalf of the Corporation, for collection, checks, notes, or other
obligations, and shall deposit the same to the credit of the Corporation in such
bank or banks or depositories, approved by the Board of Directors, as the Board
of Directors, the Chief Executive Officer or the President and Chief Operating
Officer may designate. He may sign receipts or vouchers for payments made to the
Corporation, and the Board of Directors may require that such receipts or
vouchers shall also be signed by some other officer to be designated by them.
Whenever required by the Board of Directors, he shall render a statement of his
cash accounts and such other statements respecting the affairs of the
Corporation as may be required. He shall keep proper and accurate books of
account. He shall perform all acts incident to the office of Treasurer, subject
to the control of the Board.
SECTION 34. SECRETARY. The Secretary shall have custody of the seal of
the Corporation and when required by the Board of Directors, or when any
instrument signed by another officer of the Corporation duly authorized to sign
the same so requires, or when necessary to attest any proceedings of the
stockholders or directors, shall affix it to any instrument requiring the same
and shall attest the same with his signature, provided that the seal may be
affixed by the Chief Executive Officer, the President and Chief Operating
Officer or other officer of the Corporation to any document executed by any of
them respectively on behalf of the Corporation which does not require the
attestation of the Secretary. He shall attend to the giving and serving of
notices of meetings. He shall have charge of such books and papers as properly
belong to his office or as may be committed to his care by the Board of
Directors. He shall perform such other duties as appertain to his office or as
may be required by the Board of Directors.
SECTION 35. ASSISTANT SECRETARY. Each Assistant Secretary shall be
vested with such powers and duties as may be delegated to him by the Chief
Executive Officer, the President and Chief Operating Officer or the Secretary
and any act may be done or duty performed by an Assistant Secretary with like
effect as though done or performed by the Secretary, and shall have such other
powers and perform such other duties as may be assigned to him by the Board of
Directors.
SECTION 36. ASSISTANT TREASURER. Each Assistant Treasurer shall be
vested with such powers and duties as may be delegated to him by the Chief
Executive Officer, the President and Chief Operating Officer or the Treasurer,
and any act may be performed by an Assistant Treasurer with like effect as
though done or performed by the Treasurer, and shall have such other powers and
perform such other duties as may be assigned to him by the Board of Directors.
SECTION 37. DELEGATION. In case of the absence of any officer of the
Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may delegate, for the time being, the powers or duties, or
any of them, of such officer to any other officer or to any director.
10
<PAGE> 11
STOCK
-----
SECTION 38. CERTIFICATES OF STOCK. All certificates of shares of the
capital stock of the Corporation shall be in such form not inconsistent with the
Amended and Restated Certificate of Incorporation, these By-Laws and the laws of
the State of Delaware, as shall be approved by the Board of Directors, and shall
be signed by the Chief Executive Officer, the President and Chief Operating
Officer or a Vice-President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and shall bear the seal of the
Corporation and shall not be valid unless so signed and sealed. Certificates
countersigned by a duly appointed transfer agent and/or registered by a duly
appointed registrar shall be deemed to be so signed and sealed whether the
signatures be manual or facsimile signatures and whether the seal be a facsimile
seal or any other form of seal. All certificates for each class of stock shall
be consecutively numbered and the name of the person owning the shares
represented thereby, his address, with the number of such shares and the date of
issue, shall be entered on the Corporation's books. All certificates surrendered
shall be canceled and no new certificates shall be issued until the former
certificates for the same number of shares shall have been surrendered and
canceled, except in cases provided for herein.
In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been affixed to, any such
certificate or certificates shall cease to be such officer or officers of the
Corporation before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation, and may be issued and delivered as though the person or persons
who signed such certificates, or whose facsimile signature or signatures shall
have been affixed thereto, had not ceased to be such officer or officers of the
Corporation.
SECTION 39. TRANSFERS OF SHARES. Transfers of stock shall be made upon
the books of the Corporation by the holder in person or by attorney, upon the
surrender and cancellation of the certificate or certificates for such shares.
But the Board of Directors may appoint one or more suitable banks and/or trust
companies as transfer agents and/or registrars of transfers, for facilitating
transfers of any class or series of stock of the Corporation by the holders
thereof under such regulations as the Board of Directors may from time to time
prescribe. Upon such appointment being made all certificates of such class or
series thereafter issued shall be countersigned by one of such transfer agents
and/or one of such registrars of transfers, and shall not be valid unless so
countersigned.
SECTION 40. STOLEN, LOST, MUTILATED AND DESTROYED CERTIFICATES. The
Board of Directors may in its sole discretion direct that a new certificate or
certificates of stock may be issued in place of any certificate or certificates
of stock theretofore issued by the Corporation, alleged to have been stolen,
lost, mutilated or destroyed, and the Board of Directors when authorizing the
issuance of such new certificate or certificates may, in its discretion, and as
a condition precedent thereto, require the owner of such mutilated certificate
to surrender the same and the owner of such stolen, lost, mutilated or destroyed
certificate or certificates or his legal representatives to give to the
Corporation, and to such registrar or registrars and/or transfer agent or
transfer agents as may be authorized or required to countersign such new
certificate or certificates, a bond in such sum as the Corporation may direct
not exceeding double the value of the stock represented by the certificate
11
<PAGE> 12
alleged to have been stolen, lost, mutilated or destroyed, as indemnity against
any claim that may be made against them or any of them for or in respect of the
shares of stock represented by the certificate alleged to have been stolen,
lost, mutilated or destroyed.
SECTION 41. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the owner in
fact thereof and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, save as expressly
provided by the laws of the State of Delaware.
BOOKS AND RECORDS
-----------------
SECTION 42. Subject to the provisions of the statute under which the
Corporation is organized, the Corporation may keep its books outside the State
of Delaware.
The Board of Directors shall have power, from time to time, to determine
whether and to what extent and at what times and places and under what
conditions and regulations the accounts and books of the Corporation (except
such as may by statute be specifically open to inspection), or any of them,
shall be open to the inspection of the stockholders and no stockholder shall
have any right to inspect any account or book or document of the Corporation
except as conferred by statute or authorized by the directors.
CONTRACTS, CHECKS, DRAFTS AND BANK ACCOUNTS
-------------------------------------------
SECTION 43. CONTRACTS. Subject to the provisions of the Amended and
Restated Certificate of Incorporation, the Board of Directors or the Executive
Committee may authorize any officer or officers, fiscal agent or other agent or
employee of the Corporation to enter into any contract or execute or deliver any
instrument in the name of or on behalf of the Corporation and such authority may
be general or confined to specific instances, and unless so authorized by the
Board of Directors or by these By-Laws, no officer, fiscal or other agent or
employee of the Corporation shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose.
SECTION 44. LOANS. Any officer or agent of the Corporation when
authorized by the Board of Directors or the Executive Committee may negotiate
loans and advances for the Corporation from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances, when authorized by the Board of Directors or the Executive Committee,
may make, execute and deliver promissory notes or other evidences of
indebtedness of the Corporation, and pledge, hypothecate or transfer as security
for the payment thereof securities or other property at any time held by the
Corporation. No loans shall be contracted on behalf of the Corporation and no
notes or other evidences of indebtedness shall be issued in its behalf unless
and except as authorized by the Board of Directors or the Executive Committee.
12
<PAGE> 13
SECTION 45. DEPOSITS. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such banks or trust
companies or with such bankers or other depositories in the United States or
elsewhere as the Board of Directors, the Executive Committee, the Chief
Executive Officer or the President and Chief Operating Officer may approve.
SECTION 46. CHECKS, DRAFTS, ETC. All notes, drafts, acceptances, checks,
endorsements or other evidences of indebtedness shall be signed by the Chief
Executive Officer, the President and Chief Operating Officer or a Vice-President
and shall be countersigned by the Treasurer or an Assistant Treasurer of the
Corporation, or by such officers as may, from time to time, be designated by
resolution of the Board of Directors or the Executive Committee for that
purpose. Endorsements for deposit to the credit of the Corporation in any of its
duly authorized depositories may be made by the Treasurer or an Assistant
Treasurer or by any other officer or agent who may be designated by resolution
of the Board of Directors or the Executive Committee.
SECTION 47. SAFE DEPOSIT VAULTS. To the extent permitted by law,
securities of the Corporation may be deposited in such safe deposit vaults in
the United States or elsewhere as the Board of Directors or the Executive
Committee may approve, and access to such vaults shall be only by such officer
together with such additional officer or officers and/or responsible employee or
employees as may from time to time be designated for the purpose by resolution
of the Board of Directors.
SECTION 48. DEPOSIT OF SECURITIES FOR SAFEKEEPING. From time to time, to
the extent permitted by law, the Board of Directors or the Executive Committee
may deposit for safekeeping with one or more banks, trust companies or other
financial institutions to be selected by them in the United States or elsewhere,
any securities owned by the Corporation and not otherwise deposited or pledged
as security. Any and all securities so deposited may be withdrawn from time to
time only by such officer of the Corporation together with such additional
officer or officers and/or responsible employee or employees as may from time to
time, to the extent permitted by law, be designated for the purpose by
resolution of the Board of Directors or the Executive Committee.
FISCAL YEAR
-----------
SECTION 49. The fiscal year shall begin the first day of January in each
year.
NOTICES
-------
SECTION 50. Whenever under the provisions of these By-Laws notice is
required to be given to any director, officer or stockholder, it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, by the same in the post-office or letter-box, in a post-paid sealed
wrapper, addressed to such stockholder, officer or director at such address as
appears on the books of the Corporation, or, in default of other address, to
such director, officer or stockholder at his last known post-office address and
such notice shall be deemed to be given at the time when the same shall be thus
mailed.
13
<PAGE> 14
Any stockholder, director or officer may waive any notice required to be
given under these By-Laws by instrument in writing signed (either before or
after the holding of any meeting in respect of which the notice is required) by
such stockholder, director or officer and filed with the Corporation.
STOCK OF OTHER ENTITIES
-----------------------
SECTION 51. The Chief Executive Officer, the President and Chief
Operating Officer and each Vice-President are each individually authorized on
behalf of the Corporation, in person or by proxy, to attend, act and vote at
meetings of the stockholders of any corporation, or the equity holders of any
other entity, in which the Corporation shall hold stock or any other equity
interest, and to exercise thereat any and all rights and powers incident to the
ownership of such stock or other equity interest, and to execute waivers of
notice of such meetings and calls therefor, and to take or participate in the
taking of action by the stockholders of such corporation or the equity holders
of such entity by consent in lieu of a meeting. The Board of Directors or the
Executive Committee may also authorize any other director, officer or other
person on behalf of the Corporation to take any and all of such actions, and
authority may be given to exercise such authority either on one or more
designated occasions, or generally on all occasions until revoked by the Board
of Directors or the Executive Committee.
REGISTRATION OF SECURITIES
--------------------------
SECTION 52. Any stocks or securities owned by the Corporation may, if so
determined by the Board of Directors or the Executive Committee, be registered
either in the name of the Corporation or in the name of any nominee or nominees
appointed for that purpose by the Board of Directors or the Executive Committee.
AMENDMENTS
----------
SECTION 53. These By-Laws may be altered or amended by the holders of
shares of stock of the Corporation entitled to vote with respect thereto,
present in person or by proxy at any regular or special meeting of the
stockholders, if notice of the proposed alteration or amendment be contained in
the notice of the meeting, or by the Board of Directors; provided, however, that
these By-Laws may not be altered or amended either by action of the stockholders
or by action of the Board of Directors to make provisions contrary to or in
conflict with or in any way modifying any provision of the Amended and Restated
Certificate of Incorporation; provided, further, that the vote of stockholders
necessary to alter or amend these By-Laws shall be as provided for in the
Amended and Restated Certificate of Incorporation.
14
<PAGE> 15
MISCELLANEOUS
-------------
SECTION 54. SECTION HEADINGS. Section headings in these By-Laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
SECTION 55. INCONSISTENT PROVISIONS. In the event that any provision of
these By-Laws is or becomes inconsistent with any provision of the Amended and
Restated Certificate of Incorporation, the General Corporation Law or any other
applicable law, the provision of these ByLaws shall not be given effect to the
extent of such inconsistency but shall otherwise be given full force and effect.
15
<PAGE> 1
Exibit 8.1
<TABLE>
<CAPTION>
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
<S> <C>
Index Numbers: 0355.01-00 Washington, DC 20224
Edward J. Schwartz Contact Person:
Vice-President Richard K. Passales
Pittway Corporation Telephone Number:
Suite 700 (202) 622-7530
200 South Wacker Drive In Reference to:
Chicago, IL 60601 CC:DOM:CORP:4 PLR-100819-98
Date: May 8, 1998
Distributing = Pittway Corporation
a Delaware corporation
EIN: 13-5616408
Controlled = Penton Publishing, Inc.
a Delaware corporation
EIN: 36-2875386
Acquiror = D-M Acquisition Corp.
an Illinois corporation
EIN: to be applied for
Target = Donohue Meehan Publishing
Company
an Illinois corporation
EIN: 36-3487869
Business A = the manufacture and wholesale
distribution of commercial
smoke detectors and burglar
alarm equipment
Business B = the publication of controlled
circulation trade magazines,
production of trade shows and
conferences, and direct mail
marketing
a = 7,000,000
- -
</TABLE>
Dear Mr. Schwartz:
We respond to your letter dated January 7, 1998 requesting rulings on
certain federal income tax consequences of a proposed transaction.
<PAGE> 2
Page 2
PLR-100819-98
SUMMARY OF FACTS
Publicly traded Distributing is the parent of a consolidated group that
has outstanding common stock and Class A Stock (together, the "Distributing
Stock"). Distributing conducts Business A and wholly owns Controlled, which
conducts Business B. Controlled wholly owns several subsidiaries including
Acquiror.
The taxpayer has submitted financial information indicating that
Business A and Business B each has had gross receipts and operating expenses
representing the active conduct of a trade or business for each of the past five
years.
Controlled wishes to acquire Target but the Target shareholders will
consent to the acquisition only if Controlled is separated from Distributing.
Accordingly, Distributing has proposed the following transaction:
(i) Distributing will distribute the Controlled stock to the
Distributing shareholders pro rata (the "Distribution").
(ii) Acquiror will acquire Target for Controlled stock and a of cash in
a transaction the taxpayer represents will quality as a reorganization under ss.
368(a)(1)(A) and (a)(2)(D) of the Internal Revenue Code (the "Acquisition").
DISTRIBUTION REPRESENTATIONS
The taxpayer makes the following representations concerning the
Distribution:
(a) No part of the consideration distributed by Distributing in the
Distribution will be received by a Distributing shareholder as a creditor,
employee, or in any capacity other than that of a Distributing shareholder.
(b) The five years of financial information submitted on behalf of
Business A and Business B represents, in each case, its present operations, and
with regard to each corporation, there have been no substantial operational
changes since the date of the last financial statements submitted.
(c) Following the Distribution, Distributing and Controlled each will
continue the active conduct of its business, independently and with its separate
employees.
(d) The Distribution is being carried out to facilitate the Acquisition.
The Distribution is motivated, in whole or substantial part, by this corporate
business purpose.
(e) There is no plan or intention by any shareholder who owns 5 percent
or more of Distributing, and Distributing management, to its best knowledge, is
not aware of any plan or intention on the part of any particular remaining
shareholder of
<PAGE> 3
Page 3
PLR-100819-98
Distributing to sell, exchange, transfer by gift, or otherwise dispose of any
stock in Distributing or Controlled after the transaction.
(f) There is no plan or intention by either Distributing or Controlled,
directly or through any subsidiary corporation, to purchase any of its
outstanding stock after the Distribution, other than through stock purchases
meeting the requirements of ss. 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696.
(g) There is no plan or intention to liquidate either Distributing or
Controlled, to merge either corporation with any other corporation, or to sell
or otherwise dispose of the assets of either corporation after the Distribution,
except in the ordinary course of business.
(h) No intercorporate debt will exist between Distributing and
Controlled at the time of, or after, the Distribution.
(i) Payments made in any continuing transactions between Distributing
and Controlled will be for fair market value based on terms and conditions
arrived at by the parties bargaining at arm's length.
(j) Immediately before the Distribution, items of income, gain, loss,
deduction, and credit will be taken into account as required by the applicable
intercompany transaction regulations (SEE ss. 1.1502-13 and ss. 1.1502-14 as in
effect before the publication of T.D. 8597, 1995-2 C.B. 147, and as currently in
effect; ss. 1.1502-13 as published by T.D. 8597). Any excess loss account
Distributing may have in the Controlled stock will be included in income
immediately before the Distribution to the extent required by the applicable
regulations.
DISTRIBUTION RULINGS
Based solely on the information submitted and the representations set
forth above, we rule as follows on the Distribution:
(1) No gain or loss will be recognized by Distributing on the
Distribution (ss. 355(c)).
(2) No gain or loss will be recognized by (and no amount will otherwise
be included in the income of) the Distributing shareholders on their receipt of
Controlled stock in the Distribution (ss. 355(a)(1)).
(3) The aggregate basis of the controlled stock and the Distributing
stock in the hands of each Distributing shareholder after the Distribution will
equal the shareholder's basis in the Distributing stock immediately before the
Distribution, allocated between the Controlled stock and Distributing stock in
proportion to the fair market value of each in accordance with ss. 1.358-2(a)(2)
(ss. 358(a) and (b)(2)).
<PAGE> 4
Page 4
PLR-100819-98
(4) The holding period of the Controlled stock received by each
Distributing shareholder will include the holding period of the Distributing
stock on which the Distribution is made, provided the stock is held as a capital
asset on the date of the Distribution (ss. 1223(1)).
(5) As provided in ss. 312(h), proper allocation of earnings and profits
between Distributing and Controlled will be made under ss. 1.312-10(b).
CAVEATS
We express no opinion on the tax effects of the transactions under any
other provision of the Code or regulations, or the tax effects of any conditions
existing at the time of, or effects resulting from, the transactions that are
not specifically covered by the above rulings. In particular, no opinion is
expressed regarding whether the Acquisition will qualify as a reorganization
under ss. 368(a)(1)(A) and (a)(2)(D).
This ruling is directed only to the taxpayer who requested it. Section
6110(j)(3) provides that it may not be used or cited as precedent.
Each taxpayer involved in this transaction should attach a copy of this
ruling letter to the taxpayer's federal income tax return for the taxable year
in which the transactions covered by this letter are consummated.
In accordance with the power of attorney on file in this office, a copy
of this letter is being sent to your authorized representative.
Sincerely yours,
Assistant Chief Counsel
(Corporate)
By: /s/ Wayne T. Murray
-----------------------------
Wayne T. Murray
Senior Technician/Reviewer
Branch 4
<PAGE> 1
Exhibit 10.1
[Bank of America Letterhead]
12th December, 1997
Penton Media Ltd
Weybourne House
2 London Street
Chertsey
Surrey
KT6 8AA
FOR THE ATTENTION OF: Mr. Preston Vice
Dear Sirs,
We are pleased to advise you that we are prepared to place at your disposal an
uncommitted facility (the "Facility") not exceeding (pound)17,500,000 (Pounds
Sterling Seventeen Million Five Hundred Thousand) (the "Facility Amount")
outstanding at any one time on the following terms and conditions. We may,
subject to your agreement, amend the Facility Amount and any other terms and
conditions of the Facility by notice to you (either in writing or by telephone
followed by confirmation in writing).
A. UTILISATION
-----------
Within the Facility Amount, this Facility is available by way of
revolving advances in Sterling. Advances shall be for periods of 1, 3
or 6 months as selected by you (or such other periods as we may agree)
but are in all cases to mature on a day which is a banking business day
in London. We shall require your notification of the period you select
for each advance prior to 12 noon London time on the day each advance
is made.
B. INTEREST AND OTHER CHARGES
---------------------------
(a) Interest will accrue and be calculated in respect of each advance on
the basis of the number of days elapsed (from and including the date of
advance to but excluding the date of repayment) and a 365 day year at a
rate per annum of one-half-of-one per cent above LIBOR (as conclusively
determined by us in good faith) at 11 a.m. London time on the date of
that advance.
(b) Interest accrued on each advance shall be paid at its maturity and in
addition, if the advance is for a period longer than three months, at
three-monthly intervals after the date of the advance.
<PAGE> 2
C. GUARANTEE
---------
Your obligations hereunder are to be unconditionally guaranteed at all
times by Pittway Corporation ("the Guarantor") under a guarantee (the
"Guarantee") in a form and content satisfactory to us.
D. GENERAL CONDITIONS
------------------
This Facility is subject to the following conditions:
1. This Facility is to be used for acquisition finance/general operating
capital purposes.
2. All payments hereunder are to be made in Sterling in immediately
available funds to such accounts as we may from time to time select
free and clear of and without any withholding or deduction whatsoever,
whether in respect of present or future taxes, duties or other charges.
If you are compelled by law to make any such withholding or deduction
you undertake (i) immediately to pay to us such additional amounts as
are necessary for us to receive the amount which would have been
payable if no such withholding or deduction had been required, (ii) to
pay the amount so deducted or withheld to the relevant taxing authority
when due and (iii) to provide us with evidence that such taxes, duties
or charges have been paid by forwarding to us official receipts within
30 days of payment.
3. The availability of this Facility is at all times subject to our
compliance in such manner as we think fit with any and all
restrictions, rules, regulations and requests whatsoever of the Bank of
England or any other applicable regulatory authority or Governmental
agency from time to time in force.
4. You undertake to pay or reimburse to us, on demand, as additional
interest any increased cost incurred by us in respect of this Facility
as a result of any change in or the introduction of, or any change in
the application of, any law, regulation or request (including any
relating to tax) and any cost to us (including any reduction in the
rate of return on our capital resources) for the time being (as
determined by us in our sole discretion) of complying with any reserve,
special deposit, cash ratio, liquidity, capital adequacy or any other
requirements or requests whatsoever of the Bank of England or any other
applicable regulatory authority as affecting transactions hereunder.
5. You agree that in addition to any right of set-off or other general
lien or similar right to which we may be entitled at law, we may at any
time and without further notice to you combine and consolidate all or
any of the accounts with us in your name or to which you are
beneficially entitled at any of our branches and in any currency and we
may set-off any money whatsoever whether on current or deposit account,
which we may at anytime hold for your account or which may be owing to
you against any of your liabilities to us whatsoever whether actual or
contingent, joint or several, as principal or surety wheresoever owed
or held and you hereby irrevocably authorise us to debit any account or
accounts which you may have with us all or any amounts due to us in
connection with this Facility. Any currency conversions required
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<PAGE> 3
for the purposes of this paragraph D.5 shall be effected at our spot
rate of exchange at 11.00 a.m. on the day of conversion.
6. This Facility is at all times subject to availability of funds to us,
as determined by us in our sole discretion.
7. This letter shall be governed by and construed in accordance with
English law.
8. It is irrevocably agreed for our exclusive benefit that the courts of
England are to have jurisdiction to settle any disputes which may arise
out of or in connection with this letter and that accordingly any suit,
action or proceeding arising out of or in connection with this letter
(in the paragraph referred to as "Proceedings") may be brought in such
courts. Nothing in this paragraph shall limit our right to take
Proceedings against you in any other court of competent jurisdiction,
nor shall the taking of Proceedings in one or more jurisdictions
preclude the taking of Proceedings in any other jurisdiction, whether
concurrently or not.
9. We are hereby authorised to disclose the contents of this letter, the
Guarantee, any notices delivered pursuant to any of the aforesaid and
any other information whatsoever in relation to you or the Guarantor or
the aforesaid documents and notices if required to do so by any law or
regulation or by any request or the requirement (whether or not having
the force of law) of any central bank, governmental, monetary or other
authority.
10. This letter may be signed in any number of counterparts, all of which,
when taken together, shall constitute one and the same document.
E. SPECIFIC CONDITIONS
-------------------
Each advance shall, subject to paragraph F, be repaid to us on the date
of its maturity. However, if we agree that a new advance is to be made
on such day, you hereby irrevocably instruct us to apply (to the extent
necessary) the proceeds of such new advance in or towards making such
repayment (but without prejudice to your obligation to repay the
maturing advance prior to any such application).
F. EXPIRY
------
1. The Facility shall remain available unless and until we serve notice
upon you in writing at any time stating that the Facility is terminated
in whole or in part. After service of such notice or at the expiry of
any period of notice given to you in that notice, this Facility will
cease to be available for any further transactions hereunder to the
extent that the same is terminated by that notice.
2. Notwithstanding any other provision of this letter you undertake that,
on demand by us on or at any time after such termination, you will:
(a) repay to us all outstanding advances under this Facility
together with accrued interest and any other sums for which
you are liable hereunder;
3
<PAGE> 4
(b) reimburse to us on demand all losses, costs and expenses
incurred by us in liquidating and/or re-employing deposits
from third parties acquired to make or maintain any advances
or any part thereof.
In the event that default is made in the payment of any sum due
hereunder, interest shall accrue on the amount in respect of which such
default has been made from the date of default until payment (as well
after as before judgement) at the rate of three per cent per annum
above the cost to us, as conclusively determined by us, of acquiring
such funds from such sources and for such periods as we may decide, and
will be due and payable at the end of each such period and, to the
extent not paid, shall be compounded and itself attract interest at the
aforesaid rate.
G. CONDITIONS PRECEDENT
This Facility will be available when we have received the following
documents and notified you that we have found them to be satisfactory:
1. A certified true and dated copy of your Memorandum and Articles of
Association, Certificate of Incorporation and Certificates of
Incorporation on Change of Name.
2. A certified true and dated copy of a Resolution of your Board of
Directors authorising:
(a) Acceptance and performance of this Facility on the terms and
conditions set out in this letter;
(b) An officer of your company to sign a duplicate of this letter
(and subsequent amendments) indicating such acceptance (and
enclosing specimen signatures);
(c) A person or persons to operate this Facility (and enclosing
specimen signatures);
3. A duplicate of this letter signed in accordance with 2(b) of this
paragraph.
4. A certified true and dated copy of a Resolution of the Board of
Directors of the Guarantor authorising execution of the guarantee.
5. The executed guarantee.
We look forward to your reply and to receipt of the documents called for above.
If we have not received your reply and satisfactory documents on or before 31st
December, 1997 the offer constituted by this letter will lapse.
Yours faithfully,
/s/ Keith Thomas /s/ Geraldine Simmons
Keith Thomas Geraldine Simmons
Vice President Credit Officer
4
<PAGE> 5
WE HEREBY ACCEPT THE FACILITY OFFERED IN THE LETTER OF WHICH THIS IS A COPY ON
THE TERMS AND CONDITIONS CONTAINED THEREIN AND AGREE TO BE BOUND BY SUCH TERMS
AND CONDITIONS AND TO PERFORM ALL OUR OBLIGATIONS THEREUNDER.
/s/ THOMAS L. KEMP [CORPORATE SEAL]
- ---------------------------------------
FOR AND ON BEHALF OF: PENTON MEDIA LTD
12/12/97
- --------------------
DATE
5
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of July 25, 1996, between Penton Publishing,
Inc., a Delaware corporation (the "Company"), which is currently a wholly-owned
subsidiary of Pittway Corporation, a Delaware corporation ("Pittway"), and
Thomas Kemp ("Executive").
In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and
Executive accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date on which Executive
commences full-time employment with the Company at the Company's headquarters in
Cleveland, Ohio and ending as provided in paragraph 5 hereof (the "Employment
Period"). Executive agrees to commence full-time employment with the Company at
such headquarters no later than January 2, 1997.
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
chief executive officer of the Company and, subject to the management of the
business and affairs of the Company at the direction of the Board of Directors
of the Company (the "Board"), shall have the normal duties, responsibilities and
authority of an executive serving in such position, including without limitation
the development of short-and long-term operating plans, the development of
operating and capital budgets, the overseeing of Company personnel and the
development of compensation proposals and proposals for acquisitions and
dispositions. Executive shall have the title Chairman and Chief Executive
Officer of the Company, subject to the power of the Board to change such title
to President or Chief Executive Officer or some combination thereof. During the
Employment Period, Executive shall also serve as a director of the Company for
so long as the Board (or a nominating committee of the Board) nominates him to
that position and he is elected to it and as a director of any affiliate of the
Company designated by the Board for so long as the Board causes him to be
elected to such position.
(b) Executive shall report to the Board.
(c) During the Employment Period, Executive shall devote his
best efforts and his full business time and attention (except for permitted
vacation periods, reasonable periods of illness or other incapacity, and,
provided such activities do not have more than a de minimis effect on
Executive's performance of his duties under this Agreement, participation in
charitable and civic endeavors and management of Executive's personal
investments and business interests) to the business and affairs of the Company,
its subsidiaries and affiliates. Executive shall perform his duties and
responsibilities to the best of his abilities in a diligent, trustworthy,
businesslike and efficient manner.
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<PAGE> 2
(d) Executive shall perform his duties and responsibilities
principally in the Cleveland, Ohio metropolitan area, and shall not be required
to travel outside that area any more extensively than the previous chief
executive officer of the Company, Sal F. Marino, has done in the past in the
ordinary course of the business of the Company.
3. Compensation and Benefits.
(a) Salary. The Company agrees to pay Executive a salary
during the Employment Period in monthly installments. Executive's initial salary
shall be $400,000 per year. The Compensation Committee of the Board (or, if
there is no such Committee, the Board) shall review Executive's salary annually,
beginning in January of 1998, and may, in its sole discretion, increase it.
(b) Bonus(es). The Company agrees to pay Executive bonuses
during the Employment Period, as follows:
(i) Signing Bonus. for the execution and delivery of this
Agreement, a bonus of $100,000 payable within five
days after the Employment Period begins;
(ii) 1996 Bonus. for Executive's performance of his duties
and responsibilities during the remainder of 1996,
and provided the Employment Period begins no later
than September 3, 1996 and continues until at least
December 31, 1996, a bonus of $100,000 payable on
January 2, 1997; and
(iii) Subsequent Annual Bonuses. for Executive's
performance of his duties and responsibilities during
each calendar year subsequent to 1996, a bonus
pursuant to a plan for such calendar year to be
established by the Compensation Committee of the
Board (or, if there is no such Committee, the Board)
during the first month of such calendar year after
consultation with Executive.
In general, the plan for each calendar year will have
potential bonus amounts, corresponding to various
levels of Company profitability at or above a
threshold level, ranging from a threshold amount to a
maximum amount. Within this range ("Executive's Bonus
Potential"), there shall be a target bonus amount
which shall correspond to a reasonable improvement in
Company profitability. Executive's Bonus Potential
will relate to the Company's profitability: the
higher the Company's profitability, the higher
Executive's Bonus Potential; the lower the Company's
profitability, the lower Executive's Bonus Potential.
It is the intention of the parties that the plan for
1997 will result in a bonus of $200,000 if there is a
meaningful increase in the Company's profitability in
1997 compared to full-year 1996 operations, but such
bonus may be more or less than that amount depending
on the Company's profitability during 1997. If the
Company acquires or combines with another entity
during the
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<PAGE> 3
remainder of 1996 or during 1997, increase in
profitability will be determined based on
year-to-year improvement in combined operations.
Any bonus payable pursuant to this (iii) at a time
when the Company is a majority-owned subsidiary of
Pittway may, at the discretion of the Compensation
Committee of the Board of Directors of Pittway (after
considering any preference expressed by Executive),
be paid in cash, in the form of a Performance Shares
Award related to shares of Pittway's Class A Stock or
in combination of both. Any such Performance Shares
Award would be awarded under the Pittway Corporation
1990 Stock Awards Plan as amended (including any
further amendments, the "Pittway Plan"). Any bonus
payable pursuant to this (iii) at a time when the
Company is a public company (as defined in paragraph
(c)(iv) below) may, at the discretion of the
Compensation Committee of the Board (or, if there is
no such Committee, the Board) (after considering any
preference expressed by Executive), be paid in the
form of cash, a Performance Shares Award related to
shares of the Company's Common Stock or a combination
of both. Each Performance Shares Award paid pursuant
to this paragraph shall be substantially in the form
of Exhibit 1 attached to this Agreement, except that
it is understood that reference to any then existing
registration statement or related plan information
document in Exhibit 1, or its equivalent, shall be
included if and only if the same exists at the time
of payment and is relevant to such Performance Shares
Award.
(c) Stock Options. Executive shall also receive stock options
during the Employment Period, as follows:
(i) Initial Pittway Option. pursuant to authorization by
the Compensation Committee of the Board of Directors
of Pittway, and under the Pittway Plan, on the date
on which the Employment Period begins Executive will
be granted a non-qualified option to purchase 4,000
shares of Pittway's Class A Stock at an exercise
price per share equal to the fair market value of
such a share on such date;
(ii) 1997 Pittway Option. pursuant to authorization by
such Compensation Committee, and under the Pittway
Plan, on March 31, 1997, if the Company then remains
a majority-owned subsidiary of Pittway, Executive
shall be granted an additional non-qualified option
to purchase shares of Pittway's Class A stock (the
number of shares to be determined so that such option
has a value of $200,000) at an exercise price per
share equal to the fair market value of such a share
on such date;
(iii) Subsequent Pittway Options. so long as the Company
remains a majority-owned subsidiary of Pittway,
Executive shall be eligible to receive additional
non-qualified stock options under the Pittway Plan
during calendar years
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<PAGE> 4
subsequent to 1997, at the discretion of the
Compensation Committee of the Board of Directors
of Pittway;
(iv) Initial Company Option(s). at the close of business
on the first date, if any, on which the Company has
ceased to be a majority-owned subsidiary of Pittway
and the Company's stock has become listed and traded
on a national securities exchange or included and
traded in the National Association of Securities
Dealers' Automated Quotation system (the Company's
status at such time being referred to as that of a
"public company"):
(A) Executive shall be granted a
non-qualified option to purchase shares of
the Company's Common Stock (the number of
shares to be determined so that such option
has a value equal to (1) $400,000 minus (2)
the aggregate of the value(s) on their
respective date(s) of grant of any options
granted to Executive under the Pittway Plan
earlier in the same year) at an exercise
price per share equal to the fair market
value of such a share at such time; and
(B) provided that prior to the Company's
becoming a public company Executive shall
have surrendered to Pittway, for
cancellation immediately prior to the
Company's becoming a public company, the
then unexpired, unexercised portion(s) of
one or more options to purchase Pittway
Class A Stock granted pursuant to (i), (ii)
or (iii) above, Executive shall be granted
non-qualified options to purchase shares of
the Company's Common Stock (the number of
such shares to be determined so that such
options have an aggregate value equal to the
aggregate of the value(s) as of immediately
prior to the Company's becoming a public
company of such surrendered unexpired,
unexercised portion(s); and the
exercisability provisions of each such
option to correspond to the then
exercisability of the corresponding
surrendered portion) at an exercise price
equal to the fair market value of such a
share at such time; and
(v) Subsequent Company Options. if the Company is a
public company at the time, Executive shall be
eligible to receive additional non-qualified stock
options to purchase shares of the Company's Common
Stock during calendar years subsequent to 1997, at
the discretion of the Compensation Committee of the
Board.
For purposes of (ii) and (iv) above, the value of a
non-qualified option to purchase shares of Pittway's Class A Stock shall be
determined by the Compensation Committee of the Board of Directors of Pittway,
on a basis consistent with that used by such Committee in making similar
determinations. For purposes of (iv) above, the value of a non-qualified option
to purchase shares of the Company's Common Stock shall be determined by the
Compensation Committee of the Board (or, if there is no such Committee, the
Board), on a basis consistent with that used by such Committee (or the Board) in
making similar determinations.
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<PAGE> 5
Each option to be granted pursuant to (i), (ii) or
(iv) above shall be substantially in the form of Exhibit 2 attached to this
Agreement, except that it is understood that reference to any then existing
registration statement or related plan information document in Exhibit 2, or its
equivalent, shall be included if and only if the same exists at the time of
grant and is relevant to such option.
If at the time an option to purchase shares of the
Company's Common Stock is to be granted pursuant to (iv) or (v) above the
Company has in effect an equity awards or stock option plan (as amended from
time to time, the "Company Plan") and such option can be granted under the
Company Plan, and provided the grant of such option has been authorized by the
Compensation Committee of the Board (or, if there is no such Committee, the
Board), such option shall be granted under the Company Plan; otherwise such
option shall be granted independent of the Company Plan.
If, at the time of the grant of any option pursuant
to this paragraph (c), the issuance of shares upon exercise thereof has not been
registered under the Securities Act of 1933, as amended, it shall be a condition
to such grant that Executive execute and deliver to Pittway or the Company, as
applicable, a certificate confirming that Executive is an accredited investor
(as such term is used in Regulation D under such Act) and including transfer
restrictions and other provisions customary in connection with grants under such
circumstances.
(d) Relocation Expense Reimbursement. Subject to the Company's
requirements with respect to reporting and documentation of such expenses, the
Company shall reimburse Executive for the following expenses related to
Executive's relocation from Tiburon, California to the Cleveland, Ohio
metropolitan area (which relocation Executive agrees to pursue with reasonable
diligence):
(i) Moving Expenses. all reasonable expenses related to
moving the household possessions of Executive and his
immediate family as a part of such relocation;
(ii) Air Travel Expenses. reasonable air travel expenses
(at coach fare) incurred by Executive and his wife
related to such relocation, up to a maximum of
$8,000;
(iii) Temporary Housing Expenses. rent (including
electricity and heating expense) of a furnished
apartment in the Cleveland, Ohio metropolitan area
for up to the first six months of the Employment
Period, up to a maximum of $2,500 per month; and
(iv) Residence Sale Net Loss. up to $100,000 (net after
taxes on the receipt of such reimbursement) of any
loss (i.e., shortfall of net sale price, after
deduction of Executive's sales commission and closing
costs, as compared to $1,086,445) incurred by
Executive on the sale of his existing residence in
Tiburon, California (which sale Executive agrees to
commence not later than October 1, 1996); provided
that in the event Executive is entitled to any tax
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<PAGE> 6
benefit on account of such loss, the $100,000 amount
shall be reduced by the amount of such tax benefit.
(e) Other Expense Reimbursement. The Company shall reimburse
Executive for all reasonable expenses incurred by him during the Employment
Period in the course of performing his duties under this Agreement which are
consistent with the Company's policies in effect from time to time with respect
to travel, entertainment and other business expenses, subject to the Company's
requirements with respect to reporting and documentation of such expenses.
Executive acknowledges that under the Company's current air travel reimbursement
policy, reimbursement is limited to coach fare (plus Executive's cost of any
upgrade certificates used to upgrade to first class) on travel within the United
States and is limited to business class fare on travel to and from foreign
cities.
(f) Standard Executive Benefits Package. In addition to the
salary, bonus(es), stock options and expense reimbursements payable to Executive
pursuant to this paragraph 2, Executive shall be entitled during the Employment
Period to participate, on the same basis as other executives of the Company, in
the Company's Standard Executive Benefits Package. The Company's "Standard
Executive Benefits Package" means those benefits (including insurance, vacation,
company car or car allowance and/or other benefits) for which substantially all
of the executives of the Company are from time to time generally eligible, as
determined from time to time by the Board. On the date on which the Employment
Period begins, Executive shall be credited with 22 years of service for purposes
of vacation benefits included in the Standard Executive Benefits Package.
Notwithstanding the foregoing, except to the extent expressly provided in (c)
above, Executive shall not be entitled during the Employment Period to
participate in the Pittway Plan or the Company Plan, but Executive shall be
entitled to participate in any other executive equity award or stock option plan
of Pittway or the Company, as applicable, which may be established.
(g) Additional Benefits. In addition to participation in the
Company's Standard Executive Benefits Package pursuant to this paragraph 2,
Executive shall be entitled during the Employment Period to:
(i) additional term life insurance coverage in an amount
equal to Executive's salary; but only if and so long
as such additional coverage is available at standard
rates from the insurer providing term life insurance
coverage under the Standard Executive Benefits
Package or from a comparable insurer acceptable to
the Company;
(ii) supplementary long-term disability coverage in an
amount which will increase maximum covered annual
compensation to $330,000 and the maximum monthly
payments to $18,333; but only if and so long as such
supplementary coverage is available at standard rates
from the insurer providing long-term disability
coverage under the Standard Executive Benefits
Package or a comparable insurer acceptable to the
Company;
(iii) in the event the Employment Period ends prior to five
years after the beginning thereof and as a result
Executive is not entitled to all of the benefits
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<PAGE> 7
under the tax-qualified pension plan and
tax-qualified defined contribution plan (401(k) plan)
of Pittway included in the Standard Executive
Benefits Package to which he would have been entitled
had he been fully vested under such plans at the
beginning of the Employment Period, a supplemental
payment (independent of any plan) promptly following
the end of the Employment Period equal to the sum of
(A) the discounted present value of his accrued but
unvested future payments (on a straight life basis)
under such pension plan, calculated using the
discount rate and actuarial methods and procedures
then utilized under such plan and (B) the unvested
portion of his account under such defined
contribution plan; and
(iv) pursuant to authorization by the Compensation
Committee of the Board of Directors of Pittway,
participation in the Pittway Corporation Supplemental
Executive Retirement Plan effective January 1, 1996,
as currently in effect, except that (A) the beginning
date for accrual of a benefit shall be the date on
which the Employment Period begins and (B) no benefit
shall be payable thereunder unless the Employment
Period shall end five years or more after the
beginning thereof (or, if the Employment Period ends
early pursuant to paragraph 5 hereof within such five
years on account of a Termination without Cause or a
Termination by Executive for Good Reason, unless the
date on which (without any extension thereof) the
Employment Period is then scheduled to end shall be
five years or more after the beginning thereof) (the
"Pittway SERP").
In the event the Company ceases to be a
majority-owned subsidiary of Pittway and establishes
a Supplemental Executive Retirement Plan with terms
at least as favorable to Executive as those under the
Pittway SERP (the "Company SERP"), Executive shall
cease participation in the Pittway SERP and shall
instead participate in the Company SERP. As used
herein, "SERP" refers to whichever of the Pittway
SERP or the Company SERP Executive is participating
in at the time.
(h) Indemnification. With respect to Executive's acts or
failures to act during the Employment Period in his capacity as a director,
officer, employee or agent of the Company, Executive shall be entitled to
indemnification from the Company, and to liability insurance coverage (if any),
on the same basis as other directors and officers of the Company.
4. Adjustments. Notwithstanding any other provision of this
Agreement, it is expressly understood and agreed that if there is a significant
reduction in the level of the business to which Executive's duties under this
Agreement relate, or if all or any significant part of such business is disposed
of by the Company and/or its subsidiaries or affiliates during the Employment
Period but Executive thereafter remains an employee of the Company, the Board
may make adjustments in "Executive's Reference Salary" (i.e., Executive's
initial salary or, in the event the Employment Period has been extended pursuant
to paragraph 5(b) hereof, Executive's salary on the date on which the most
recent such extension occurred) and/or Executive's Bonus Potential as the Board
deems appropriate to reflect such reduction or disposition.
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<PAGE> 8
5. Employment Period.
(a) Except as hereinafter provided, the Employment Period
shall continue until, and shall end upon, the third anniversary of the date on
which the Employment Period begins.
(b) On each anniversary of the date on which the Employment
Period begins which precedes Executive's sixty-fifth birthday by more than two
years, unless the Employment Period shall have ended early pursuant to (c) below
or either party shall have given the other party written notice that the
extension provision in this sentence shall no longer apply, the Employment
Period shall be extended for an additional calendar year (unless Executive's
sixty-fifth birthday occurs during such additional calendar year, in which event
the Employment Period shall be extended only until such birthday). In no event
shall the Employment Period be extended beyond the Executive's sixty-fifth
birthday except by mutual written agreement of the Company and Executive.
(c) Notwithstanding (a) and (b) above, the Employment Period
shall end early upon the first to occur of any of the following events:
(i) Executive's death;
(ii) Executive's retirement upon or after reaching age 65
("Retirement");
(iii) the Company's termination of Executive's employment
on account of Executive's having become unable (as
determined by the Board in good faith) to regularly
perform his duties hereunder by reason of illness or
incapacity for a period of more than six (6)
consecutive months ("Termination for Disability");
(iv) the Company's termination of Executive's employment
for Cause ("Termination for Cause");
(v) the Company's termination of Executive's employment
other than a Termination for Disability or a
Termination for Cause ("Termination without Cause");
(vi) Executive's termination of Executive's employment for
Good Reason by means of advance written notice to the
Company at least thirty (30) days prior to the
effective date of such termination identifying such
termination as a Termination by Executive for Good
Reason and identifying the Good Reason ("Termination
by Executive for Good Reason") (it being expressly
understood that Executive's giving notice that the
extension provision in the first sentence of
paragraph 5(b) hereof shall no longer apply shall not
constitute a "Termination by Executive for Good
Reason"); provided that if the Good Reason identified
in such notice is the Good Reason set forth in
paragraph 5(e)(ii) hereof, the Company may, at its
option, defer the effective date of such termination
for up to ninety (90) additional days; or
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<PAGE> 9
(vii) Executive's termination of Executive's employment for
any reason other than Good Reason, by means of
advance written notice to the Company at least one
hundred twenty (120) days prior to the effective date
of such termination identifying such termination as a
Termination by Executive with Advance Notice
("Termination by Executive with Advance Notice") (it
being expressly understood that Executive's giving
notice that the extension provision in the first
sentence of paragraph 5(b) hereof shall no longer
apply shall not constitute a "Termination by
Executive with Advance Notice").
(d) For purposes of this Agreement, "Cause" shall mean:
(i) the commission by Executive of a felony or a crime
involving moral turpitude;
(ii) the commission by Executive of a fraud;
(iii) the commission by Executive of any act involving
dishonesty or disloyalty with respect to the Company
or any of its subsidiaries or affiliates which harms
or damages any of them to any extent;
(iv) conduct by Executive that brings the Company or any
of its subsidiaries or affiliates into substantial
public disgrace or disrepute;
(v) gross negligence or willful misconduct by Executive
with respect to the Company or any of its
subsidiaries or affiliates;
(vi) repudiation of this Agreement by Executive or
Executive's abandonment of his employment with the
Company (it being expressly understood that a
Termination by Executive for Good Reason or a
Termination by Executive with Advance Notice shall
not constitute such a repudiation or abandonment);
(vii) breach by Executive of any of the agreements in
paragraph 8 hereof; or
(viii) any other breach by Executive of this Agreement which
is material and which is not cured within thirty (30)
days after written notice thereof to Executive from
the Company.
(e) For purposes of this Agreement, "Good Reason" shall
mean:
(i) any downward adjustment by the Board in Executive's
Reference Salary and/or Executive's Bonus Potential
pursuant to paragraph 4 hereof; or
(ii) the Company's giving notice that the extension
provision in the first sentence of paragraph 5(b)
hereof shall no longer apply; or
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<PAGE> 10
(iii) any breach by the Company of this Agreement which is
material and which is not cured within thirty (30)
days after written notice thereof to the Company from
Executive.
6. Post-Employment Period Payments.
(a) If the Employment Period ends on the date on which
(without any extension thereof) it is then scheduled to end pursuant to
paragraph 5 hereof, or if the Employment Period ends early pursuant to paragraph
5 hereof for any reason, Executive shall cease to have any rights to salary,
bonus (if any), options, expense reimbursements or other benefits other than:
(i) any salary which has accrued but is unpaid, any reimbursable expenses which
have been incurred but are unpaid, and any unexpired vacation days which have
accrued under the Company's vacation policy but are unused, as of the end of the
Employment Period, (ii) (but only to the extent provided in any option
theretofore granted to Executive or in the SERP or any other benefit plan in
which Executive has participated as an employee of the Company) any option
rights or plan benefits which by their terms extend beyond termination of
Executive's employment, (iii) any benefits to which Executive is entitled under
the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), and (iv) any other amounts(s) payable pursuant to the succeeding
provisions of this paragraph 6.
(b) If the Employment Period ends pursuant to paragraph 5
hereof on Executive's sixty-fifth birthday, or if the Employment Period ends
early pursuant to paragraph 5 hereof on account of Executive's death, Retirement
or Termination for Disability, the Company shall make no further payments to
Executive except as contemplated in (a) (i), (ii) and (iii) above.
(c) If the Employment Period ends early pursuant to paragraph
5 hereof on account of Termination for Cause, the Company shall pay Executive an
amount equal to that Executive would have received as salary (based on
Executive's salary then in effect) had the Employment Period remained in effect
until the later of the effective date of the Company's termination of
Executive's employment or the date thirty days after the Company's notice to
Executive of such termination.
(d) If the Employment Period ends early pursuant to paragraph
5 hereof on account of a Termination without Cause or a Termination by Executive
for Good Reason, the Company shall pay to Executive amounts equal to the amounts
Executive would have received as salary (based on Executive's salary then in
effect or, if greater, Executive's Reference Salary) had the Employment Period
remained in effect until the date on which (without any extension thereof) it
was then scheduled to end, at the times such amounts would have been paid (in
the event Executive is entitled during the payment period to any payments under
any disability benefit plan or the like in which Executive has participated as
an employee of the Company, less such payments); provided, however, that in the
event of Executive's death during the payment period, the Company shall pay any
subsequent such amounts to Executive's estate (or such person or persons as
Executive may designate in a written instrument signed by him and delivered to
the Company prior to his death) or, if so elected by the payee(s) by written
notice to the Company within the period of sixty (60) days after the date of
Executive's death, shall pay to such payee(s) a lump sum amount equivalent to
the discounted present value of such amounts, discounted at the publicly
announced reference rate for
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<PAGE> 11
commercial lending of Bank of America Illinois in effect at the date of notice
to the Company of such election, with said amount to be paid on a date no later
than thirty (30) days following the date of notice to the Company of such
election. In addition, the Company shall reimburse Executive (net after taxes on
the receipt of such reimbursement) for any premiums paid by Executive for health
insurance provided to Executive (for Executive and his dependents) by the
Company subsequent to the end of the Employment Period pursuant to the
requirements of COBRA as in effect on the date of this Agreement. It is
expressly understood that the Company's payment obligations under this (d) shall
cease in the event Executive breaches any of his agreements in paragraph 7 or 8
hereof.
(e) If the Employment Period ends early pursuant to paragraph
5 hereof on account of a Termination by Executive with Advance Notice, the
Company shall make no further payments to Executive except as contemplated in
(a) (i), (ii) and (iii) above.
7. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
pursuant to this Agreement concerning the business or affairs of the Company or
any of its subsidiaries or affiliates or any predecessor thereof (unless and
except to the extent the foregoing become generally known to and available for
use by the public other than as a result of Executive's acts or omissions to
act, "Confidential Information") are the property of the Company or such
subsidiary or affiliate. Therefore, Executive agrees that he shall not disclose
any Confidential Information without the prior written consent of the Board
unless and except to the extent that such disclosure is (i) made in the ordinary
course of Executive's performance of his duties under this Agreement or (ii)
required by any subpoena or other legal process (in which event Executive will
give the Company prompt notice of such subpoena or other legal process in order
to permit the Company to seek appropriate protective orders), and that he shall
not use any Confidential Information for his own account without the prior
written consent of the Board. Executive shall deliver to the Company at the
termination of the Employment Period, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes and
software and other documents and data (and copies thereof) relating to the
Confidential Information, work product or the business of the Company or any of
its subsidiaries or affiliates which he may then possess or have under his
control.
8. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his
employment with the Company pursuant to this Agreement he will become familiar
with trade secrets and customer lists of and other confidential information
concerning the Company and its subsidiaries and affiliates and predecessors
thereof and that his services will be of special, unique and extraordinary value
to the Company.
(b) Executive agrees (i) that during the Employment Period he
shall not in any manner, directly or indirectly, through any person, firm or
corporation, alone or as a member of a partnership or as an officer, director,
stockholder, investor or employee of or in any other corporation or enterprise
or otherwise, engage or be engaged in, or assist any other person, firm,
corporation or enterprise in engaging or being engaged in, any business then
actively being conducted by the Company or any of its subsidiaries or
affiliates, and (ii) that for two years after the Employment Period he shall not
in any manner, directly or indirectly, through any person, firm or corporation,
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<PAGE> 12
alone or as a member of a partnership or as an officer, director, stockholder,
investor or employee of or in any other corporation or enterprise or otherwise,
assist Reed-Elsevier PLC or Chilton Company (a division of Capital Cities/ABC,
Inc.) or any subsidiary or affiliate of either of them, or any successor or
assign of any of them, in engaging or being engaged in the business activity of
publishing a magazine or electronic media product that directly competes with
any magazine or electronic media product then being published by, conducting a
trade show that directly competes with any trade show then being conducted by,
or creating or disseminating any other product that competes directly with any
product then being created or disseminated by, the Company or any of its
subsidiaries or affiliates.
(c) Executive further agrees that during the Employment Period
and for two years thereafter he shall not in any manner, directly or indirectly,
induce or attempt to induce any employee of the Company or of any of its
subsidiaries or affiliates to quit or abandon his employ.
(d) Nothing in this paragraph 8 shall prohibit Executive from
being: (i) a stockholder in a mutual fund or a diversified investment company or
(ii) a passive owner of not more than 2% of the outstanding stock of any class
of a corporation which is publicly traded, so long as Executive has no active
participation in the business of such corporation.
(e) If, at the time of enforcement of this paragraph, a court
holds that the restrictions stated herein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
9. Enforcement. Because Executive's services are unique and
because Executive has access to Confidential Information and work product, the
parties hereto agree that the Company would be damaged irreparably in the event
any of the provisions of paragraph 8 hereof were not performed in accordance
with their specific terms or were otherwise breached and that money damages
would be an inadequate remedy for any such non-performance or breach. Therefore,
the Company or its successors or assigns shall be entitled, in addition to other
rights and remedies existing in their favor, to an injunction or injunctions to
prevent any breach or threatened breach of any of such provisions and to enforce
such provisions specifically (without posting a bond or other security).
10. Executive Representations. Executive represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity other than a letter
agreement dated January 1, 1992 between Miller Freeman, Inc. and Executive and
(iii) upon the execution and delivery of this Agreement by the Company, this
Agreement shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms.
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<PAGE> 13
11. Survival. Paragraphs 7 and 8 hereof shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
12. Notices. Any notice provided for in this Agreement shall
be in writing and shall be either personally delivered, or mailed by first class
mail, return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Mr. Thomas Kemp
81 Paseo Mirasol
Tiburon, CA 94920
Notices to the Company:
c/o Mr. King Harris
Pittway Corporation
200 South Wacker Drive, Suite 700
Chicago, IL 60606-5802
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
14. Payment of Certain Costs and Expenses.
(a) Executive's Front-End Attorneys' Fees. Subject to
documentation thereof in reasonable detail, the Company shall reimburse
Executive for up to $6,000 of attorneys' fees incurred by him in connection with
the negotiation of this Agreement.
(b) Prevailing Party's Litigation Expenses. In the event of
litigation between the Company and Executive related to this Agreement, the
non-prevailing party shall reimburse the prevailing party for any costs and
expenses (including without limitation attorneys' fees) reasonably incurred by
the prevailing party in connection therewith.
(c) Change of Control of the Company. Without limiting the
generality of (b) above, in the event that there is a Change of Control of the
Company, if the Company thereafter wrongfully withholds from Executive any
amount payable to Executive pursuant to this Agreement
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<PAGE> 14
or the SERP and Executive obtains a final judgment against the Company for such
amount, the Company shall reimburse Executive for any costs and expenses
(including without limitation attorneys' fees) reasonably incurred by Executive
in obtaining such judgment and shall pay Executive interest on the amount of
each such cost or expense from the date of payment thereof by Executive to the
date of reimbursement by the Company at a floating rate per annum equal to the
publicly announced reference rate for commercial lending of Bank of America
Illinois in effect from time to time. For purposes of the foregoing, a "Change
of Control of the Company" will be deemed to have occurred if but only if, for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended, a
person or group other than (i) Pittway, or (ii) one or more members of the
Harris Group (as currently defined in Pittway's Restated Certificate of
Incorporation, as amended) becomes the beneficial owner of stock of the Company
possessing a majority of the voting power under ordinary circumstances with
respect to the election of directors.
15. Complete Agreement. This Agreement embodies the complete
agreement and understanding between the parties with respect to the subject
matter hereof and effective as of its date supersedes and preempts any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
16. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of which
taken together shall constitute one and the same agreement.
17. Successors and Assigns. This Agreement shall bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, executors, personal representatives, successors and assigns,
except that neither party may assign any of his or its rights or delegate any of
his or its obligations hereunder without the prior written consent of the other
party. Executive hereby consents to the assignment by the Company of all of its
rights and obligations hereunder to: (i) Pittway or any subsidiary or affiliate
thereof in the event all or any substantial part of the business to which
Executive's duties under this Agreement relate are transferred thereto and (ii)
any successor to the Company by merger or consolidation or purchase of all or
substantially all of the Company's assets; in each case provided such transferee
or successor assumes the liabilities of the Company hereunder.
18. Choice of Law. This Agreement shall be governed by the
internal law, and not the laws of conflicts, of the State of Ohio.
19. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
20. Company Option. Executive has advised the Company that,
under the terms of the letter agreement referred to in paragraph 10, unless
Miller Freeman, Inc. agrees otherwise, Executive must give Miller Freeman, Inc.
twelve months' notice in order to terminate his employment thereunder. Executive
agrees to use his best efforts to obtain the written agreement of Miller
Freeman, Inc. to the termination of his employment under such letter agreement
effective as
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<PAGE> 15
of a date prior to September 3, 1996. In the event Executive shall not have
provided the Company with such a written agreement, in form and substance
acceptable to the Company, by August 31, 1996, the Company may, at its option,
at any time prior to September 15, 1996, declare this Agreement null and void.
In any event, and notwithstanding the final sentence of paragraph 1, Executive
shall not be required to commence full-time employment with the Company at a
time prior to the termination of his employment under the letter agreement
referred to in paragraph 10.
* * * *
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
PENTON PUBLISHING, INC.
By /s/ Sal F. Marino
-------------------------------
Its Chief Executive Officer
------------------------------
/s/ Thomas Kemp
----------------------------------
THOMAS KEMP
The undersigned hereby agrees that in the event the Company
defaults, at any time when the Company is a majority-owned subsidiary of the
undersigned, in the payment of any amount payable to Executive pursuant to the
terms of the foregoing Employment Agreement, the undersigned, promptly following
receipt of demand therefor from Executive, shall pay Executive an amount equal
to the defaulted amount in return for an assignment to the undersigned by
Executive of his claim against the Company for the defaulted amount.
PITTWAY CORPORATION
By /s/ King Harris
-------------------------------
Its Chief Executive Officer
------------------------------
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<PAGE> 17
Exhibit 1
PERFORMANCE SHARES AWARD AGREEMENT
Name , 19
--------------------------------- ---------------------- ---
Division
-----------------------------
This will confirm that the Compensation Committee (the "Committee") of the Board
of Directors of Pittway Corporation, a Delaware corporation (the "Company"), has
on the date hereof granted you a Performance Shares Award under the Pittway
Corporation 1990 Stock Awards Plan (which Plan, as amended and as the same may
hereafter be amended from time to time, is referred to as the "Plan").
The Performance Shares Award ("your Award") relates to ______ shares of the
Company's Class A Stock, of the par value of $1 per share ("Class A Stock").
Your Award will vest on a cumulative basis of 33-1/3% per year on each
successive anniversary of the date hereof; provided that (a) your Award will
vest 100% in the event your employment with the Company and its subsidiaries
terminates prior to the third anniversary of the date hereof on account of
Retirement, Termination for Disability, Termination without Cause or Termination
by Executive for Good Reason (in each case, as defined in the Employment
Agreement dated as of July 25, 1996 between Penton Publishing, Inc., a Delaware
corporation, and you ("Your Employment Agreement")); and (b) in the event your
employment terminates on account of a Termination for Cause (as defined in Your
Employment Agreement), all rights under your Award which have not yet vested as
of the date of termination will be canceled.
Your Award will be paid, to the extent vested, by the issuance of shares of
Class A Stock within 45 days after vesting in full or earlier termination of
your employment.
As such time, if any, as shares of Class A Stock are issued in payment of your
Award, you will also be paid in cash: (a) an amount equal to the quarterly
dividends which would have been paid on such shares through such time had such
shares been issued to you on the date hereof; plus (b) interest on the amount of
each such dividend, compounded at the end of each calendar year and at the time
of payment of your Award, at a rate per annum equal to the Company's average
money market investment or borrowing rate, as the case may be, during such
calendar year or during the year-to-date period ended the last day of the most
recently completed month, respectively.
Your award is subject to the terms, conditions and provisions of the Plan,
including without limitation the provision that interpretations of the Plan by
the Committee will be conclusive and binding on you.
-1-
<PAGE> 18
Without limiting the generality of the foregoing, your Award is subject to the
following:
1. The issuance of share of Class A Stock in payment of your Award has
been registered by the Company under the Securities Act of 1933 on the Company's
Form S-8 Registration Statement No. 33-54753 (the "Registration Statement"). By
signing this Agreement, you acknowledge that you have received a copy of the
Company's Plan Information Document dated February 15, 1996, which is a part of
the Registration Statement, and a copy of the Company's most recent Annual
Report to its stockholders. By signing this Agreement you agree that you will
not reoffer, resell or otherwise dispose of any shares issued to you in payment
of your Award in any manner which would violate such Securities Act or any other
federal or state securities law, and further agree to reimburse the Company for
any loss, damage or expense of any kind which it may suffer by reason of any
breach of such agreement. You further acknowledge that the Company has no
obligation to keep the Registration Statement effective or current or to file or
keep effective or current any other registration statement concerning any shares
subject to your Award.
2. The Committee may suspend the issuance of shares of Class A Stock in
payment of your Award if it determines that securities exchange listing or
registration or qualification under any securities laws is required in
connection therewith and has not been completed on terms acceptable to the
Committee.
3. The Company may withhold, or require you to remit to the Company, an
amount sufficient to satisfy any withholding or other tax due with respect to
any amount payable and/or shares issuable pursuant to your Award, and the
Committee may defer such payment or issuance unless indemnified to its
satisfaction.
4. You will have no rights as a holder of any of the shares of Class A
Stock subject to your Award, including without limitation voting rights and
rights to receive dividends, unless and until the certificates representing such
shares are issued to you.
5. Neither your Award nor any interest therein is transferable by you
other than by will or the laws of descent and distribution. Any purported
transfer contrary to this provision will nullify your Award.
6. Nothing in the Plan or your Award shall interfere with or limit in
any way the right of the Company or any of its subsidiaries to terminate your
employment at any time or confer upon you any right to continue in the employ or
the Company or any of its subsidiaries for any period of time or to continue
your present or any other rate of compensation; nor shall the grant of your
Award give you any right to any additional Performance Shares Award.
This Agreement will be binding upon and inure to the benefit of any successor of
the Company.
Please acknowledge your Award by signing the extra copy of this Agreement in the
space provided and returning the same to the Financial Vice President of the
Company.
PITTWAY CORPORATION
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<PAGE> 19
BY
-------------------------------
President
The undersigned hereby acknowledges the foregoing Award, and agrees to be bound
by the provisions of the foregoing Agreement and the Plan.
-------------------------------
(Name of Recipient)
Date: , 19
------------------------------- ---
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<PAGE> 20
Exhibit 2
PITTWAY CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
[Insert Date of Grant]
[Name of Employee]
[Business Address]
Dear :
----------------------
I am pleased to advise you that the Committee for the Pittway
Corporation 1990 Stock Awards Plan (which Plan, as amended and as the same may
hereafter be amended from time to time, is referred to as the "Plan") has on the
date hereof (the "Grant Date") authorized the grant of the following option
effective immediately:
1. You are hereby granted the right and option to purchase, on
the terms and conditions hereinafter set forth, all or any part of an aggregate
of ____ shares of the Company's Class A Stock (herein the "Option Shares") at a
purchase price of $____ per Option Share. The term "Class A Stock" as used
herein means the Company's Class A Stock, of the par value of $1.00 per share
(or, from and after any change of such Class A Stock into the Company's Common
Stock, of the par value of $1.00 per share ("Common Stock"), on a
share-for-share basis pursuant to the Company's Restated Certificate of
Incorporation, as amended, Common Stock). Your option is not intended to be, and
will not be treated as, an "incentive stock option" as such term is defined in
Section 422A(b) of the Internal Revenue Code of 1986, as amended.
2. Your option is irrevocable and is intended to conform in
all respects with the Plan as presently written. Inconsistencies between your
option and the Plan will be resolved according to the terms of the Plan, a copy
of which has been supplied to you.
3. Your option will be exercisable in whole at any time and in
part from time to time after the third anniversary of the Grant Date but prior
to the tenth anniversary of the Grant Date; provided, however that:
(a) in the event that your employment with the Company and its
subsidiaries terminates prior to the third anniversary of the Grant Date on
account of your death or on account of Retirement, Termination for Disability,
Termination without Cause or Termination by Executive for Good Reason (in each
case, as defined in the Employment Agreement dated as of July 25, 1996 between
Penton Publishing, Inc., a Delaware corporation, and you ("Your Employment
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<PAGE> 21
Agreement")), your option will thereupon become exercisable immediately with
respect to all of the Option Shares; and
(b) in the event that your employment with the Company and its
subsidiaries terminates prior to the third anniversary of the Grant Date other
than on account of your death and other than on account of Retirement,
Termination for Disability, Termination without Cause or Termination by
Executive for Good Reason (in each case, as defined in Your Employment
Agreement), your option will thereupon become exercisable immediately (i) as to
33-1/3% of the Option Shares if such termination occurs on or after the first
anniversary of the Grant Date but prior to the second anniversary of the Grant
Date, and (ii) as to 66-2/3% of the Option Shares if such termination occurs on
or after the second anniversary of the Grant Date but prior to the third
anniversary of the Grant Date.
Notwithstanding the foregoing: (A) in the event that your
employment terminates on account of a Termination for Cause (as defined in Your
Employment Agreement), your option will cease to be exercisable to the extent
exercisable as of such termination and will not become exercisable after such
termination; (B) your option may not be exercised during the first six months
after the Grant Date, except in the event your employment terminates on account
of your death, or on account of a Termination for Disability (as defined in Your
Employment Agreement), prior to the expiration of such six-month period; (C) in
the event that your employment with the Company and its subsidiaries terminates
(whether prior to, on or after the third anniversary of the Grant Date) on
account of your death or on account of a Termination for Disability (as defined
in Your Employment Agreement), your option will cease to be exercisable upon the
earlier of twelve (12) months after such termination or three (3) months after
the tenth anniversary of the Grant Date; (D) in the event that your employment
with the Company and its subsidiaries terminates (whether prior to, on or after
the third anniversary of the Grant Date) on account of a Termination without
Cause or a Termination by Executive for Good Reason (each as defined in Your
Employment Agreement), your option will cease to be exercisable upon the earlier
of twelve (12) months after such termination or the tenth anniversary of the
Date of Grant; (E) in the event that your employment with the Company and its
subsidiaries terminates (whether prior to, on or after the third anniversary of
the Grant Date) for any reason other than on account of a reason described in
(A), (C) or (D) above, your option (1) will not become exercisable after such
termination as to any shares in addition to those as to which it is exercisable
at the time of such termination, and (2) will cease to be exercisable upon the
earlier of three (3) months after such termination (subject to extension by the
Committee to up to twelve (12) months if the Committee so determines prior to
the expiration of your option) or the tenth anniversary of the Grant Date; and
(F) if at any time you take an authorized leave of absence, the Committee may
(but need not) determine that for this purpose you will be deemed to continue in
the employment of the Company or a subsidiary of the Company.
Each time you wish to exercise your option to purchase Option
Shares, you must give the Company written notice of exercise (attention
Treasurer), which notice must specify the number of full Option Shares to be
purchased and the purchase price to be paid therefor. You may exercise your
option with respect to all or any part of the Option Shares as to which your
option has become exercisable, but you may not exercise your option as to a
fraction of a full share. In the event of your death, your option may be
exercised in accordance with this paragraph 3 by your estate or by the person
who acquired the right to exercise your option by bequest or inheritance or by
reason of the
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<PAGE> 22
laws of descent and distribution. In the event of your permanent disability,
your option may be exercised in accordance with this paragraph 3 by you or your
legal representative. Written notice of exercise must be accompanied by payment
in full of the purchase price, in the form of (A) cash or a check, bank draft or
money order payable to the order of the Company, (B) shares of Class A Stock
already owned by you (valued at the fair market value thereof on the date of
exercise), (C) shares of Common Stock already owned by you (valued at the fair
market value thereof on the date of exercise), or (D) a combination thereof.
Fair market value for all purposes of this Agreement will be determined by the
Committee.
4. Exercise of your option may be suspended if the Board of
Directors or the Committee determines that securities exchange listing or
registration or qualification under any securities laws is required in
connection therewith and has not been completed on terms acceptable to the Board
of Directors or the Committee.
5. The issuance of Class A Stock to you in the event you
exercise your option has been registered by the Company under the Securities Act
of 1933 on the Company's Form S-8 Registration Statement No. 33-54753 (the
"Registration Statement"). By executing this Agreement, you acknowledge that you
have received a copy of the Company's Plan Information Document dated February
15, 1996, which is a part of the Registration Statement, and a copy of the
Company's most recent Annual Report to its stockholders. By executing this
Agreement you agree that you will not reoffer, resell or otherwise dispose of
any Option Shares in any manner which would violate the Securities Act of 1933
or any other federal or state securities law, and further agree to reimburse the
Company for any loss, damage or expense of any kind which it may suffer by
reason of any breach at any time of such agreement, including but not limited to
any liabilities which the Company may have under the Securities Act of 1933 or
any other federal or state securities law. You hereby agree that the Company
will have no obligation to you to keep effective or current its existing
Registration Statement, or to file or keep effective or current any additional
registration statement concerning any Option Shares.
6. (a) In the event of any reorganization, recapitalization,
reclassification, merger, consolidation, or sale of all or substantially all of
the Company's assets followed by liquidation, which is effected in such a way
that holders of the Class A Stock are entitled to receive securities or other
assets with respect to or in exchange for the Class A Stock (an "Organic
Change"), the Committee shall make appropriate changes to insure that your
option thereafter represents the right to acquire, in lieu of or in addition to
the shares of the Class A Stock immediately theretofore acquirable upon
exercise, such securities or assets as may be issued or payable with respect to
or in exchange for an equivalent number of shares of Class A Stock; and in the
event of any stock dividend, stock split or combination of shares, the Board of
Directors shall make appropriate changes in the number of shares authorized by
the Plan to be delivered thereafter, and the Committee shall make appropriate
changes in the number of shares covered by your option and the exercise price
specified herein (and in the event of a spinoff, the Committee may make similar
changes), in order to prevent the dilution or enlargement of your option rights.
However, no right to purchase or receive a fraction of a share shall be created;
and if, as a result of any such change, a fractional share would result or the
right to purchase or receive the same would result, the number of shares in
question shall be decreased to the next lower whole number of shares.
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<PAGE> 23
(b) As used in this Agreement, the term "Option Shares"
includes, in addition to the shares described in paragraph l hereof as the
shares subject to your option, any other shares or other securities which may be
issued as a result of subparagraph (a).
7. Your option will not be assignable or transferable by you
other than by will or by the laws of descent and distribution, and during your
lifetime will be exercisable only by you or your legal representative.
8. Any notice to be given to the Company under the terms of
this Agreement will be addressed to the Company in care of its Treasurer at 200
South Wacker Drive, Suite 700, Chicago, Illinois 60606-5802, and any notice to
be given to you will be addressed to you at the address given beneath your
signature hereto, or at such other address as you may direct in writing. Any
such notice will be deemed to have been duly given if and when enclosed in a
properly sealed envelope addressed as aforesaid, registered and deposited,
postage and registry fee prepaid, in a post office or branch post office
regularly maintained by the United States Government.
9. The Company may withhold from any amount owed to you by the
Company (or may require a subsidiary or other Affiliate (as defined in the Plan)
to withhold from any amount owed to you by it and remit to the Company), or may
require you to remit to the Company, an amount sufficient to satisfy any
withholding or other tax due with respect to any shares to be issued by the
Company upon the exercise of your option, and the Committee may defer the
issuance of such shares unless indemnified to its satisfaction.
10. Nothing in this Agreement confers any right on you to
continue in the employ of the Company or any subsidiary or other Affiliate or
affects in any way the right of the Company or any subsidiary or other
Affiliate, as the case may be, to terminate your employment at any time.
11. This Agreement will be binding upon and inure to the
benefit of any successor or successors of the Company.
In order to evidence the grant of your option, please execute
the extra copy of this Agreement in the space provided and return the same to
the Company, whereupon this Agreement will constitute a binding option agreement
between us.
Very truly yours,
PITTWAY CORPORATION
By
-------------------------------
[Name, Title]
The undersigned hereby acknowledges that the undersigned has
carefully read all of the provisions in this Agreement, including, without
limitation, the provision of paragraph 5 hereof regarding the effect of the
undersigned's execution of this Agreement. The undersigned hereby agrees to be
bound by all provisions set forth in this Agreement and the Plan.
-4-
<PAGE> 24
NAME:
----------------------------------
ADDRESS:
-------------------------------
SOCIAL SECURITY #:
---------------------
DATED:
---------------------------------
-5-
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 1, 1997, between Penton
Publishing, Inc., a Delaware corporation (the "Company"), and Daniel J. Ramella
("Executive").
In consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and
Executive accepts continued employment with the Company, upon the terms and
conditions set forth in this Agreement for the period beginning on the date
hereof and ending as provided in paragraph 5 hereof (the "Employment Period").
2. Position and Duties.
(a) During the Employment Period, Executive shall serve as the
chief operating officer of the Company and shall have the normal duties,
responsibilities and authority of an executive serving in such position, subject
to the power of the board of Directors of the Company (the "Board") or the
Chairman and Chief Executive Officer of the Company to expand or limit such
duties, responsibilities and authority, either generally or in specific
instances. Executive shall have the title President of the Company, subject to
the power of the Board to change such title from time to time. During the
Employment Period, Executive shall also serve as a director of the Company for
so long as the Board nominates him to that position and he is elected to it, and
as a director of any affiliate of the Company designated by the Board for so
long as the Board causes him to be elected to such position.
(b) Executive shall report to the Chairman and Chief Executive
Officer of the Company.
(c) During the Employment Period, Executive shall devote his
best efforts and his full business time and attention (except for permitted
vacation periods, reasonable periods of illness or other incapacity, and,
provided such activities do not have more than a de minimis effect on
Executive's performance of his duties under this Agreement, participation in
charitable and civic endeavors and management of Executive's personal
investments and business interests) to the business and affairs of the Company
and the business and affairs of any subsidiary or affiliate. Executive shall
perform his duties and responsibilities to the best of his abilities in a
diligent, trustworthy, businesslike and efficient manner.
(d) Executive shall perform his duties and responsibilities
principally in the Cleveland metropolitan area, and shall not be required to
travel outside that area any more extensively than he has done in the past in
the ordinary course of the business of the Company.
- 1 -
<PAGE> 2
3. Compensation and Benefits.
(a) Salary. The Company agrees to pay Executive a salary
during the Employment Period, in semi-monthly installments. Executive's initial
salary shall be $330,000 per annum. Executive's salary may be increased by the
Board from time to time.
(b) Bonus(es). The Board may, in its sole discretion, award a
bonus to Executive for any calendar year during the Employment Period.
(c) Expense Reimbursement. The Company shall reimburse
Executive for all reasonable expenses incurred by him in the course of
performing his duties under this Agreement which are consistent with the
Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses. Executive
acknowledges that under the company's current air travel reimbursement policy,
reimbursement is limited to coach fare (plus Executive's cost of any upgrade
certificates used to upgrade to first class) on travel within the United States
and is limited to business class fare on travel to and from foreign cities.
(d) Standard Executive Benefits Package. In addition to the
salary and any bonus(es) payable to Executive pursuant to this paragraph,
Executive shall be entitled during the Employment Period to participate, on the
same basis as other executives of the Company, in the Company's Standard
Executive Benefits Package. The Company's "Standard Executive Benefits Package"
means those benefits (including insurance, vacation, company car or car
allowance and/or other benefits) for which substantially all of the executives
of the Company are from time to time generally eligible, as determined from time
to time by the Board.
(e) Additional Benefits. In addition to participation in the
Company's Standard Executive Benefits Package pursuant to this paragraph,
Executive shall be entitled during the Employment Period to:
(i) additional term life insurance coverage in an amount
equal to Executive's salary; but only if and so long
as such additional coverage is available at standard
rates from the insurer providing term life insurance
coverage under the Standard Executive Benefits
Package or from a comparable insurer acceptable to
the Company;
(ii) supplementary long-term disability coverage in an
amount which will increase maximum covered annual
compensation to $330,000 and the maximum monthly
payments to $18,333; but only if and so long as such
supplementary coverage is available at standard rates
from the insurer providing long-term disability
coverage under the Standard Executive Benefits
Package or a comparable insurer acceptable to the
Company; and
(iii) participation in the Pittway Corporation Supplemental
Executive Retirement Plan (the "SERP"), effective
January 1, 1996, a copy of which, as currently
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<PAGE> 3
in effect, is attached hereto as Exhibit A, except
that the beginning date for accrual of a benefit
shall be January 1, 1997.
(f) Indemnification. With respect to Executive's acts or
failures to act during the Employment Period in his capacity as a director,
officer, employee or agent of the Company, Executive shall be entitled to
indemnification from the Company, and to liability insurance coverage (if any),
on the same basis as other directors and officers of the Company.
4. Adjustments. Notwithstanding any other provision of this
Agreement, it is expressly understood and agreed that if there is a significant
reduction in the level of the business to which Executive's duties under this
Agreement relate, or if all or any significant part of such business is disposed
of by the Company and/or its subsidiaries or affiliates during the Employment
Period but Executive thereafter remains an employee of the Company, the Board
may make adjustments in Executive's duties, responsibility and authority, and in
Executive's compensation, as the Board deems appropriate to reflect such
reduction or disposition.
5. Employment Period.
(a) Except as hereinafter provided, the Employment Period
shall continue until, and shall end upon, the third anniversary of the date
hereof.
(b) On each anniversary of the date hereof which precedes
Executive's sixty-fifth birthday by more than two years, unless the Employment
Period shall have ended early pursuant to (c) below or either party shall have
given the other party written notice that the extension provision in this
sentence shall no longer apply, the employment period shall be extended for an
additional calendar year (unless Executive's sixty-fifth birthday occurs during
such additional calendar year, in which event the Employment Period shall be
extended only until such birthday). In no event shall the Employment Period be
extended beyond the Executive's sixty-fifth birthday except by mutual written
agreement of the Company and Executive.
(c) Notwithstanding (a) and (b) above, the Employment Period
shall end early upon the first to occur of any of the following events:
(i) Executive's death;
(ii) Executive's retirement upon or after reaching age 65
("Retirement");
(iii) the Company's termination of Executive's employment
on account of Executive's having become unable (as
determined by the Board in good faith) to regularly
perform his duties hereunder by reason of illness or
incapacity for a period of more than six (6)
consecutive months ("Termination for Disability");
(iv) the Company's termination of Executive's employment
for Cause ("Termination for Cause");
- 3 -
<PAGE> 4
(v) the Company's termination of Executive's employment
other than a Termination for Disability or a
Termination for Cause ("Termination without Cause");
(vi) Executive's termination of Executive's employment for
Good Reason, by means of advance written notice to
the Company at least thirty (30) days prior to the
effective date such termination identifying such
termination as a Termination by Executive for Good
Reason ("Termination by Executive for Good Reason")
(it being expressly understood that Executive's
giving notice that the extension provision in the
first sentence of paragraph 5(b) hereof shall no
longer apply shall not constitute a "Termination by
Executive for Good Reason"); provided that if the
Good Reason identified in such notice is the Good
Reason set forth in paragraph 5(e)(ii) hereof, the
Company may, at its option, defer the effective date
of such termination for up to ninety (90) additional
days; or
(vii) Executive's termination of Executive's employment for
any reason other than Good Reason, by means of
advance written notice to the Company at least one
hundred twenty (120) days prior to the effective date
of such termination identifying such termination as a
Termination by Executive with Advance Notice
("Termination by Executive with Advance Notice") (it
being expressly understood that Executive's giving
notice that the extension provision in the first
sentence of paragraph 5(b) hereof shall no longer
apply shall not constitute a "Termination by
Executive with Advance Notice").
(d) For purposes of this Agreement, "Cause" shall mean:
(i) the commission by Executive of a felony or a crime
involving moral turpitude;
(ii) the commission by Executive of a fraud;
(iii) the commission by Executive of any act involving
dishonesty or disloyalty with respect to the Company
or any of its subsidiaries or affiliates which harms
or damages any of them to any extent;
(iv) conduct by Executive that brings the Company or any
of its subsidiaries or affiliates into substantial
public disgrace or disrepute;
(v) gross negligence or willful misconduct by Executive
with respect to the Company or any of its
subsidiaries or affiliates;
(vi) repudiation of this Agreement by Executive or
Executive's abandonment of his employment with the
Company (it being expressly understood that a
Termination by Executive for Good Reason or a
Termination by Executive
- 4 -
<PAGE> 5
with Advance Notice shall not constitute such a
repudiation or abandonment);
(vii) breach by Executive of any of the agreements in
paragraph 8 hereof; or
(viii) any other breach by Executive of this Agreement which
is material and which is not cured within thirty (30)
days after written notice thereof to Executive from
the Company.
(e) For purposes of this Agreement, "Good Reason" shall
mean:
(i) a reduction by the Company in Executive's salary to
an amount less than "Executive's Reference Salary"
(i.e., Executive's initial salary or, in the event
the Employment Period has been extended pursuant to
paragraph 5(b) hereof, Executive's salary on the date
on which the most recent such extension occurred); or
(ii) the Company's giving notice that the extension
provision in the first sentence of paragraph 5(b)
hereof shall no longer apply; or
(iii) any breach by the Company of this Agreement which is
material and which is not cured within thirty (30)
days after written notice thereof to the Company from
Executive.
6. Post-Employment Period Payments.
(a) If the Employment Period ends on the date on which
(without any extension thereof) it is then scheduled to end pursuant to
paragraph 5 hereof, or if the Employment Period ends early pursuant to paragraph
5 hereof for any reason, Executive shall cease to have any rights to salary,
bonus (if any), expense reimbursements or benefits other than: (i) any salary
which has accrued but is unpaid, and any reimbursable expenses which have been
incurred but are unpaid, and any unexpired vacation days which have accrued
under the Company's vacation policy, but are unused as of the end of the
Employment Period, (ii) (but only to the extent provided in the SERP or any
other benefit plan in which Executive has participated as an employee of the
Company) any plan benefits which by their terms extend beyond termination of
Executive's employment, (iii) any benefits to which Executive is entitled under
the Consolidated Omnibus Reconciliation Act of 1985, as amended ("COBRA") and
(iv) any other amount(s) payable pursuant to the succeeding provisions of this
paragraph 6.
(b) If the Employment Period ends pursuant to paragraph 5
hereof on Executive's sixty-fifth birthday, or if the Employment Period ends
early pursuant to paragraph 5 hereof on account of Executive's death, Retirement
or Termination for Disability, the Company shall make no further payments to
Executive except as contemplated in (a)(i), (ii) and (iii) above.
(c) If the Employment Period ends early pursuant to paragraph
5 hereof on account of Termination for Cause, the Company shall pay Executive an
amount equal to that
- 5 -
<PAGE> 6
Executive would have received as salary (based on Executive's salary then in
effect) had the Employment Period remained in effect until the later of the
effective date of the Company's termination of Executive's employment or the
date thirty days after the Company's notice to Executive of such termination.
(d) If the Employment Period ends early pursuant to paragraph
5 hereof on account of a Termination without Cause or a Termination by Executive
for Good Reason, the Company shall pay to Executive amounts equal to the amounts
Executive would have received as salary (based on Executive's salary then in
effect or, if greater, Executive's Reference Salary) had the Employment Period
remained in effect for a period of twenty-four (24) months after the last day of
the month in which the Employment Period ends, at the times such amounts would
have been paid (in the event Executive is entitled during the payment period to
any payments under any disability benefit plan or the like in which Executive
has participated as an employee of the Company, less such payments); provided,
however, that in the event of Executive's death during the payment period, the
Company shall pay any such subsequent amounts to Executive's estate (or such
person or persons as Executive may designate in a written instrument signed by
him and delivered to the Company prior to his death) or, if so elected by the
payee(s) by written notice to the Company within the period of sixty (60) days
after the date of Executive's death, a lump sum amount equivalent to the
discounted present value of such amounts, discounted at the publicly announced
reference rate for commercial lending of Bank of America Illinois in effect at
the date of notice to Company of such election, with said amount to be paid on a
date no later than thirty (30) days following the date of notice to the Company
of such election. In addition, the Company shall reimburse Executive (net after
taxes on the receipt of such reimbursement) for any premiums paid by Executive
for health insurance provided to Executive (for Executive and his dependents) by
the Company subsequent to the end of the Employment Period pursuant to the
requirements of COBRA as in effect on the date of this Agreement. It is
expressly understood that the Company's payment obligations under this
subparagraph (d) shall cease in the event Executive breaches any of his
agreements in paragraph 7 or 8 hereof.
(e) If the Employment Period ends early pursuant to paragraph
5 hereof on account of a Termination by Executive with Advance Notice, the
Company shall make no further payments to Executive except as contemplated in
subparagraph (a), clauses (i), (ii) and (iii) above.
7. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
pursuant to this Agreement, as well as those obtained by him while employed by
the Company or any of its subsidiaries or affiliates or any predecessor thereof
prior to the date of this Agreement, concerning the business or affairs of the
Company or any of its subsidiaries or affiliates or any predecessor thereof
(unless and except to the extent the foregoing become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions to act, "Confidential Information") are the property of the Company or
such subsidiary or affiliate. Therefore, Executive agrees that he shall not
disclose any Confidential Information without the prior written consent of the
Chairman and Chief Executive Officer of the Company unless and except to the
extent that such disclosure is (i) made in the ordinary course of Executive's
performance of his duties under this Agreement or (ii) required by any subpoena
or other legal process (in which event Executive will give the Company prompt
notice of such subpoena or other legal process in order to permit the Company to
seek
- 6 -
<PAGE> 7
appropriate protective orders), and that he shall not use any Confidential
Information for his own account without the prior written consent of the
Chairman and Chief Executive Officer of the Company. Executive shall deliver to
the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof) relating to
the Confidential Information, work product or the business of the Company or any
of its subsidiaries or affiliates which he may then possess or have under his
control.
8. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his
employment with the Company pursuant to this Agreement he will become familiar,
and during the course of his employment by the Company or any of its
subsidiaries or affiliates or any predecessor thereof prior to the date of this
Agreement he has become familiar, with trade secrets and customer lists of and
other confidential information concerning the Company and its subsidiaries and
affiliates and predecessors thereof and that his services have been and will be
of special, unique and extraordinary value to the Company.
(b) Executive agrees (i) that during the Employment Period he
shall not in any manner, directly or indirectly, through any person, firm or
corporation, alone or as a member of a partnership or as an officer, director,
stockholder, investor or employee of or in any other corporation or enterprise
or otherwise, engage in or be engaged in, the business-to-business publishing
business or any other business then actively being conducted by the Company or
any of its subsidiaries or affiliates, and (ii) that for two years after the
Employment Period he shall not in any manner, directly or indirectly, through
any person, firm or corporation, alone or as a member of a partnership or as an
officer, director, stockholder, investor or employee of or in any other
corporation or enterprise or otherwise, assist Reed-Elsevier PLC, Chilton
Company (a division of Capital Cities/ABC, Inc.), CMP Publications, Inc. or any
subsidiary or affiliate of any of them or any successor or assignee of any of
them, in engaging or being engaged in the business activity of publishing a
magazine or electronic media product that directly competes with any magazine or
electronic media product then being published by, conducting a trade show that
directly competes with any trade show then being conducted by, or creating or
disseminating any other product that competes directly with any product then
being created or disseminated by, the Company or any of its subsidiaries or
affiliates.
(c) Executive further agrees that during the Employment Period
and for two years thereafter he shall not in any manner, directly or indirectly,
induce or attempt to induce any employee of the Company or any of its
subsidiaries or affiliates to quit or abandon his employ.
(d) Nothing in this paragraph 8 shall prohibit Executive from
being: (i) a stockholder in a mutual fund or a diversified investment company or
(ii) a passive owner of not more than 2% of the outstanding stock of any class
of a corporation which is publicly traded, so long as Executive has no active
participation in the business of such corporation.
(e) If, at the time of enforcement of this paragraph, a court
holds that the restrictions stated herein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be
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<PAGE> 8
substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
9. Enforcement. Because Executive's services are unique and
because Executive has access to Confidential Information and work product, the
parties hereto agree that the Company would be damaged irreparably in the event
any of the provisions of paragraph 8 hereof were not performed in accordance
with their specific terms or were otherwise breached and that money damages
would be an inadequate remedy for any such non-performance or breach. Therefore,
the Company or its successors or assigns shall be entitled, in addition to other
rights and remedies existing in their favor, to an injunction or injunctions to
prevent any breach or threatened breach of any of such provisions and to enforce
such provisions specifically (without posting a bond or other security).
10. Executive Representations. Executive represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity and (iii) upon the
execution and delivery of this Agreement by the Company, this Agreement shall be
the valid and binding obligation of Executive, enforceable in accordance with
its terms.
11. Survival. Paragraphs 7 and 8 hereof shall survive and
continue in full force in accordance with their terms notwithstanding any
termination of the Employment Period.
12. Notices. Any notice provided for in this Agreement shall
be in writing and shall be either personally delivered, or mailed by first class
mail, return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Mr. Daniel J. Ramella
2204 Land's End Lane
Westlake, OH 44145
Notices to the Company:
Mr. Thomas L. Kemp
Chairman and Chief Executive Officer
Penton Publishing, Inc.
1100 Superior Avenue
Cleveland, OH 44114
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or mailed.
- 8 -
<PAGE> 9
13. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
14. Payment of Certain Costs and Expenses.
(a) Prevailing Party's Litigation Expenses. In the event of
litigation between the Company and Executive related to this Agreement, the
non-prevailing party shall reimburse the prevailing party for any costs and
expenses (including without limitation attorneys' fees) reasonably incurred by
the prevailing party in connection therewith.
(b) Change of Control of Company. Without limiting the
generality of subparagraph (a) above, in the event that there is a Change of
Control of the Company, if the Company thereafter wrongfully withholds from
Executive any amount payable to Executive pursuant to this Agreement or the SERP
and Executive obtains a final judgment against the Company for such amount, the
Company shall reimburse Executive for any costs and expenses (including without
limitation attorneys' fees) reasonably incurred by Executive in obtaining such
judgment and shall pay Executive interest on the amount of each such cost or
expense from the date of payment thereof by Executive to the date of
reimbursement by the Company at a floating rate per annum equal to the publicly
announced reference rate for commercial lending of Bank of America Illinois in
effect from time to time. For purposes of the foregoing, a "Change of Control of
the Company" will be deemed to have occurred if, for purposes of Section 13(d)
of the Securities Exchange Act of 1934, as amended, a person or group other than
(i) Pittway or (ii) one or more members of the Harris Group (as currently
defined in Pittway Corporation's Restated Certificate of Incorporation, as
amended) becomes the beneficial owner of stock of Pittway Corporation possessing
a majority of the voting power under ordinary circumstances with respect to the
election of directors.
15. Complete Agreement. This Agreement embodies the complete
agreement and understanding between the parties with respect to the subject
matter hereof and effective as of its date supersedes and preempts any prior
understanding, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
16. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of which
taken together shall constitute one and the same agreement.
17. Successors and Assigns. This Agreement shall bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, executors, personal representatives, successors and assigns,
except that neither party may assign any of his or its rights or delegate any of
his or its obligations hereunder without the prior written consent of the other
party. Executive hereby consents to the assignment by the Company of all of its
rights and obligations hereunder to: (i) Pittway or any subsidiary or affiliate
thereof in the event all or any substantial part
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<PAGE> 10
of the business to which Executive's duties under this Agreement relate are
transferred thereto and (ii) any successor to the Company by merger or
consolidation or purchase of all or substantially all of the Company's assets;
in each case provided such transferee or successor assumes the liabilities of
the Company hereunder.
18. Choice of Law. This Agreement shall be governed by the
internal law, and not the laws of conflicts, of the State of Ohio.
19. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
PENTON PUBLISHING, INC.
By /s/ Thomas L. Kemp
-------------------------------
Thomas L. Kemp
Chairman and CEO
/s/ Daniel J. Ramella
----------------------------------
DANIEL J. RAMELLA
- 10 -
<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made on ______,1998 between Penton
Media, Inc., a Delaware corporation (the "COMPANY"), and William C. Donohue
("EXECUTIVE").
This Employment Agreement is entered into as a condition precedent
to the consummation of the transactions contemplated in a Combination Agreement
dated as of May 21, 1998 by and among the Company, Executive and other parties
(the "COMBINATION AGREEMENT"). Pursuant to the Combination Agreement, Donohue
Meehan Publishing Company, an Illinois corporation, is being merged with and
into D-M Acquisition Corp., an Illinois corporation wholly-owned by the Company
that is changing its name to Donohue Meehan Publishing Company in connection
with the merger. The corporation surviving the merger as Donohue Meehan
Publishing Company is referred to herein as "D.M. PUB."; the original Donohue
Meehan Publishing Company is referred to herein as "D.M. PUB.'S PREDECESSOR".
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company shall employ Executive, and Executive
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement, for the period beginning at the Effective Time (as defined in
the Combination Agreement) and ending on the second anniversary of the Effective
Time (the "EMPLOYMENT PERIOD").
2. POSITION AND DUTIES.
(a) During the Employment Period, Executive shall serve as the
President of D.M. Pub., and shall have the normal duties, responsibilities and
authority of an executive serving in such position, under the direction of the
Board of Directors of the Company (the "BOARD"), the Chief Executive Officer and
the Chief Operating Officer of the Company and the Board of Directors of D.M.
Pub.
(b) Until the Company's 2000 annual meeting of stockholders,
Executive shall serve as a director of the Company.
(c) Executive shall report to the Chief Operating Officer of the
Company.
(d) During the Employment Period, Executive shall devote his full
business time and attention (except for permitted vacation periods, reasonable
periods of illness or other incapacity and, provided such activities do not
exceed those in which Executive has engaged in the past while serving as the
President of D.M. Pub.'s predecessor, participation in charitable and civic
endeavors and management of Executive's personal investments and business
interests) to the business and affairs of D.M. Pub.; provided that the Company
may require Executive to devote up to 10% of his business time to the business
and affairs of the Company and its other subsidiaries and affiliates.
<PAGE> 2
Executive shall perform his duties and responsibilities to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner.
(e) Executive shall be based at a location in, and shall perform his
duties and responsibilities principally in, the Chicago metropolitan area, and
shall not be required to travel outside that area significantly more extensively
than he has done in the past in the ordinary course of the business of D.M.
Pub.'s predecessor.
(f) Nothing contained in this Paragraph 2 shall constitute a waiver
by either the Company or Executive of any of the provisions of Section 2.4
(g)(iv) of the Combination Agreement.
3. COMPENSATION AND BENEFITS.
(a) SALARY. The Company agrees to pay Executive a salary during the
Employment Period, in semimonthly installments. Executive's salary shall be
$250,000 per annum.
(b) BONUS. If, based on the final determinations of the Surviving
Corporation's Pre- Tax Profits for 1998 and 1999 pursuant to Section 2.4 of the
Combination Agreement, the total Contingent Cash Payments which the D-M
Shareholders, in the aggregate, would have become entitled to receive pursuant
to Section 2.4(g)(i) of the Combination Agreement would have exceeded $4.0
million had there been no $4.0 million limitation on the total amount of such
Contingent Cash Payments, the Company shall pay to Executive, on the date on
which the Employment Period is scheduled to end, an amount equal to (x) one-half
of such excess divided by (y) four and one-half. Notwithstanding the foregoing:
(i) the amount of the bonus shall not exceed $114,000 and (ii) if any event
described in clause (B) of the final sentence of Section 2.4(g)(i) of the
Combination Agreement occurs, the amount of the bonus shall be $114,000. (Thus,
for example, if the total amount of Contingent Cash Payments which the D-M
Shareholders, in the aggregate, become entitled to receive is less than $4.0
million, the amount of the bonus will be zero dollars, and if the total amount
of Contingent Cash Payments which the D-M Shareholders, in the aggregate, become
entitled to receive is $4.0 million but such total amount would have been $5.026
million but for the $4.0 million limitation, the amount of the bonus will be
$114,000). For purposes of this Agreement, any bonus will be deemed earned on
(but not until) the date on which the Employment Period is scheduled to end.
(c) EXPENSE REIMBURSEMENT. The Company shall reimburse Executive for
all reasonable expenses incurred by him in the course of performing his duties
under this Agreement which are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's requirements applicable generally with
respect to reporting and documentation of such expenses.
(d) STANDARD BENEFITS PACKAGE. In addition to the salary and any
bonus earned, Executive shall be entitled during the Employment Period to
participate in the Company's standard benefits package in effect from time to
time, on the same basis (including sharing of costs) as other executives of the
Company having principal responsibility for magazines comparable in profit
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contribution to those for which Executive has principal responsibility; provided
that (i) any awards made to Executive under the Penton 1998 Stock Awards Plan
(as defined in the Combination Agreement) prior to January 1, 2000 (or, if
earlier, the occurrence of any event described in clause (B) of the final
sentence of Section 2.4(g)(i) of the Combination Agreement) shall be limited to
non-qualified options and (ii) Executive shall be entitled to vacation at the
rate of four weeks per calendar year. In order to be provided such employee
benefits (other than vacation), Executive shall satisfy such requirements for
eligibility and coverage as may be in force from time to time during the
Employment Period taking into account the provisions of the second sentence of
Section 7.8(i) of the Combination Agreement.
4. TERMINATION.
(a) Notwithstanding Paragraph 1 hereof, the Employment Period shall
end early upon the first to occur of any of the following events:
(i) Executive's death;
(ii) the Company's termination of Executive's employment on
account of Executive's having become unable (as
determined by the Board in good faith) to regularly
perform his duties hereunder by reason of illness or
incapacity for a period of more than six (6) consecutive
months ("TERMINATION FOR DISABILITY");
(iii) the Company's termination of Executive's employment for
Cause ("TERMINATION FOR CAUSE");
(iv) the Company's termination of Executive's employment other
than a Termination for Disability or a Termination for
Cause ("TERMINATION WITHOUT CAUSE"); or
(v) Executive's termination of Executive's employment for
Good Reason, by means of written notice to the Company
identifying such termination as a Termination by
Executive for Good Reason ("TERMINATION BY EXECUTIVE FOR
GOOD REASON").
(b) For purposes of this Agreement, "CAUSE" shall mean:
(i) the commission by Executive of a felony;
(ii) the commission by Executive of any act involving fraud or
dishonesty with respect to the Company or any of its
subsidiaries or affiliates which causes harm or damage
material to them as a whole;
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(iii) gross negligence or willful misconduct by Executive
related to his duties and responsibilities hereunder
which causes harm or damage material to the Company and
its subsidiaries and affiliates as a whole;
(iv) repudiation of this Agreement by Executive or Executive's
abandonment of his employment with the Company (it being
expressly understood that a Termination by Executive for
Good Reason shall not constitute such repudiation or
abandonment);
(v) breach by Executive of any of the agreements in
Paragraph 7 hereof; or
(vi) any other breach by Executive of this Agreement which is
material and which is not cured within thirty (30) days
after written notice thereof to Executive from the
Company.
(c) For purposes of this Agreement, "GOOD REASON" shall mean any
breach by the Company of this Agreement which is material and which is not cured
within thirty (30) days after written notice thereof to the Company from
Executive.
5. POST-EMPLOYMENT PERIOD PAYMENTS.
(a) If the Employment Period ends on the date on which it is
scheduled to end, or if the Employment Period ends early for any reason,
Executive shall thereafter be entitled to (and only to):
(i) any salary or bonus which has been earned but is unpaid,
any reimbursable expenses which have been incurred but
are unpaid, and any vacation days which have accrued but
are unused and unexpired under the Company's vacation
policy, as of the end of the Employment Period;
(ii) any plan benefits which by their terms extend beyond
termination of Executive's employment;
(iii) any benefits to which Executive is entitled under the
Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"); and
(iv) any other amount(s) payable pursuant to the succeeding
provisions of this Paragraph 5.
(b) In the event of Executive's death during the Employment
Period, the Company shall pay to Executive's estate (or such person or persons
as Executive may designate in a written instrument signed by him) amounts equal
to the amounts Executive would have received as salary and bonus had the
Employment Period remained in effect until the date on which it was scheduled to
end, at the times such amounts would have been paid.
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(c) If the Employment Period ends early on account of
Termination for Cause: (i) the Company shall pay Executive an amount equal to
that Executive would have received as salary had the Employment Period remained
in effect until the later of the effective date of the Company's termination of
Executive's employment or the date thirty days after the Company's notice to
Executive of such termination; and (ii) the Company shall pay to Executive an
amount equal to any amount Executive would have received as bonus had the
Employment Period remained in effect until the date on which it was scheduled to
end, reduced to the fraction thereof of which the numerator is the number of
days during the Employment Period which have elapsed as of the end of the
Employment Period and the denominator is 731, at the time such amount would have
been paid.
(d) If the Employment Period ends early on account of a
Termination without Cause or a Termination by Executive for Good Reason, the
Company: (i) shall pay to Executive amounts equal to the amounts Executive would
have received as salary and bonus had the Employment Period remained in effect
until the date on which it was scheduled to end, at the times such amounts would
have been paid, less payments, if any, to which Executive is entitled during the
payment period under any disability benefit plan or the like in which Executive
has participated as an employee of the Company; and (ii) shall permit Executive
to participate, until the date on which the Employment Period was scheduled to
end, in any medical, dental and life insurance programs included in the
Company's standard benefits package in effect from time to time, on the same
basis (including sharing of costs) as other executives of the Company having
principal responsibility for magazines comparable in profit contribution to
those for which Executive had principal responsibility at the end of the
Employment Period, in the case of each of such programs to the extent
participation by a former employee is permitted by the terms thereof. It is
expressly understood that the Company's payment obligations under this (d) shall
cease in the event Executive breaches any of his agreements in Paragraph 6 or 7
hereof.
6. CONFIDENTIAL INFORMATION. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
pursuant to this Agreement, as well as those obtained by him while employed by
D.M. Pub.'s predecessor prior to the date of this Agreement, concerning the
business or affairs of the Company or any of its subsidiaries or affiliates or
any predecessor thereof (unless and except to the extent the foregoing become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions to act, "CONFIDENTIAL INFORMATION") are the
property of the Company or such subsidiary or affiliate. Therefore, Executive
agrees that during the Employment Period and for three years thereafter he shall
not disclose any Confidential Information without the prior written consent of
the Chief Executive Officer of the Company unless and except to the extent that
such disclosure is (i) made in the ordinary course of Executive's performance of
his duties under this Agreement or (ii) required by any subpoena or other legal
process (in which event Executive will give the Company prompt notice of such
subpoena or other legal process in order to permit the Company to seek
appropriate protective orders), and that he shall not use any Confidential
Information for his own account without the prior written consent of the Chief
Executive Officer of the Company. Executive shall deliver to the Company at the
termination of the Employment Period, or at any other time the Company may
reasonably request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof)
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relating to the Confidential Information, or to the work product or the business
of the Company or any of its subsidiaries or affiliates, which he may then
possess or have under his control.
7. NON-COMPETE, NON-SOLICITATION.
(a) Executive acknowledges that in the course of his employment
with the Company he will become familiar, and during the course of his
employment by D.M. Pub.'s predecessor prior to the date of this Agreement he has
become familiar, with trade secrets and customer lists of and other confidential
information concerning the Company and its subsidiaries and affiliates and
predecessors thereof and that his services have been and will be of special,
unique and extraordinary value to the Company.
(b) Executive agrees that during the Employment Period and for
a period of three years after termination of his employment with the Company he
shall not in any manner, directly or indirectly, through any person, firm or
corporation, alone or as a member of a partnership or as an officer, director,
stockholder, investor or employee of or in any other corporation or enterprise
or otherwise, engage or be engaged in, or assist any other person, firm,
corporation or enterprise in engaging or being engaged in, anywhere in the
world, the publishing or production of any Business Information Product (as
defined in the Combination Agreement) that competes with a Business Information
Product being published or produced by the Company or any of its subsidiaries or
affiliates when the Employment Period ends.
(c) Executive further agrees that during the Employment Period
and for three years thereafter he shall not in any manner, directly or
indirectly, induce or attempt to induce any employee of the Company or of any of
its subsidiaries or affiliates to quit or abandon his/her employ.
(d) Nothing in this Paragraph shall prohibit Executive from
being: (i) a stockholder in a mutual fund or a diversified investment company or
(ii) a passive owner of not more than 5% of the outstanding equity securities of
any class of a corporation or other entity which is publicly traded, so long as
Executive has no active participation in the business of such corporation or
other entity.
(e) If, at the time of enforcement of this Paragraph, a court
holds that the restrictions stated herein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
(f) The provisions of (b) of this Paragraph shall not apply
following a Termination without Cause or a Termination by Executive for Good
Reason.
8. ENFORCEMENT. Because Executive's services are unique and
because Executive has access to Confidential Information and work product, the
parties hereto agree that the Company would be damaged irreparably in the event
any of the provisions of Paragraph 6 or 7
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hereof were not performed in accordance with their specific terms or were
otherwise breached and that money damages would be an inadequate remedy for any
such non-performance or breach. Therefore, the Company or its permitted
successors or assigns shall be entitled, in addition to other rights and
remedies existing in their favor, to an injunction or injunctions to prevent any
breach or threatened breach of any of such provisions and to enforce such
provisions specifically (without posting a bond or other security).
9. EXECUTIVE REPRESENTATIONS. Executive represents and warrants
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) with the
exception of the Combination Agreement, Executive is not a party to or bound by
any employment agreement, noncompete agreement or confidentiality agreement with
any other person or entity and (iii) upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms.
10. SURVIVAL. Subject to any limits on applicability contained
therein, Paragraphs 6, 7 and 8 hereof shall survive and continue in full force
in accordance with their terms notwithstanding any termination of the Employment
Period.
11. NOTICES. Any notice provided for in this Agreement shall be
in writing and shall be either personally delivered, sent by reputable overnight
carrier or mailed by first class mail, return receipt requested, to the
recipient at the address below indicated:
Notices to Executive:
William C. Donohue
1300 No. Lakeshore Drive
Chicago, Illinois 60610
Notices to the Company:
Thomas L. Kemp
Chief Executive Officer
Penton Media, Inc.
1100 Superior Avenue
Cleveland, Ohio 44114
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered,
sent or mailed.
12. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of
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this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
13. COMPLETE AGREEMENT. This Agreement embodies the complete
agreement and understanding between the parties with respect to the subject
matter hereof and effective upon the commencement of the Employment Period
supersedes and preempts any prior understandings, agreements or representations
by or between the parties, written or oral, which may have related to the
subject matter hereof in any way.
14. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of which
taken together shall constitute one and the same agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of and be enforceable by Executive, the Company and their
respective heirs, executors, personal representatives, successors and assigns,
except that neither party may assign any of his or its rights or delegate any of
his or its obligations hereunder without the prior written consent of the other
party. Executive hereby consents to the assignment by the Company of all of its
rights and obligations hereunder to: (i) any subsidiary or affiliate of the
Company in the event all or any substantial part of the business to which
Executive's duties under this Agreement relate are transferred thereto on or
after January 1, 2000 and (ii) any successor to the Company by merger or
consolidation or purchase of all or substantially all of the Company's assets;
in each case provided such transferee or successor assumes the liabilities of
the Company hereunder.
16. CHOICE OF LAW. This Agreement shall be governed by the
internal law, and not the laws of conflicts, of the State of Ohio.
17. AMENDMENT AND WAIVER. The provisions of this Agreement may
be amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above.
PENTON MEDIA, INC.
By ___________________________
Thomas L. Kemp
Chief Executive Officer
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EXECUTIVE
By ___________________________
William C. Donohue
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Exhibit 10.5
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made on _________,1998 between Penton
Media, Inc., a Delaware corporation (the "COMPANY"), and John J. Meehan
("EXECUTIVE").
This Employment Agreement is entered into as a condition precedent
to the consummation of the transactions contemplated in a Combination Agreement
dated as of May 21, 1998 by and among the Company, Executive and other parties
(the "COMBINATION AGREEMENT"). Pursuant to the Combination Agreement, Donohue
Meehan Publishing Company, an Illinois corporation, is being merged with and
into D-M Acquisition Corp., an Illinois corporation wholly-owned by the Company
that is changing its name to Donohue Meehan Publishing Company in connection
with the merger. The corporation surviving the merger as Donohue Meehan
Publishing Company is referred to herein as "D.M. PUB."; the original Donohue
Meehan Publishing Company is referred to herein as "D.M. PUB.'S PREDECESSOR".
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company shall employ Executive, and Executive
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement, for the period beginning at the Effective Time (as defined in
the Combination Agreement) and ending on the second anniversary of the Effective
Time (the "EMPLOYMENT PERIOD").
2. POSITION AND DUTIES.
(a) During the Employment Period, Executive shall serve as the
Executive Vice President of D.M. Pub., and shall have the normal duties,
responsibilities and authority of an executive serving in such position, under
the direction of the Board of Directors of the Company (the "BOARD"), the Chief
Executive Officer and the Chief Operating Officer of the Company and the Board
of Directors of D.M. Pub.
(b) Until the Company's 2000 annual meeting of stockholders,
Executive shall serve as a director of the Company.
(c) Executive shall report to the Chief Operating Officer of the
Company.
(d) During the Employment Period, Executive shall devote his full
business time and attention (except for permitted vacation periods, reasonable
periods of illness or other incapacity and, provided such activities do not
exceed those in which Executive has engaged in the past while serving as the
Executive Vice President of D.M. Pub.'s predecessor, participation in charitable
and civic endeavors and management of Executive's personal investments and
business interests) to the business and affairs of D.M. Pub.; provided that the
Company may require Executive to devote up to 10% of his business time to the
business and affairs of the Company and its other subsidiaries
<PAGE> 2
and affiliates. Executive shall perform his duties and responsibilities to the
best of his abilities in a diligent, trustworthy, businesslike and efficient
manner.
(e) Executive shall be based at a location in, and shall perform his
duties and responsibilities principally in, the Philadelphia metropolitan area,
and shall not be required to travel outside that area significantly more
extensively than he has done in the past in the ordinary course of the business
of D.M. Pub.'s predecessor.
(f) Nothing contained in this Paragraph 2 shall constitute a waiver
by either the Company or Executive of any of the provisions of Section 2.4
(g)(iv) of the Combination Agreement.
3. COMPENSATION AND BENEFITS.
(a) SALARY. The Company agrees to pay Executive a salary during the
Employment Period, in semimonthly installments. Executive's salary shall be
$250,000 per annum.
(b) BONUS. If, based on the final determinations of the Surviving
Corporation's Pre- Tax Profits for 1998 and 1999 pursuant to Section 2.4 of the
Combination Agreement, the total Contingent Cash Payments which the D-M
Shareholders, in the aggregate, would have become entitled to receive pursuant
to Section 2.4(g)(i) of the Combination Agreement would have exceeded $4.0
million had there been no $4.0 million limitation on the total amount of such
Contingent Cash Payments, the Company shall pay to Executive, on the date on
which the Employment Period is scheduled to end, an amount equal to (x) one-half
of such excess divided by (y) four and one-half. Notwithstanding the foregoing:
(i) the amount of the bonus shall not exceed $114,000 and (ii) if any event
described in clause (B) of the final sentence of Section 2.4(g)(i) of the
Combination Agreement occurs, the amount of the bonus shall be $114,000. (Thus,
for example, if the total amount of Contingent Cash Payments which the D-M
Shareholders, in the aggregate, become entitled to receive is less than $4.0
million, the amount of the bonus will be zero dollars, and if the total amount
of Contingent Cash Payments which the D-M Shareholders, in the aggregate, become
entitled to receive is $4.0 million but such total amount would have been $5.026
million but for the $4.0 million limitation, the amount of the bonus will be
$114,000). For purposes of this Agreement, any bonus will be deemed earned on
(but not until) the date on which the Employment Period is scheduled to end.
(c) EXPENSE REIMBURSEMENT. The Company shall reimburse Executive for
all reasonable expenses incurred by him in the course of performing his duties
under this Agreement which are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's requirements applicable generally with
respect to reporting and documentation of such expenses.
(d) STANDARD BENEFITS PACKAGE. In addition to the salary and any
bonus earned, Executive shall be entitled during the Employment Period to
participate in the Company's standard benefits package in effect from time to
time, on the same basis (including sharing of costs) as other executives of the
Company having principal responsibility for magazines comparable in profit
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contribution to those for which Executive has principal responsibility; provided
that (i) any awards made to Executive under the Penton 1998 Stock Awards Plan
(as defined in the Combination Agreement) prior to January 1, 2000 (or, if
earlier, the occurrence of any event described in clause (B) of the final
sentence of Section 2.4(g)(i) of the Combination Agreement) shall be limited to
non-qualified options and (ii) Executive shall be entitled to vacation at the
rate of four weeks per calendar year. In order to be provided such employee
benefits (other than vacation), Executive shall satisfy such requirements for
eligibility and coverage as may be in force from time to time during the
Employment Period taking into account the provisions of the second sentence of
Section 7.8(i) of the Combination Agreement.
4. TERMINATION.
(a) Notwithstanding Paragraph 1 hereof, the Employment Period shall
end early upon the first to occur of any of the following events:
(i) Executive's death;
(ii) the Company's termination of Executive's employment on
account of Executive's having become unable (as
determined by the Board in good faith) to regularly
perform his duties hereunder by reason of illness or
incapacity for a period of more than six (6) consecutive
months ("TERMINATION FOR DISABILITY");
(iii) the Company's termination of Executive's employment for
Cause ("TERMINATION FOR CAUSE");
(iv) the Company's termination of Executive's employment other
than a Termination for Disability or a Termination for
Cause ("TERMINATION WITHOUT CAUSE"); or
(v) Executive's termination of Executive's employment for
Good Reason, by means of written notice to the Company
identifying such termination as a Termination by
Executive for Good Reason ("TERMINATION BY EXECUTIVE FOR
GOOD REASON").
(b) For purposes of this Agreement, "CAUSE" shall mean:
(i) the commission by Executive of a felony;
(ii) the commission by Executive of any act involving fraud or
dishonesty with respect to the Company or any of its
subsidiaries or affiliates which causes harm or damage
material to them as a whole;
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(iii) gross negligence or willful misconduct by Executive
related to his duties and responsibilities hereunder
which causes harm or damage material to the Company and
its subsidiaries and affiliates as a whole;
(iv) repudiation of this Agreement by Executive or Executive's
abandonment of his employment with the Company (it being
expressly understood that a Termination by Executive for
Good Reason shall not constitute such repudiation or
abandonment);
(v) breach by Executive of any of the agreements in
Paragraph 7 hereof; or
(vi) any other breach by Executive of this Agreement which is
material and which is not cured within thirty (30) days
after written notice thereof to Executive from the
Company.
(c) For purposes of this Agreement, "GOOD REASON" shall mean any
breach by the Company of this Agreement which is material and which is not cured
within thirty (30) days after written notice thereof to the Company from
Executive.
5. POST-EMPLOYMENT PERIOD PAYMENTS.
(a) If the Employment Period ends on the date on which it is
scheduled to end, or if the Employment Period ends early for any reason,
Executive shall thereafter be entitled to (and only to):
(i) any salary or bonus which has been earned but is unpaid,
any reimbursable expenses which have been incurred but
are unpaid, and any vacation days which have accrued but
are unused and unexpired under the Company's vacation
policy, as of the end of the Employment Period;
(ii) any plan benefits which by their terms extend beyond
termination of Executive's employment;
(iii) any benefits to which Executive is entitled under the
Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended ("COBRA"); and
(iv) any other amount(s) payable pursuant to the succeeding
provisions of this Paragraph 5.
(b) In the event of Executive's death during the Employment
Period, the Company shall pay to Executive's estate (or such person or persons
as Executive may designate in a written instrument signed by him) amounts equal
to the amounts Executive would have received as salary and bonus had the
Employment Period remained in effect until the date on which it was scheduled to
end, at the times such amounts would have been paid.
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(c) If the Employment Period ends early on account of
Termination for Cause: (i) the Company shall pay Executive an amount equal to
that Executive would have received as salary had the Employment Period remained
in effect until the later of the effective date of the Company's termination of
Executive's employment or the date thirty days after the Company's notice to
Executive of such termination; and (ii) the Company shall pay to Executive an
amount equal to any amount Executive would have received as bonus had the
Employment Period remained in effect until the date on which it was scheduled to
end, reduced to the fraction thereof of which the numerator is the number of
days during the Employment Period which have elapsed as of the end of the
Employment Period and the denominator is 731, at the time such amount would have
been paid.
(d) If the Employment Period ends early on account of a
Termination without Cause or a Termination by Executive for Good Reason, the
Company: (i) shall pay to Executive amounts equal to the amounts Executive would
have received as salary and bonus had the Employment Period remained in effect
until the date on which it was scheduled to end, at the times such amounts would
have been paid, less payments, if any, to which Executive is entitled during the
payment period under any disability benefit plan or the like in which Executive
has participated as an employee of the Company; and (ii) shall permit Executive
to participate, until the date on which the Employment Period was scheduled to
end, in any medical, dental and life insurance programs included in the
Company's standard benefits package in effect from time to time, on the same
basis (including sharing of costs) as other executives of the Company having
principal responsibility for magazines comparable in profit contribution to
those for which Executive had principal responsibility at the end of the
Employment Period, in the case of each of such programs to the extent
participation by a former employee is permitted by the terms thereof. It is
expressly understood that the Company's payment obligations under this (d) shall
cease in the event Executive breaches any of his agreements in Paragraph 6 or 7
hereof.
6. CONFIDENTIAL INFORMATION. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
pursuant to this Agreement, as well as those obtained by him while employed by
D.M. Pub.'s predecessor prior to the date of this Agreement, concerning the
business or affairs of the Company or any of its subsidiaries or affiliates or
any predecessor thereof (unless and except to the extent the foregoing become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions to act, "CONFIDENTIAL INFORMATION") are the
property of the Company or such subsidiary or affiliate. Therefore, Executive
agrees that during the Employment Period and for three years thereafter he shall
not disclose any Confidential Information without the prior written consent of
the Chief Executive Officer of the Company unless and except to the extent that
such disclosure is (i) made in the ordinary course of Executive's performance of
his duties under this Agreement or (ii) required by any subpoena or other legal
process (in which event Executive will give the Company prompt notice of such
subpoena or other legal process in order to permit the Company to seek
appropriate protective orders), and that he shall not use any Confidential
Information for his own account without the prior written consent of the Chief
Executive Officer of the Company. Executive shall deliver to the Company at the
termination of the Employment Period, or at any other time the Company may
reasonably request, all memoranda, notes, plans, records, reports, computer
tapes and software and other documents and data (and copies thereof)
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<PAGE> 6
relating to the Confidential Information, or to the work product or the business
of the Company or any of its subsidiaries or affiliates, which he may then
possess or have under his control.
7. NON-COMPETE, NON-SOLICITATION.
(a) Executive acknowledges that in the course of his employment
with the Company he will become familiar, and during the course of his
employment by D.M. Pub.'s predecessor prior to the date of this Agreement he has
become familiar, with trade secrets and customer lists of and other confidential
information concerning the Company and its subsidiaries and affiliates and
predecessors thereof and that his services have been and will be of special,
unique and extraordinary value to the Company.
(b) Executive agrees that during the Employment Period and for
a period of three years after termination of his employment with the Company he
shall not in any manner, directly or indirectly, through any person, firm or
corporation, alone or as a member of a partnership or as an officer, director,
stockholder, investor or employee of or in any other corporation or enterprise
or otherwise, engage or be engaged in, or assist any other person, firm,
corporation or enterprise in engaging or being engaged in, anywhere in the
world, the publishing or production of any Business Information Product (as
defined in the Combination Agreement) that competes with a Business Information
Product being published or produced by the Company or any of its subsidiaries or
affiliates when the Employment Period ends.
(c) Executive further agrees that during the Employment Period
and for three years thereafter he shall not in any manner, directly or
indirectly, induce or attempt to induce any employee of the Company or of any of
its subsidiaries or affiliates to quit or abandon his/her employ.
(d) Nothing in this Paragraph shall prohibit Executive from
being: (i) a stockholder in a mutual fund or a diversified investment company or
(ii) a passive owner of not more than 5% of the outstanding equity securities of
any class of a corporation or other entity which is publicly traded, so long as
Executive has no active participation in the business of such corporation or
other entity.
(e) If, at the time of enforcement of this Paragraph, a court
holds that the restrictions stated herein are unreasonable under circumstances
then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area and that the court shall be allowed to revise
the restrictions contained herein to cover the maximum period, scope and area
permitted by law.
(f) The provisions of (b) of this Paragraph shall not apply
following a Termination without Cause or a Termination by Executive for Good
Reason.
8. ENFORCEMENT. Because Executive's services are unique and
because Executive has access to Confidential Information and work product, the
parties hereto agree that the Company would be damaged irreparably in the event
any of the provisions of Paragraph 6 or 7
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hereof were not performed in accordance with their specific terms or were
otherwise breached and that money damages would be an inadequate remedy for any
such non-performance or breach. Therefore, the Company or its permitted
successors or assigns shall be entitled, in addition to other rights and
remedies existing in their favor, to an injunction or injunctions to prevent any
breach or threatened breach of any of such provisions and to enforce such
provisions specifically (without posting a bond or other security).
9. EXECUTIVE REPRESENTATIONS. Executive represents and warrants
to the Company that (i) the execution, delivery and performance of this
Agreement by Executive does not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) with the
exception of the Combination Agreement, Executive is not a party to or bound by
any employment agreement, noncompete agreement or confidentiality agreement with
any other person or entity and (iii) upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of Executive, enforceable in accordance with its terms.
10. SURVIVAL. Subject to any limits on applicability contained
therein, Paragraphs 6, 7 and 8 hereof shall survive and continue in full force
in accordance with their terms notwithstanding any termination of the Employment
Period.
11. NOTICES. Any notice provided for in this Agreement shall be
in writing and shall be either personally delivered, sent by reputable overnight
carrier or mailed by first class mail, return receipt requested, to the
recipient at the address below indicated:
Notices to Executive:
John J. Meehan
68 Briarwood Drive
Holland, Pennsylvania 18966
Notices to the Company:
Thomas L. Kemp
Chief Executive Officer
Penton Media, Inc.
1100 Superior Avenue
Cleveland, Ohio 44114
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered,
sent or mailed.
12. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of
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this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provision or any other
jurisdiction, but this Agreement shall be reformed, construed and enforced in
such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
13. COMPLETE AGREEMENT. This Agreement embodies the complete
agreement and understanding between the parties with respect to the subject
matter hereof and effective upon the commencement of the Employment Period
supersedes and preempts any prior understandings, agreements or representations
by or between the parties, written or oral, which may have related to the
subject matter hereof in any way.
14. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original and both of which
taken together shall constitute one and the same agreement.
15. SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of and be enforceable by Executive, the Company and their
respective heirs, executors, personal representatives, successors and assigns,
except that neither party may assign any of his or its rights or delegate any of
his or its obligations hereunder without the prior written consent of the other
party. Executive hereby consents to the assignment by the Company of all of its
rights and obligations hereunder to: (i) any subsidiary or affiliate of the
Company in the event all or any substantial part of the business to which
Executive's duties under this Agreement relate are transferred thereto on or
after January 1, 2000 and (ii) any successor to the Company by merger or
consolidation or purchase of all or substantially all of the Company's assets;
in each case provided such transferee or successor assumes the liabilities of
the Company hereunder.
16. CHOICE OF LAW. This Agreement shall be governed by the
internal law, and not the laws of conflicts, of the State of Ohio.
17. AMENDMENT AND WAIVER. The provisions of this Agreement may
be amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above.
PENTON MEDIA, INC.
By ___________________________
Thomas L. Kemp
Chief Executive Officer
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EXECUTIVE
By ___________________________
John J. Meehan
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Exhibit 10.6
PENTON MEDIA, INC.
1998 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. PURPOSE. The purpose of the Penton Media, Inc. 1998 Equity and
Performance Incentive Plan is to attract and retain officers and other key
employees for Penton Media, Inc., a Delaware corporation and its Subsidiaries
and to provide to such persons incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"Appreciation Right" means a right granted pursuant to Section
5 of this Plan, and shall include both Tandem Appreciation Rights and
Free-Standing Appreciation Rights.
"Base Price" means the price to be used as the basis for
determining the Spread upon the exercise of a Free-Standing Appreciation Right
and a Tandem Appreciation Right.
"Board" means the Board of Directors of the Company and, to
the extent of any delegation by the Board to a committee (or subcommittee
thereof) pursuant to Section 15 of this Plan, such committee (or subcommittee).
"Change of Control" shall have the meaning provided in Section
11 of this Plan.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company or any security into which such Common Stock may be
changed by reason of any transaction or event of the type referred to in Section
10 of this Plan.
"Company" means Penton Media, Inc., a Delaware corporation.
"Covered Employee" means a Participant who is, or is
determined by the Board to be likely to become, a "covered employee" within the
meaning of Section 162(m) of the Code (or any successor provision).
"Date of Grant" means the date specified by the Board on which
a grant of Option Rights, Appreciation Rights, Performance Shares or Performance
Units or a grant or sale of Restricted Shares or Deferred Shares shall become
effective (which date shall not be earlier than the date on which the Board
takes action with respect thereto).
"Deferral Period" means the period of time during which
Deferred Shares are subject to deferral limitations under Section 7 of this
Plan.
"Deferred Shares" means an award made pursuant to Section 7 of
this Plan of the right to receive shares of Common Stock at the end of a
specified Deferral Period.
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"Director" means a member of the Board of Directors of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, as such law, rules and
regulations may be amended from time to time.
"Free-Standing Appreciation Right" means an Appreciation Right
granted pursuant to Section 5 of this Plan that is not granted in tandem with an
Option Right.
"Incentive Stock Options" means Option Rights that are
intended to qualify as "incentive stock options" under Section 422 of the Code
or any successor provision.
"Management Objectives" means the measurable performance
objective or objectives established pursuant to this Plan for Participants who
have received grants of Performance Shares or Performance Units or, when so
determined by the Board, Option Rights, Appreciation Rights, Restricted Shares
and dividend credits pursuant to this Plan. Management Objectives may be
described in terms of Company-wide objectives or objectives that are related to
the performance of the individual Participant or of the Subsidiary, division,
department, region or function within the Company or Subsidiary in which the
Participant is employed. The Management Objectives may be made relative to the
performance of other corporations. The Management Objectives applicable to any
award to a Covered Employee shall be based on specified levels of or growth in
one or more of the following criteria:
1. cash flow/net assets ratio;
2. debt/capital ratio;
3. return on total capital;
4. return on equity;
5. earnings per share growth;
6. revenue growth; and
7. total return to shareholders.
If the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company, or the
manner in which it conducts its business, or other events or circumstances
render the Management Objectives unsuitable, the Committee may in its discretion
modify such Management Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Committee deems appropriate and
equitable, except in the case of a Covered Employee where such action would
result in the loss of the otherwise available exemption of the award under
Section 162(m) of the Code. In such case, the Committee shall not make any
modification of the Management Objectives or minimum acceptable level of
achievement.
"Market Value per Share" means, as of any particular date, the
fair market value of the shares of Common Stock as determined by the Board.
"Optionee" means the optionee named in an agreement evidencing
an outstanding Option Right.
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"Option Price" means the purchase price payable on exercise of
an Option Right.
"Option Right" means the right to purchase shares of Common
Stock upon exercise of an option granted pursuant to Section 4 of this Plan.
"Participant" means a person who is selected by the Board to
receive benefits under this Plan and who is at the time an officer, or other
employee of the Company or any one or more of its Subsidiaries, or who has
agreed to commence serving in any of such capacities within 90 days of the Date
of Grant.
"Performance Period" means, in respect of a Performance Share
or Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating to such Performance Share
or Performance Unit are to be achieved.
"Performance Share" means a bookkeeping entry that records the
equivalent of one share of Common Stock awarded pursuant to Section 8 of this
Plan.
"Performance Unit" means a bookkeeping entry that records a
unit equivalent to $1.00 awarded pursuant to Section 8 of this Plan.
"Plan" means this Penton Media, Inc. 1998 Equity and
Performance Incentive Plan.
"Reload Option Rights" means additional Option Rights granted
automatically to an Optionee upon the exercise of Option Rights pursuant to
Section 4(g) of this Plan.
"Restricted Shares" means shares of Common Stock granted or
sold pursuant to Section 6 of this Plan as to which neither the substantial risk
of forfeiture nor the prohibition on transfers referred to in such Section 6 has
expired.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act (or any
successor rule to the same effect) as in effect from time to time.
"Spread" means the excess of the Market Value per Share on the
date when an Appreciation Right is exercised, or on the date when Option Rights
are surrendered in payment of the Option Price of other Option Rights, over the
Option Price or Base Price provided for in the related Option Right or
Free-Standing Appreciation Right, respectively.
"Subsidiary" means a corporation, company or other entity (i)
more than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association), but more than 50
percent of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company except that for purposes of determining
whether any person may be a Participant
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for purposes of any grant of Incentive Stock Options, "Subsidiary" means any
corporation in which at the time the Company owns or controls, directly or
indirectly, more than 50 percent of the total combined voting power represented
by all classes of stock issued by such corporation.
"Tandem Appreciation Right" means an Appreciation Right
granted pursuant to Section 5 of this Plan that is granted in tandem with an
Option Right.
"Voting Power" means at any time, the total votes relating to
the then-outstanding securities entitled to vote generally in the election of
Directors.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as
provided in Section 3(b) and Section 10 of this Plan, the number of shares of
Common Stock that may be issued or transferred (i) upon the exercise of Option
Rights or Appreciation Rights, (ii) as Restricted Shares and released from
substantial risks of forfeiture thereof, (iii) as Deferred Shares, (iv) in
payment of Performance Shares or Performance Units that have been earned or (v)
in payment of dividend equivalents paid with respect to awards made under the
Plan shall not exceed in the aggregate 2,500,000 shares of Common Stock, plus
any shares described in Section 3(b). Such shares may be shares of original
issuance or treasury shares or a combination of the foregoing.
(b) The number of shares available in Section 3(a) above shall
be adjusted to account for shares relating to awards that expire, are forfeited
or are transferred, surrendered or relinquished upon the payment of any Option
Price by the transfer to the Company of shares of Common Stock or upon
satisfaction of any withholding amount. Upon payment in cash of the benefit
provided by any award granted under this Plan, any shares that were covered by
that award shall again be available for issue or transfer hereunder.
(c) Notwithstanding anything in this Section 3, or elsewhere
in this Plan, to the contrary and subject to adjustment as provided in Section
10 of this Plan, (i) the aggregate number of shares of Common Stock actually
issued or transferred by the Company upon the exercise of Incentive Stock
Options shall not exceed 2,500,000 shares of Common Stock; (ii) no Participant
shall be granted Option Rights and Appreciation Rights, in the aggregate, for
more than 200,000 shares of Common Stock during any period of 1 year; and (iii)
the number of shares issued as Restricted Shares shall not in the aggregate
exceed 200,000 shares of Common Stock.
(d) Notwithstanding any other provision of this Plan to the
contrary, in no event shall any Participant in any calendar year receive an
award of Performance Shares or Performance Units having an aggregate maximum
value as of their respective Dates of Grant in excess of $1,000,000.
4. OPTION RIGHTS. The Board may, from time to time and upon such terms
and conditions as it may determine, authorize the granting to Participants of
options to purchase shares of Common Stock. Each such grant may utilize any or
all of the authorizations, and shall be subject to all of the requirements
contained in the following provisions:
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(a) Each grant shall specify the number of shares of Common
Stock to which it pertains subject to the limitations set forth in Section 3 of
this plan.
(b) Each grant shall specify an Option Price per share. The
Option Price of an Incentive Stock Option may not be less than 100% of the
Market Value per Share on the Date of Grant. The Option Price of all other
Option Rights may not be less than 85% of the Market Value per Share on the Date
of Grant and may not be less that the par value of a share of Common Stock.
(c) Each grant shall specify whether the Option Price shall be
payable (i) in cash or by check acceptable to the Company, (ii) by the actual or
constructive transfer to the Company of shares of Common Stock owned by the
Optionee for at least 6 months (or other consideration authorized pursuant to
Section 4(d)) having a value at the time of exercise equal to the total Option
Price, or (iii) by a combination of such methods of payment.
(d) The Board may determine, at or after the Date of Grant,
that payment of the Option Price of any Option Right (other than an Incentive
Stock Option) may also be made in whole or in part in the form of Restricted
Shares or other shares of Common Stock that are forfeitable or subject to
restrictions on transfer, Deferred Shares, Performance Shares (based, in each
case, on the Market Value per Share on the date of exercise), other Option
Rights (based on the Spread on the date of exercise) or Performance Units.
Unless otherwise determined by the Board at or after the Date of Grant, whenever
any Option Price is paid in whole or in part by means of any of the forms of
consideration specified in this Section 4(d), the shares of Common Stock
received upon the exercise of the Option Rights shall be subject to such risks
of forfeiture or restrictions on transfer as may correspond to any that apply to
the consideration surrendered, but only to the extent, determined with respect
to the consideration surrendered, of (i) the number of shares or Performance
Shares, (ii) the Spread of any unexercisable portion of Option Rights, or (iii)
the stated value of Performance Units.
(e) Any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a broker on a date satisfactory to the
Company of some or all of the shares to which such exercise relates.
(f) Any grant may provide for payment of the Option Price, at
the election of the Optionee, in installments, with or without interest, upon
terms determined by the Board.
(g) Any grant may, at or after the Date of Grant, provide for
the automatic grant of Reload Option Rights to an Optionee upon the exercise of
Option Rights (including Reload Option Rights) using shares of Common Stock or
other consideration specified in Section 4(d). Reload Option Rights shall cover
up to the number of shares of Common Stock, Deferred Shares, Option Rights or
Performance Shares (or the number of shares of Common Stock having a value equal
to the value of any Performance Units) surrendered to the Company upon any such
exercise in payment of the Option Price or to meet any withholding obligations.
Reload Options may have an Option Price that is no less than that which
represents the same percentage of the Market Value per Share at the time of
exercise of the Option Rights that the share Option Price represented of the
Market Value per Share at the time the Option Rights being
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exercised were granted and shall be on such other terms as may be specified by
the Directors, which may be the same as or different from those of the original
Option Rights.
(h) Successive grants may be made to the same Participant
whether or not any Option Rights previously granted to such Participant remain
unexercised.
(i) Each grant shall specify the period or periods of
continuous service by the Optionee with the Company or any Subsidiary that is
necessary before the Option Rights or installments thereof will become
exercisable and may provide for the earlier exercise of such Option Rights in
the event of a Change of Control.
(j) Any grant of Option Rights may specify Management
Objectives that must be achieved as a condition to the exercise of such rights.
(k) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing.
(l) The Board may, at or after the Date of Grant of any Option
Rights (other than Incentive Stock Options), provide for the payment of dividend
equivalents to the Optionee on either a current or deferred or contingent basis
or may provide that such equivalents shall be credited against the Option Price.
(m) The exercise of an Option Right shall result in the
cancellation on a share-for-share basis of any Tandem Appreciation Right
authorized under Section 5 of this Plan.
(n) No Option Right shall be exercisable more than 10 years
from the Date of Grant.
(o) Each grant of Option Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered to the
Optionee and containing such terms and provisions, consistent with this Plan, as
the Board may approve.
5. APPRECIATION RIGHTS. (a) The Board may authorize the granting (i) to
any Optionee, of Tandem Appreciation Rights in respect of Option Rights granted
hereunder, and (ii) to any Participant, of Free-Standing Appreciation Rights. A
Tandem Appreciation Right shall be a right of the Optionee, exercisable by
surrender of the related Option Right, to receive from the Company an amount
determined by the Board, which shall be expressed as a percentage of the Spread
(not exceeding 100 percent) at the time of exercise. Tandem Appreciation Rights
may be granted at any time prior to the exercise or termination of the related
Option Rights; provided, however, that a Tandem Appreciation Right awarded in
relation to an Incentive Stock Option must be granted concurrently with such
Incentive Stock Option. A Free-Standing Appreciation Right shall be a right of
the Participant to receive from the Company an amount
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determined by the Board, which shall be expressed as a percentage of the Spread
(not exceeding 100 percent) at the time of exercise.
(b) Each grant of Appreciation Rights may utilize any or all
of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(i) Any grant may specify that the amount payable on
exercise of an Appreciation Right may be paid by the Company in cash,
in shares of Common Stock or in any combination thereof and may either
grant to the Participant or retain in the Board the right to elect
among those alternatives.
(ii) Any grant may specify that the amount payable on
exercise of an Appreciation Right may not exceed a maximum specified by
the Board at the Date of Grant.
(iii) Any grant may specify waiting periods before
exercise and permissible exercise dates or periods.
(iv) Any grant may specify that such Appreciation
Right may be exercised only in the event of, or earlier in the event
of, a Change of Control.
(v) Any grant may provide for the payment to the
Participant of dividend equivalents thereon in cash or shares of Common
Stock on a current, deferred or contingent basis.
(vi) Any grant of Appreciation Rights may specify
Management Objectives that must be achieved as a condition of the
exercise of such Rights.
(vii) Each grant of Appreciation Rights shall be
evidenced by an agreement executed on behalf of the Company by an
officer and delivered to and accepted by the Participant, which
agreement shall describe such Appreciation Rights, identify the related
Option Rights (if applicable), state that such Appreciation Rights are
subject to all the terms and conditions of this Plan, and contain such
other terms and provisions, consistent with this Plan, as the Board may
approve.
(c) Any grant of Tandem Appreciation Rights shall provide that
such Rights may be exercised only at a time when the related Option Right is
also exercisable and at a time when the Spread is positive, and by surrender of
the related Option Right for cancellation.
(d) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each
Free-standing Appreciation Right a Base Price, which shall be
equal to or greater or less than the Market Value per Share on
the Date of Grant;
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(ii) Successive grants may be made to the same
Participant regardless of whether any Free-standing
Appreciation Rights previously granted to the Participant
remain unexercised; and
(iii) No Free-standing Appreciation Right granted
under this Plan may be exercised more than 10 years from the
Date of Grant.
6. RESTRICTED SHARES. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate
transfer of the ownership of shares of Common Stock to the Participant in
consideration of the performance of services, entitling such Participant to
voting, dividend and other ownership rights, but subject to the substantial risk
of forfeiture and restrictions on transfer hereinafter referred to.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted
Shares covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code for a period to be
determined by the Board at the Date of Grant and may provide for the lapse of
such substantial risk of forfeiture in the event of a Change in Control.
(d) Each such grant or sale shall provide that during the
period for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted in
the manner and to the extent prescribed by the Board at the Date of Grant (which
restrictions may include, without limitation, rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any transferee).
(e) Any grant of Restricted Shares may specify Management
Objectives that, if achieved, will result in termination or early termination of
the restrictions applicable to such shares. Each grant may specify in respect of
such Management Objectives a minimum acceptable level of achievement and may set
forth a formula for determining the number of Restricted Shares on which
restrictions will terminate if performance is at or above the minimum level, but
falls short of full achievement of the specified Management Objectives.
(f) Any such grant or sale of Restricted Shares may require
that any or all dividends or other distributions paid thereon during the period
of such restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be subject to the same restrictions as the
underlying award.
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(g) Each grant or sale of Restricted Shares shall be evidenced
by an agreement executed on behalf of the Company by any officer and delivered
to and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve. Unless otherwise directed
by the Board, all certificates representing Restricted Shares shall be held in
custody by the Company until all restrictions thereon shall have lapsed,
together with a stock power or powers executed by the Participant in whose name
such certificates are registered, endorsed in blank and covering such Shares.
7. DEFERRED SHARES. The Board may also authorize the granting or sale
of Deferred Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements
contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by
the Company to deliver shares of Common Stock to the Participant in the future
in consideration of the performance of services, but subject to the fulfillment
of such conditions during the Deferral Period as the Board may specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral
Period, as determined by the Board at the Date of Grant, and may provide for the
lapse or other modification of such Deferral Period in the event of a Change in
Control.
(d) During the Deferral Period, the Participant shall have no
right to transfer any rights under his or her award and shall have no rights of
ownership in the Deferred Shares and shall have no right to vote them, but the
Board may, at or after the Date of Grant, authorize the payment of dividend
equivalents on such Shares on either a current or deferred or contingent basis,
either in cash or in additional shares of Common Stock.
(e) Each grant or sale of Deferred Shares shall be evidenced
by an agreement executed on behalf of the Company by any officer and delivered
to and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Board may also
authorize the granting of Performance Shares and Performance Units that will
become payable to a Participant upon achievement of specified Management
Objectives. Each such grant may utilize any or all of the authorizations, and
shall be subject to all of the requirements, contained in the following
provisions:
(a) Each grant shall specify the number of Performance Shares
or Performance Units to which it pertains, which number may be subject to
adjustment to reflect
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changes in compensation or other factors; provided, however, that no such
adjustment shall be made in the case of a Covered Employee where such action
would result in the loss of the otherwise available exemption of the award under
Section 162(m) of the Code.
(b) The Performance Period with respect to each Performance
Share or Performance Unit shall be such period of time (not less than 3 years,
except in the event of a Change of Control, if the Board shall so determine;
provided, however, that no such acceleration determination shall be made in the
case of a Covered Employee where such action would result in the loss of the
otherwise available exemption of the award under Section 162(m) of the Code)
commencing with the Date of Grant (as shall be determined by the Board at the
time of grant).
(c) Any grant of Performance Shares or Performance Units shall
specify Management Objectives which, if achieved, will result in payment or
early payment of the award, and each grant may specify in respect of such
specified Management Objectives a minimum acceptable level of achievement and
shall set forth a formula for determining the number of Performance Shares or
Performance Units that will be earned if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives. The grant of Performance Shares or Performance Units shall specify
that, before the Performance Shares or Performance Units shall be earned and
paid, the Board must certify that the Management Objectives have been satisfied.
(d) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that have been earned. Any grant may
specify that the amount payable with respect thereto may be paid by the Company
in cash, in shares of Common Stock or in any combination thereof and may either
grant to the Participant or retain in the Board the right to elect among those
alternatives.
(e) Any grant of Performance Shares may specify that the
amount payable with respect thereto may not exceed a maximum specified by the
Board at the Date of Grant. Any grant of Performance Units may specify that the
amount payable or the number of shares of Common Stock issued with respect
thereto may not exceed maximums specified by the Board at the Date of Grant.
(f) The Board may, at or after the Date of Grant of
Performance Shares, provide for the payment of dividend equivalents to the
holder thereof on either a current or deferred or contingent basis, either in
cash or in additional shares of Common Stock.
(g) Each grant of Performance Shares or Performance Units
shall be evidenced by an agreement executed on behalf of the Company by any
officer and delivered to and accepted by the Participant, which agreement shall
state that such Performance Shares or Performance Units are subject to all the
terms and conditions of this Plan, and contain such other terms and provisions,
consistent with this Plan, as the Board may approve.
9. TRANSFERABILITY. (a) Except as otherwise determined by the Board, no
Option Right, Appreciation Right or other derivative security granted under the
Plan shall be transferable
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by a Participant other than by will or the laws of descent and distribution.
Except as otherwise determined by the Board, Option Rights and Appreciation
Rights shall be exercisable during the Optionee's lifetime only by him or her or
by his or her guardian or legal representative.
(b) The Board may specify at the Date of Grant that part or
all of the shares of Common Stock that are (i) to be issued or transferred by
the Company upon the exercise of Option Rights or Appreciation Rights, upon the
termination of the Deferral Period applicable to Deferred Shares or upon payment
under any grant of Performance Shares or Performance Units or (ii) no longer
subject to the substantial risk of forfeiture and restrictions on transfer
referred to in Section 6 of this Plan, shall be subject to further restrictions
on transfer.
10. ADJUSTMENTS. The Board may make or provide for such adjustments in
the numbers of shares of Common Stock covered by outstanding Option Rights,
Appreciation Rights, Deferred Shares, and Performance Shares granted hereunder,
in the Option Price and Base Price provided in outstanding Appreciation Rights,
and in the kind of shares covered thereby, as the Board, in its sole discretion,
exercised in good faith, may determine is equitably required to prevent dilution
or enlargement of the rights of Participants or Optionees that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Board, in its
discretion, may provide in substitution for any or all outstanding awards under
this Plan such alternative consideration as it, in good faith, may determine to
be equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 of this Plan as the
Board in its sole discretion, exercised in good faith, may determine is
appropriate to reflect any transaction or event described in this Section 10;
provided, however, that any such adjustment to the number specified in Section
3(c)(i) shall be made only if and to the extent that such adjustment would not
cause any Option intended to qualify as an Incentive Stock Option to fail so to
qualify.
11. CHANGE OF CONTROL. For purposes of this Plan, a "Change of Control"
shall mean if at any time any of the following events shall have occurred:
(a) The Company is merged or consolidated or reorganized into
or with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the combined
voting power of the then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate by the holders of
securities entitled to vote generally in the election of Directors immediately
prior to such transaction;
(b) The Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and less than a majority of the combined
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voting power of the then-outstanding securities of such corporation or person
immediately after such sale or transfer is held in the aggregate by the holders
of shares of Common Stock immediately prior to such sale or transfer;
(c) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant to the
Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or
any successor rule or regulation promulgated under the Exchange Act) of
securities representing 20% or more of the Voting Power;
(d) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or report
or item therein) that a change of control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; or
(e) If during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors cease for any
reason to constitute at least a majority thereof, unless the election, or the
nomination for election by the Company's shareholders, of each Director first
elected during such period was approved by a vote of at least two-thirds of the
Directors then still in office who were Directors at the beginning of any such
period.
Notwithstanding the foregoing provisions of Section 11(c) and
(d) above, unless otherwise determined in a specific case by majority vote of
the Board, a "Change of Control" shall not be deemed to have occurred for
purposes of this Plan (i) solely because (A) the Company; (B) a Subsidiary; (C)
the Harris Group; or (D) any Company-sponsored employee stock ownership plan or
any other employee benefit plan of the Company or any Subsidiary either files or
becomes obligated to file a report or proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act, disclosing
beneficial ownership by it of shares, whether in excess of 20% of the Voting
Power or otherwise, or because the Company reports that a change of control of
the Company has or may have occurred or will or may occur in the future by
reason of such beneficial ownership or (ii) solely because of a change of
control of any Subsidiary. For purposes of the preceding sentence, the "Harris
Group" shall mean Messrs. Irving B. Harris, Neison Harris, King Harris, William
W. Harris and Sidney Barrows, and their respective spouses, descendants and
spouses of descendants, trustees of trusts established for the benefit of such
persons (acting in their capacity as trustees of such trusts), and executors of
estates of such persons (acting in their capacity as executors of such estates),
and each person of which any of the foregoing owns (i) more than fifty percent
(50%) of the voting stock or other voting interests and (ii) stock or other
interests representing more than fifty percent (50%) of the total value of the
stock or other interests of such person. For purposes of the preceding sentence,
the term "spouses" includes widows and widowers until first remarried.
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<PAGE> 13
12. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional shares of Common Stock pursuant to this Plan. The Board may provide
for the elimination of fractions or for the settlement of fractions in cash.
13. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
shall be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements (in the discretion of the Board) may include relinquishment
of a portion of such benefit. The Company and a Participant or such other person
may also make similar arrangements with respect to the payment of any taxes with
respect to which withholding is not required.
14. FOREIGN EMPLOYEES. In order to facilitate the making of any grant
or combination of grants under this Plan, the Board may provide for such special
terms for awards to Participants who are foreign nationals or who are employed
by the Company or any Subsidiary outside of the United States of America as the
Board may consider necessary or appropriate to accommodate differences in local
law, tax policy or custom. Moreover, the Board may approve such supplements to
or amendments, restatements or alternative versions of this Plan as it may
consider necessary or appropriate for such purposes, without thereby affecting
the terms of this Plan as in effect for any other purpose, and the Secretary or
other appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special
terms, supplements, amendments or restatements, however, shall include any
provisions that are inconsistent with the terms of this Plan as then in effect
unless this Plan could have been amended to eliminate such inconsistency without
further approval by the shareholders of the Company.
15. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered by
the Board, which may from time to time delegate all or any part of its authority
under this Plan to a committee of the Board (or subcommittee thereof) consisting
of not less than two Directors appointed by the Board. The members of the
committee shall be "Non-Employee Directors" within the meaning of Rule 16b-3
and "outside directors" within the meaning of Section 162(m) of the Code. A
majority of the committee (or subcommittee) shall constitute a quorum, and the
action of the members of the committee (or subcommittee) present at any meeting
at which a quorum is present, or acts unanimously approved in writing, shall be
the acts of the committee (or subcommittee). To the extent of any such
delegation, references in this Plan to the Board shall be deemed to be
references to any such committee or subcommittee.
(b) The interpretation and construction by the Board of any
provision of this Plan or of any agreement, notification or document evidencing
the grant of Option Rights, Appreciation Rights, Restricted Shares, Deferred
Shares, Performance Shares or Performance Units and any determination by the
Board pursuant to any provision of this Plan or of any such
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<PAGE> 14
agreement, notification or document shall be final and conclusive. No member of
the Board shall be liable for any such action or determination made in good
faith.
16. AMENDMENTS, ETC. (a) The Board may at any time and from time to
time amend the Plan in whole or in part; provided, however, that any amendment
which must be approved by the shareholders of the Company in order to comply
with applicable law or the rules of the New York Stock Exchange or, if the
shares of Common Stock are not traded on the New York Stock Exchange, the
principal national securities exchange upon which the shares of Common Stock are
traded or quoted, shall not be effective unless and until such approval has been
obtained. Presentation of this Plan or any amendment hereof for shareholder
approval shall not be construed to limit the Company's authority to offer
similar or dissimilar benefits under other plans without shareholder approval.
(b) The Board may, with the concurrence of the affected
optionee, cancel any agreement evidencing Option Rights or any other award
granted under the Plan. In the event of such cancellation, the Board may
authorize the granting of new Option Rights or other such awards under the Plan
(which may or may not cover the same number of shares Common Stock that had
been the subject of the prior award) in such manner, at such Option Price and
subject to such other terms, conditions and discretions as would have been
applicable under the Plan had the canceled Option Rights or other awards not
been granted.
(c) The Board also may permit Participants to elect to defer
the issuance of shares of Common Stock or the settlement of awards in cash under
the Plan pursuant to such rules, procedures or programs as it may establish for
purposes of this Plan. The Board also may provide that deferred issuances and
settlements include the payment or crediting of dividend equivalents or interest
on the deferral amounts.
(d) The Board may condition the grant of any award or
combination of awards authorized under this Plan on the surrender or deferral by
the Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the
Participant.
(e) In case of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or other
special circumstances, of a Participant who holds an Option Right or
Appreciation Right not immediately exercisable in full, or any Restricted Shares
as to which the substantial risk of forfeiture or the prohibition or restriction
on transfer has not lapsed, or any Deferred Shares as to which the Deferral
Period has not been completed, or any Performance Shares or Performance Units
which have not been fully earned, or who holds shares of Common Stock subject to
any transfer restriction imposed pursuant to Section 9(b) of this Plan, the
Board may, in its sole discretion, accelerate the time at which such Option
Right or Appreciation Right may be exercised or the time at which such
substantial risk of forfeiture or prohibition or restriction on transfer will
lapse or the time when such Deferral Period will end or the time at which such
Performance Shares or Performance
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<PAGE> 15
Units will be deemed to have been fully earned or the time when such transfer
restriction will terminate or may waive any other limitation or requirement
under any such award.
(f) This Plan shall not confer upon any Participant any right
with respect to continuance of employment or other service with the Company or
any Subsidiary, nor shall it interfere in any way with any right the Company or
any Subsidiary would otherwise have to terminate such Participant's employment
or other service at any time.
(g) To the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify as an Incentive Stock
Option from qualifying as such, that provision shall be null and void with
respect to such Option Right. Such provision, however, shall remain in effect
for other Option Rights and there shall be no further effect on any provision of
this Plan.
17. TERMINATION. No grant shall be made under this Plan more than 10
years after the date on which this Plan is first approved by the shareholders of
the Company, but all grants made on or prior to such date shall continue in
effect thereafter subject to the terms thereof and of this Plan.
15
<PAGE> 1
Exhibit 10.7
PENTON MEDIA, INC.
1998 DIRECTOR STOCK OPTION PLAN
1. Purpose. The purpose of the Penton Media, Inc. 1998 Director Stock
Option Plan (the "Plan") is to promote the long-term financial interests of
Penton Media, Inc., a Delaware corporation (the "Company"), and its subsidiaries
by:
(a) providing an incentive for all non-employee members of the Board of
Directors (the "Non-Employee Directors") to maximize the long-term value of the
Company's Common Stock and otherwise act in the best interest of the Company's
stockholders;
(b) providing Non-Employee Directors with the opportunity to acquire a
greater stake in the future of the Company and its subsidiaries through stock
ownership; and
(c) attracting and retaining highly qualified Non-Employee Directors.
2. Definitions. The following words and phrases have the respective
meanings indicated below unless a different meaning is plainly implied by the
context.
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means Common Stock, par value $.01 per share, of the
Company.
(d) "Eligible Director" means any present or future member of the Board
of Directors who, on the date of an award pursuant to the Plan, (1) is a member
of the Board of Directors, and (2) is not an employee of the Company or any of
its subsidiaries.
(e) "Market Value" of Common Stock means, for Options granted during
the first twenty days on which the Common Stock is traded on the New York Stock
Exchange, the fair market value of the shares of Common Stock as determined by
the Board of Directors, and, for any subsequent grant of Options, on any date,
means the most recently reported closing price of such Common Stock on that
date on the New York Stock Exchange Composite Transactions list, as
subsequently reported in THE WALL STREET JOURNAL.
(f) "Option" means a right awarded to a Participant pursuant to the
Plan to purchase a designated number of shares of Common Stock at a stated price
for a stated period of time.
(g) "Participant" means an Eligible Director who has been awarded an
Option.
(h) "Trading Date" for Common Stock means a date for which a sale of
such Common Stock on the New York Stock Exchange Composite Transactions list is
subsequently reported in THE WALL STREET JOURNAL.
3. Limitation of Aggregate Shares. Subject to adjustment as provided in
paragraph 5(d), the number of shares of Common Stock which may be issued upon
the exercise of Options shall not exceed, in the aggregate, 100,000 shares; it
being understood that to the extent any
1
<PAGE> 2
Options expire unexercised or are cancelled, terminated or forfeited in any
manner without the issuance of shares of Common Stock thereunder, such shares
shall again be available under the Plan. Such 100,000 shares of Common Stock may
be authorized and unissued shares, treasury shares, or a combination thereof, as
the Board of Directors shall determine.
4. Options. The Board of Directors may grant Options to Eligible
Directors in accordance with this paragraph 4 and the other provisions of the
Plan.
(a) Provisions.
(i) Options shall not qualify as incentive stock options within the
meaning of Section 422 of the Code or any successor provision.
(ii) Options shall have such terms, not to exceed ten years from the
date of grant, as the Board of Directors shall determine at grant.
(iii) The Option price per share of Common Stock shall be 100% of the
Market Value and not less than the par value of a share of Common Stock.
(iv) Options shall be exercisable at such time or times as the Board of
Directors shall determine at or subsequent to grant; provided that, except in
the event of death or disability of the Participant, no Option may be exercised
until the Eligible Director has served on the Board of Directors for at least
six months after it is awarded; further provided that an Option may be exercised
only during a period beginning on the third business day following the date of
release of the Company's quarterly or annual summary statement of sales and
earnings and ending on the twelfth business day following such date; and further
provided that in the event of termination of service of a Participant as a
member of the Board of Directors for any reason (including without limitation
expiration of term without re-election, resignation, retirement, disability or
death), each Option granted to the Participant shall cease to be exercisable not
later than the fifth anniversary of the date of termination or, if earlier, on
the scheduled date of expiration of such Option.
(b) Exercise. Shares shall be issued to a Participant pursuant to the
exercise of an Option only upon receipt by the Company from the Participant of
written notice of exercise, specifying the number of shares with respect to
which the Option is being exercised, accompanied by payment in full in cash
(including check, bank draft or money order) or, to the extent permitted by the
Board of Directors, by a single exchange of shares of Common Stock already owned
by the Participant for at least six months in an amount equal to the aggregate
Option price for the shares of Common Stock subject to the Option or portion
thereof being exercised or by a combination of such methods; provided that the
Board of Directors may permit the Participant to elect to pay such aggregate
Option price by authorizing a third party to sell the shares of Common Stock
acquired upon exercise (or a sufficient portion thereof) and thereafter remit to
the Company sale proceeds sufficient to pay such aggregate Option price and any
withholding or other tax resulting from exercise. The value of already owned
shares of Common Stock exchanged in full or partial payment for the shares
purchased upon the exercise of an
2
<PAGE> 3
Option shall be equal to the aggregate Market Value of such already owned shares
on the date of the exercise of such Option.
(c) Surrender. If so provided by the Board of Directors at or
subsequent to the time of grant, an Option may be surrendered to the Company on
such terms and conditions, and for such consideration, as the Board of Directors
shall determine.
(d) Form. The form of each Option (and of the documentation evidencing
each Option) shall be determined by the Board of Directors.
5. Miscellaneous Provisions.
(a) Administration. The Plan shall be administered by the Board of
Directors. Subject to the limitations of the Plan, the Board of Directors shall
have the sole and complete authority: (i) to select Participants, (ii) to award
Options in such forms and amounts as it shall determine, (iii) to impose such
limitations, restrictions and conditions upon such Options as it shall deem
appropriate, (iv) to interpret the Plan and to adopt, amend and rescind
administrative guidelines and other rules and regulations relating to the Plan,
(v) to correct any defect or omission or to reconcile any inconsistency in the
Plan or in any Options and (vi) to make all other determinations and to take all
other actions necessary or advisable for the implementation and administration
of the Plan. The Board of Directors' determinations on matters within its
authority shall be conclusive and binding upon the Company and all other
persons. All expenses associated with the Plan shall be borne by the Company.
(b) Non-Transferability. Except as otherwise determined by the Board of
Directors, no Option, and no interest therein, shall be transferable by a
Participant otherwise than by will or the laws of descent and distribution, and
all Options shall be exercisable during a Participant's lifetime only by the
Participant or the Participant's legal representative. Any purported transfer
contrary to this provision will nullify the Option.
(c) Adjustment. The Board of Directors may make or provide for such
adjustments in the numbers of shares of Common Stock covered by outstanding
Options granted hereunder as the Board of Directors, in its sole discretion,
exercised in good faith, may determine is equitably required to prevent
dilution or enlargement of the rights of Participants that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or
(b) any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other distribution of
assets, issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the
foregoing. Moreover, in the event of any such transaction or event, the Board of
Directors, in its discretion, may provide in substitution for any or all
outstanding awards under the Plan such alternative consideration as it, in good
faith, may determine to be equitable in the circumstances and may require in
connection therewith the surrender of all awards so replaced. The Board may also
make or provide for such adjustments in the numbers of shares specified in
Section 3 of the Plan as the Board in its sole discretion, exercised in good
faith, may determine is appropriate to reflect any transaction or event
described in this Section 5.
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<PAGE> 4
(d) Tax Withholding. The Board of Directors shall have the power to
withhold, or to require a Participant to remit to the Company, an amount
sufficient to satisfy any withholding or other tax due with respect to the
Participant's exercise of an Option. Subject to the consent of the Board of
Directors, a Participant may make an irrevocable election to have shares of
Common Stock otherwise issuable under an Option withheld, tender back to the
Company shares of Common Stock received pursuant to an Option or deliver to the
Company shares of Common Stock already owned by the Participant having a Market
Value sufficient to satisfy all or part of the Participant's estimated tax
obligations associated with the transaction. Such election must be made by a
Participant prior to the date on which the relevant tax obligation arises. The
Board of Directors may disapprove of any election and may limit, suspend or
terminate the right to make such elections.
(e) Termination; Amendments. The Board of Directors may terminate the
Plan at any time. The Board of Directors may amend the Plan at any time or from
time to time; provided that no such amendment shall be made without stockholder
approval to the extent such approval is required by law, regulation or the rules
of any exchange upon which the Common Stock is listed.
The Board of Directors may amend an outstanding Option in any
manner to the extent that the Board of Directors would have had the authority
under the Plan to initially grant the Option as so amended.
No termination or amendment of the Plan or amendment of any
outstanding Option shall adversely affect any outstanding Option without the
consent of the Participant who holds it.
(f) Rights of Participants. Nothing in the Plan shall confer on any
Eligible Director any right to continue to serve as a member of the Board of
Directors or affect in any way the right of the Company to terminate such
service at any time. No Eligible Director shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.
(g) Effective Date. The effective date of the Plan shall be June 8,
1998, the date of its adoption by the Board of Directors.
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<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF
PENTON MEDIA, INC.
1. Penton Media Limited, a United Kingdom corporation, and its wholly-owned
subsidiaries:
1. Independent Exhibitions Limited, a United Kingdom corporation;
2. Service Exhibitions Limited, a United Kingdom corporation; and
3. Equity Information Exchange Limited, a United Kingdom corporation.
2. Curtin & Pease/Peneco, a Florida corporation.
3. D-M Acquisition Corp., an Illinois corporation, to be renamed Donohue
Meehan Publishing Company after the Stock Distribution and DM
Publishing Combination.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement No. 333- on Form S-1 of our report dated June 8, 1998,
relating to the financial statements of Penton Media, Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended December 31, 1997 listed
under Item 16(b) of this Registration Statement No. 333- when such schedule
is read in conjunction with the financial statements referred to in our report.
The audits referred to in such report also included this schedule. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Cleveland, Ohio
June 15, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement No. 333- on Form S-1 of our report dated April 3,
1998, except for Note 7 which is dated as of May 21, 1998, relating to the
financial statements of Donohue Meehan Publishing Company, which appears in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Cleveland, Ohio
June 15, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement No. 333- on Form S-1 of our reports dated June 10,
1998, relating to the financial statements for the twelve months ended November
30, 1997 of Independent Exhibitions Limited, Service Exhibitions Limited, and
Equity Information Exchange Limited, respectively, which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Horwath Clark Whitehill
London, England
June 15, 1998
<PAGE> 1
Exhibit 99.1
PENTON MEDIA, INC.
Consent of Prospective Director
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), the undersigned hereby consents to being named as about to
become a director of Penton Media, Inc. (the "Registrant") in the Registration
Statement on Form S-1 of the Registrant relating to the Registrant's common
stock to be filed with the Securities and Exchange Commission pursuant to the
Securities Act.
June 10, 1998 /s/ William C. Donohue
----------------------------------------
William C. Donohue
<PAGE> 1
Exhibit 99.2
PENTON MEDIA, INC.
Consent of Prospective Director
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), the undersigned hereby consents to being named as about to
become a director of Penton Media, Inc. (the "Registrant") in the Registration
Statement on Form S-1 of the Registrant relating to the Registrant's common
stock to be filed with the Securities and Exchange Commission pursuant to the
Securities Act.
June 10, 1998 /s/ John J. Meehan
----------------------------------------
John J. Meehan
