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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14337
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PENTON MEDIA, INC.
------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-2875386
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(State of Incorporation) (I.R.S. Employer Identification No.)
1100 Superior Avenue, Cleveland, OH 44114
----------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
216/696-7000
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (May 14,1999).
Common Stock 29,031,713
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PENTON MEDIA, INC.
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FORM 10-Q
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QUARTER ENDED MARCH 31, 1999
----------------------------
INDEX
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
ITEM 1. Financial Statements
Consolidated Statement of Income -
Three Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheet -
March 31, 1999 and December 31, 1998 4 - 5
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 12
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 19
ITEM 3. Quantitative and Qualitative Disclosure
about Market Risk 19
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 20
</TABLE>
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PENTON MEDIA, INC.
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CONSOLIDATED STATEMENT OF INCOME
--------------------------------
FOR THE THREE MONTHS
--------------------
ENDED MARCH 31, 1999 AND 1998
-----------------------------
(Unaudited; Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
REVENUES ....................................... $ 58,296 $ 52,485
-------- --------
OPERATING EXPENSES:
Editorial, production and
circulation ................................ 27,141 23,322
Selling, general and
administrative ............................. 26,230 22,471
Depreciation and amortization ................ 7,233 2,027
-------- --------
60,604 47,820
-------- --------
OPERATING INCOME (LOSS) ........................ (2,308) 4,665
-------- --------
OTHER INCOME (EXPENSE):
Interest expense ............................. (6,384) (662)
Miscellaneous, net ........................... 36 3
-------- --------
(6,348) (659)
-------- --------
INCOME (LOSS)BEFORE INCOME TAXES ............... (8,656) 4,006
PROVISION (BENEFIT)FOR INCOME TAXES ............ (5,820) 1,666
-------- --------
NET INCOME (LOSS) .............................. $ (2,836) $ 2,340
======== ========
NET INCOME (LOSS) PER SHARE BASIC AND
DILUTED ...................................... $ (0.12) $ .11
======== ========
AVERAGE NUMBER OF SHARES OUTSTANDING ........... 22,782 21,240
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
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CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and equivalents ........................... $ 5,805 $ 3,953
Accounts and notes receivable, less
allowance for doubtful accounts of
$5,423 and $4,899 ............................ 37,199 37,956
Inventories .................................... 2,926 2,361
Deferred tax assets ............................ 13,207 5,797
Prepayments, deposits and other ................ 8,616 8,086
-------- --------
67,753 58,153
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Buildings ...................................... 6,170 6,170
Machinery and equipment ........................ 70,744 69,730
-------- --------
76,914 75,900
Less: Accumulated depreciation ................. 49,353 47,395
-------- --------
27,561 28,505
Land ........................................... 426 426
-------- --------
27,987 28,931
-------- --------
OTHER ASSETS:
Goodwill, less accumulated
amortization of $14,624 and $10,129 .......... 336,368 340,706
Other intangibles, less accumulated
amortization of $8,038 and $7,828 ............ 45,689 46,906
Investment in joint venture .................... 4,472 4,472
Miscellaneous .................................. 134 133
-------- --------
386,663 392,217
-------- --------
$482,403 $479,301
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
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CONSOLIDATED BALANCE SHEET
--------------------------
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Senior debt facility ........................... $ 11,250 $ 11,250
Revolving credit facility ...................... 19,000 6,000
Notes payable .................................. -- 1,000
Accounts payable ............................... 11,932 10,823
Income taxes payable ........................... -- 8,059
Accrued compensation and benefits .............. 6,714 9,644
Other accrued expenses ......................... 14,492 17,522
Unearned income, principally trade
show and conference deposits ................. 25,758 14,564
--------- ---------
89,146 78,862
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LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Senior debt facility ........................... 285,938 288,750
Net deferred pension credits ................... 18,007 18,007
Deferred taxes ................................. 5,313 5,313
Other .......................................... 742 880
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310,000 312,950
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STOCKHOLDERS' EQUITY:
Preferred stock, none issued ................... -- --
Common stock ................................... 228 228
Capital in excess of par value ................. 55,050 55,050
Retained earnings .............................. 28,743 32,262
Other comprehensive income ..................... (764) (51)
--------- ---------
83,257 87,489
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$ 482,403 $ 479,301
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
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CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
--------------------------------------------------
(Unaudited; Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Net cash used by operating activities .............. $ (4,888) $ (1,018)
-------- --------
Cash flows from investing activities:
Capital expenditures ............................. (1,013) (1,128)
Acquisitions, net of cash ........................ (751) --
-------- --------
Net cash used for investing activities ............. (1,764) (1,128)
-------- --------
Cash flows from financing activities:
Repayment of notes payable, net .................. (1,000) --
Increase in notes payable ........................ -- 114
Repayment of Senior debt facility ................ (2,813) --
Proceeds from revolving credit facility .......... 13,000 --
Advances from parent company ..................... -- 1,345
Cash dividends ................................... (683) --
-------- --------
Net cash provided by financing activities .......... 8,504 1,459
-------- --------
Effect of exchange rate changes on cash ............ -- --
-------- --------
Net increase in cash and equivalents ............... 1,852 (687)
Cash and equivalents at beginning of period ........ 3,953 2,419
-------- --------
Cash and equivalents at end of period .............. $ 5,805 $ 1,732
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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PENTON MEDIA, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited; Dollars in Thousands)
NOTE 1 - 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 was a wholly owned subsidiary of
Pittway Corporation ("Pittway" or "Parent Company") until August 7, 1998, when
it was spun off as a separate entity.
The accompanying unaudited interim consolidated financial statements
should be read together with the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.
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.
Certain reclassifications of previously reported financial information
were made to conform to the 1999 presentation.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
NOTE 2 - SPINOFF FROM PITTWAY AND SUBSEQUENT ACQUISITIONS
Prior to August 7, 1998, Penton was a wholly owned subsidiary of
Pittway Corporation. On August 7, 1998, Pittway distributed 100% of the
Company's common stock on a share-for-share basis to holders of Pittway stock.
Immediately after the spinoff, the Company entered into an agreement
(the "Combination Agreement") and completed the acquisition of Donohue/Meehan
Publishing Company ("DM Publishing"). DM Publishing was acquired for $7.0
million in cash, 6.767% (1,541,638 shares) of the Company's stock to be
outstanding immediately after the acquisition and up to an additional $4.0
million in cash based on DM Publishing's pre-tax income for the years 1998 and
1999, of which $2.0 million was earned in 1998. 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 $29.0
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.
The transaction was accounted for as a purchase and, accordingly, the
operating results of DM Publishing have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair market value of net assets acquired
of approximately $32.4 million is being amortized over 40 years.
In addition to the acquisition of DM Publishing, the Company, pursuant
to an Agreement and Plan of Merger, completed its cash tender offer for all of
the outstanding shares of Mecklermedia Corporation ("Mecklermedia") on November
24, 1998. In connection with the acquisition, each Mecklermedia shareholder
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received $29.00 in cash for each share of common stock owned. The total value of
the transaction was $273.8 million, and it was funded with the net proceeds
available from the credit agreement dated November 24, 1998 (See Note 6). The
transaction was accounted for as a purchase and, accordingly, the operating
results of Mecklermedia have been included in the Company's consolidated
financial statements since the date of acquisition. The excess of the aggregate
purchase price over the fair market value of net assets acquired of
approximately $242.5 million is being amortized over 20 years.
In February 1999, the Company acquired the assets of MFG Publishing,
Inc., of Beverly, MA, for a total purchase price of up to $2.5 million, of which
$0.8 million was paid in cash and the remaining $1.7 million is contingent upon
future earnings through the year 2001. MFG is a leading information provider to
the enterprise resource planning segment of the manufacturing technology
industry.
NOTE 3 - EQUITY INVESTMENT IN JOINT VENTURES
In November 1998, the Company entered into a joint venture agreement
with Alan M. Meckler, Mecklermedia's founder, with respect to the limited
liability company Internet.com. Internet.com LLC ("Internet.com") is a network
of Web sites that provides news, analysis and information resources for Internet
professionals. As part of the acquisition, the Company sold 80.1% of
Internet.com to Mr. Meckler. At March 31, 1999, the Company's investment in
Internet.com was $4.5 million and ownership interest was 19.0% . The Company has
warrants to increase its ownership interest to 27.4%.
NOTE 4 - RELATIONSHIP AND TRANSACTIONS WITH PITTWAY
Included in the consolidated statement of income for the three months
ended March 31, 1998 is an allocation of corporate expenses in the amount of
$0.1 million related to services provided for the Company by Pittway.
NOTE 5 - INVENTORIES
The LIFO reserve balance of $0.4 at March 31, 1999 and December 31,
1998, respectively, represent the excess of current replacement cost over the
LIFO value of inventory, which consists principally of raw materials.
NOTE 6 - DEBT
Credit Agreement:
On November 24, 1998, the company entered into a credit agreement with
several banks under which it may borrow up to $325.0 million. The agreement
provides for a revolving loan facility of up to $25.0 million, a long-term loan
of $175.0 million (Term A Loan) and a long-term loan of $125.0 million (Term B
Loan). The proceeds of the new facility were used to repay the Company's debt
outstanding under a $75.0 million revolving credit facility obtained at the
spinoff date and to purchase Mecklermedia.
The credit facility is collateralized by receivables, inventories,
equipment and certain real and personal property. Under the terms of the
agreement, the Company is required to maintain certain financial ratios and
other financial conditions. The agreement also prohibits the Company from
incurring certain additional indebtedness; limits certain investments, advances
or loans; and restricts substantial asset sales, capital expenditures and cash
dividends.
At March 31, 1999, the Company was in compliance with all loan covenants.
The revolving loan facility includes a revolving loan and swing loan.
The revolving loan requires payment of interest (only) at a Base Rate
(determined as the higher of the Prime Rate or the Federal Funds Effective Rate
plus 1/2 of 1%) or an Adjusted Eurodollar Rate, at the Company's option, plus a
rate margin
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ranging from 1.25% to 3.0% based on the Company's consolidated leverage ratio,
as defined. At March 31, 1999, the rate on the revolving loans ranged from 7.69%
to 7.72%.
The swing loan, which permits borrowings up to $5.0 million, requires
payment of interest (only) at the Base Rate plus a Base Rate margin ranging from
1.25% to 2.00% based on the Company's consolidated leverage ratio, as defined,
less the applicable commitment fee percentage per annum. At March 31, 1999, no
amounts were drawn on the swing loan facility.
The company has agreed to pay a commitment fee of 0.50% on the unused
portion of the revolving loan facility commitment. At March 31, 1999, $6.0
million was available under the facility.
The Term A Loan bears interest at the Base Rate or at an Adjusted
Eurodollar Rate, at the Company's option, plus a rate margin ranging from 1.25%
to 3.0% based on the Company's consolidated leverage ratio, as defined. Interest
is payable monthly; at March 31, 1999, the rate in effect was 7.69%. The loan,
which requires quarterly principal payments of $2.5 million in 1999, will mature
on June 30, 2005. At March 31, 1999, $172.5 million was outstanding under the
Term A Loan.
The Term B Loan bears interest at the Base Rate plus 2.5% or at the
Adjusted Eurodollar Rate plus 3.5%, at the Company's option. Interest is payable
monthly; at March 31, 1999, the rate in effect was 8.44%. The loan, which
requires quarterly principal payments of $0.3 million and a balloon payment at
maturity, will mature on May 31, 2005. At March 31, 1999, $124.7 million was
outstanding under the Term B Loan.
Note Payable:
The short-term note payable at December 31, 1998 of $1.0 million
represented foreign indebtedness, was denominated in British pounds and bore
interest at the Company's foreign borrowing rate (8.2% at December 31, 1998).
The note, plus accrued interest, was paid off in early January 1999.
NOTE 7 - FINANCIAL INSTRUMENTS
In February 1999, the company entered into an interest rate cap and
several swap agreements with several financial institutions, as required under
its credit facility, to reduce the impact of changes in interest rates on a
portion of its floating rate debt. The notional amounts of the interest rate
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. The net cash paid for the
interest rate cap and various swaps was immaterial and was charged to expense
when paid.
At March 31, 1999, the Company had the following interest rate
instruments in effect that provide protection on the three month LIBOR rate upon
which the Company's variable rate Term A Loan is based (actual rate paid is
LIBOR plus the respective margin):
<TABLE>
<CAPTION>
Notional
Amount Rate Period
------ ---- ------
<S> <C> <C> <C>
Interest Rate Cap $28,500 8.5% 2/99-2/01
Interest Rate Swaps $59,000 5.08% 2/99-2/01
</TABLE>
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NOTE 8 - NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands) for the quarter ended:
<TABLE>
<CAPTION>
March 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income available to common stockholders $ (2,836) $ 2,340
======== ========
Denominator:
Denominator for basic earnings per share - weighted
average shares 22,782 21,240
Effect of dilutive securities:
Stock options and warrants - -
-------- --------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 22,782 21,240
======== ========
</TABLE>
Due to a loss from operations for the quarter ended March 31, 1999, any
potential common stock equivalents would have been antidilutive. Accordingly,
they were excluded from the calculation of diluted earnings per share.
NOTE 9 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Financial Accounting Standard ("FAS") No. 130, "Reporting Comprehensive
Income", effective for the fiscal years beginning after December 15, 1997. FAS
130 requires that the Company report comprehensive income and its components in
a full set of general-purpose financial statements. Comprehensive income
represents the change in stockholders' equity during the period from non-owner
sources. Currently, other comprehensive income consists only of foreign currency
translation adjustments.
Total comprehensive income (loss) for the three months ended March 31,
1999 and 1998 was $(3.6) million and $2.3 million, respectively.
Activity in Stockholders' Equity is as follows (dollar amounts in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated
Current Capital in Other
Comprehensive Common Excess of Retained Comprehensive
Income Stock Par Value Earnings Income Total
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 228 $ 55,050 $ 32,262 $ (51) $ 87,489
- -----------------------------------------------------------------------------------------------------------------------------
Dividends (683) (683)
- -----------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,836) (2,836) (2,836)
- -----------------------------------------------------------------------------------------------------------------------------
Foreign currency translation
Adjustment (713) (713) (713)
-------- ------ -------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1999 $ (3,549) $ 228 $ 55,050 $ 28,743 $ (764) $ 83,257
-------- ------ -------- -------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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NOTE 10 - SEGMENT INFORMATION
The Company has three reportable segments: Media Services, Printing and
Direct Mail. The segments are based on the Company'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, direct mail lists and a variety of other products and
services. Revenues of this segment are generated primarily from magazine
advertising and trade show booth rentals. The Printing segment prints magazines,
catalogs, brochures and direct mail pieces for the Media Services segment and
outside commercial customers. The Direct Mail segment serves primarily the
pharmaceutical and business services markets with the ability to design,
produce, print and mail direct mail marketing campaigns.
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Total segment revenues:
Media Services
Publishing & Other $ 45,273 $ 43,127
Trade shows & conferences 7,245 3,503
-------- --------
52,518 46,630
-------- --------
Printing 9,101 9,694
Direct Mail 2,920 2,866
-------- --------
64,539 59,190
Less: intersegment revenues:
Printing (6,243) (6,705)
-------- --------
$ 58,296 $ 52,485
======== ========
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
Operating Income:
Media Services
Publishing & Other $ 7,062 $ 8,879
Trade shows & conferences (5,186) (240)
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1,876 8,639
------- -------
Printing 403 416
Direct Mail (74) (246)
Corporate (previously in Media Services) (4,513) (4,144)
------- -------
$(2,308) $ 4,665
======= =======
</TABLE>
At March 31, 1999, the Company has disclosed the major components of the Media
Services segment because of the significant increase in the trade show and
conference component of this segment. The March 31, 1998 components of the Media
Services segment have been restated for comparison purposes.
NOTE 11 - SUBSEQUENT EVENTS
On April 1, 1999, the Company amended its credit agreement to, among
other things; (1) increase term loan B by $15.0 million from $125.0 million to
$140.0 million, (2) stipulate the allocation of proceeds from any debt or equity
offering undertaken by the Company, and (3) amend current covenants to allow for
the additional borrowings.
In April 1999, the Company made an additional equity contribution of
$0.4 million to retain its pro rata ownership share of Internet.com. At March
31, 1999, the Company had invested approximately $4.5 million in the joint
venture. At March 31, 1999, the company owned a 19.0% interest in Internet.com,
with warrants to increase ownership interest to 27.4%. The warrants will expire
upon completion of Internet.com's initial public offering, however, the Company
intends to exercise the warrants prior to its expiration. On April 15, 1999,
Internet.com filed a registration statement for its initial public offering.
On May 12, 1999 the Company completed a 6,500,000 common share offering
of which 6,250,000 of the shares were offered by the Company and 250,000 were
offered by existing stockholders. The Company received net proceeds of
approximately $115.4 million which will be used to repay debt and for general
corporate purposes, including acquisitions. The underwriters have also
exercised, but not completed, their option to purchase an additional 180,000
shares from Penton and 795,000 shares from existing stockholders to cover
over-allotments. The Company will not receive any proceeds from the shares sold
by the selling stockholders.
In May 1999, the Company completed the acquisition of Jon Peddie
Associates ("JDA") of Tiburon, CA., for $1.3 million in cash and future
contingent payments of up to $3.0 million tied to future earnings through the
year 2001. JDA is an information company that conducts research, publishes
market studies and special reports and provides consulting services to the
digital media, semiconductor and electronics industries.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying unaudited consolidated financial statements and the notes thereto.
Impact of Acquisitions
The Company was spun off from Pittway Corporation ("Pittway") and
acquired Donohue/Meehan Publishing Company ("DM Publishing") in August 1998;
acquired Mecklermedia Corporation ("Mecklermedia") in November 1998; and MFG
Publishing in March 1999. As the Company acquires additional companies, its
sales mix, market focus, cost structure, operating leverage and the seasonality
of the business may change significantly. Consequently, the Company's historical
and future results of operations reflect and will reflect the impact of
acquisitions, and period-to-period comparisons may not be meaningful in certain
respects. Historical information for companies subsequent to their acquisition
may include integration and other costs that are not expected to continue in the
future.
RESULTS OF OPERATIONS
REVENUES
Total revenues, after elimination of intersegment sales, increased $5.8
million, or 11.0%, from $52.5 million to $58.3 million.
Media services revenues increased $5.9 million, or 12.6%, to $52.5
million. Advertising revenues from Penton's publishing operations accounted for
$2.2 million of the increase, due primarily to the following: (1) the DM
Publishing acquisition in August 1998; (2) the addition of Boardwatch magazine
and Internet World magazine which were part of the Mecklermedia acquisition in
November 1998; and (3) the addition of IW Growing Companies who's first issue
was not published until the second quarter in 1998. These increases were offset
by lower revenues from Electronic Design as compared with the same period in the
prior year and the absence of the Fluid Power Handbook & Directory, which was
published in the first quarter of 1998, and is published only every other year.
Trade show and conference revenues increased $3.7 million, or 106.8%, to 7.2
million. Approximately $2.1 million of the increase was due to the first-time
inclusion of the operations of Mecklermedia. In addition, in the first quarter
of 1999, Penton held the A/E/C SYSTEMS Information Technology Pavilion at
CONEXPO - CON/AGG and the Restaurant Hospitality Kids Marketing conference for
the first time, with combined revenues of approximately $0.7 million. Also,
revenues for the Wireless Symposium/Portable by Design Conference & Exhibition
and revenues from Independent Exhibitions, Ltd., increased $0.3 million and $0.3
million, respectively, over the same prior year period.
Printing revenues decreased $0.1 million, or 6.1%, bringing total
segment revenue to $9.1 million. Sales to external customers remained level at
approximately $2.9 million, while intercompany sales decreased $0.1 million to
$6.2 million.
Direct mail revenues were level with prior year.
OPERATING EXPENSES
Operating expenses for Penton, after elimination of intersegment
charges, increased $12.8 million, or 26.7%, from $47.8 million in 1998 to $60.6
million in 1999. As a percentage of revenues, operating costs increased from
91.1% in 1998 to 104.0% in 1999. The increase in percentage was due primarily to
the increase
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in depreciation and amortization related to acquisitions, the change in Penton's
goodwill amortization policy for acquired trade shows which reduced the
write-off period from 40 years to 20 years, and period costs related to
Mecklermedia tradeshows, for which revenues will not be recognized until those
trade shows are held in future periods.
EDITORIAL, PRODUCTION AND CIRCULATION:
Total editorial, production and circulation expenses, after elimination
of intersegment charges, grew to $27.1 million in 1999 compared with $23.3
million in 1998, representing an increase of $3.8 million, or 16.4%. As a
percentage of revenues, editorial, production and circulation expenses increased
from 44.4% in 1998 to 46.6% in 1999.
Media Services editorial, production and circulation expenses grew $3.7
million, or 18.6%, due to the DM Publishing acquisition in August 1998, which
accounted for $0.6 million of the increase, and the Mecklermedia acquisition in
November 1998, which accounted for an additional $3.2 million in costs. Costs
incurred related to the biennial Fluid Power Handbook and Directory, which was
published in the first quarter of 1998, were not incurred in the first quarter
of 1999 because the directory is only published every other year.
Editorial, production and circulation expenses for the Printing segment
increased $0.1 million, while costs related to the direct mail segment remained
level with the prior year.
SELLING, GENERAL, AND ADMINISTRATIVE
Total selling, general, and administrative expenses grew $3.8 million,
or 16.7%, to $26.2 million. As a percentage of revenues, selling, general and
administrative expenses increased from 42.8% in 1998 to 45.0% in 1999.
Media Services selling, general, and administrative expenses increased
$4.0 million, or 18.9%. The increase was due to the DM Publishing acquisition in
August 1998, which accounted for $0.6 million of the increase and the
Mecklermedia acquisition in November 1998, which accounted for an additional
$3.7 million in costs. Costs incurred related to the biennial Fluid Power
Handbook and Directory, which was published in 1998, were not incurred in the
first quarter of 1999 because the directory is only published every other year.
Selling, general, and administrative expenses of the printing and the
direct mail segments decreased $0.2 million when compared with the prior year.
Depreciation and Amortization
Depreciation and amortization increased $5.2 million to $7.2 million.
The higher expense was primarily the result of the amortization of intangible
assets associated with the DM Publishing acquisition in August 1998 of
approximately $0.3 million, the Mecklermedia acquisition in November 1998 of
approximately $4.5 million, and, beginning with the fourth quarter of 1998, the
change in Penton's goodwill amortization policy for acquired trade shows which
reduced the write-off period from 40 years to 20 years, which accounted for
approximately $0.3 million of additional amortization in the first quarter of
1999 compared to 1998. While this change will negatively impact the reported
earnings per share, it will have no impact on either EBITDA or after-tax cash
flow.
Operating Income
Overall, the Company's operating income (loss) for the three months
decreased $7.0 million to a loss of $2.3 million from income of $4.7 million in
the prior year. Operating income as a percentage of revenue
14
<PAGE> 15
decreased from 8.9% to (4.0)%, due primarily to the increase in depreciation and
amortization associated with the Company's acquisitions.
Media Services operating income decreased $6.8 million, or 78.3%. The
first quarter of 1999 was negatively impacted by the period costs of the
Mecklermedia trade shows acquired in 1998 and higher amortization expense as
noted above.
Operating income of the Printing segment remained level at $0.4 million
for both the first quarter 1999 and 1998.
The Direct Mail segment recorded an operating loss of $0.1 million
compared with an operating loss of $0.2 million for the same period in the prior
year.
INTEREST EXPENSE
Interest expense increased $5.7 million to $6.4 million due to
additional borrowings used to finance the DM Publishing acquisition in August
1998 and the Mecklermedia acquisition in November 1998.
EFFECTIVE TAX RATES
The effective tax rates were 67.2% and 41.6%, for the first quarters of
1999 and 1998, respectively. The Company's acquisition of DM Publishing in
August 1998 and Mecklermedia in November 1998 resulted in the recording of
goodwill. The amortization of such goodwill is recognized for financial
statement purposes but not deductible for tax purposes due to the structure of
the purchase transactions. Accordingly, the Company's effective tax rate has
increased.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before interest expense, taxes, depreciation and amortization
("EBITDA") is a widely used and commonly reported standard measure utilized by
analysts and investors in the analysis of the media industry. EBITDA is not a
measure of performance under GAAP because it excludes those items listed above
which are significant components in understanding and evaluating the Company's
financial performance. However, the following EBITDA information can provide
additional information for determining the ability of the company to meet its
debt service requirements and for other comparative analyses of the Company's
operating performance relative to other media companies. The Company's
calculation of EBITDA is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March
------------------------
1999 1998
---- ----
<S> <C> <C>
Net income (loss) $(2,836) $ 2,340
Interest expense 6,384 662
Provision (benefit) for income taxes (5,820) 1,666
Depreciation and amortization 7,233 2,027
Miscellaneous, net (36) (3)
------- -------
EBITDA $ 4,925 $ 6,692
======= =======
</TABLE>
The Company's EBITDA decreased $1.8 million, or 26.4%, to $4.9 million
for the three months ended March 31, 1999 from $6.7 million for the three months
ended March 31, 1998. Increased period costs of the
15
<PAGE> 16
trade shows acquired in the fourth quarter of 1998 were the primary contributing
factors to the decrease in EBITDA.
FOREIGN CURRENCY
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 significant foreign
currency transaction gains or losses during 1998 or the three months ended March
31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, cash flow generated by the Company's operations has been
used to invest in capital assets, finance acquisitions, and reduce debt. Excess
cash was used to pay dividends to Pittway Corporation, its former parent
company. The Company's principal sources of funds are cash flows from operations
and borrowings under its Revolving Credit Facility. The principal use of funds
consists of payments of principal and interest on its Senior Debt Facility and
capital expenditures. Capital expenditures totaled approximately $1.0 million
for the quarter ended March 31, 1999. At March 31, 1999, the Company had $6.0
million available under its Revolving Credit Facility. The weighted average
interest rate on total debt was 8.0%.
On August 7, 1998, the Company entered into a five-year, $75.0 million
unsecured revolving credit agreement, which includes an option to increase the
facility to $100 million. The Company's short-term notes payable were refinanced
with this facility, which was also utilized to finance the cash portion of the
acquisition price of DM Publishing.
On November 24, 1998, the Company entered into a credit agreement with
several banks under which it could borrow up to $325.0 million. The agreement
provides for a revolving loan facility of up to $25.0 million, a long-term loan
of $175.0 million (Term Loan A) and a long-term loan of $125.0 million (Term
Loan B). The proceeds of this credit agreement were used to repay Penton's debt
outstanding under the $75.0 million revolving credit facility obtained at the
spinoff date and to purchase Mecklermedia. At March 31, 1999, $ 297.2 million
was outstanding under the credit agreement. In April 1999, the Company and the
banks amended this agreement to enable the Company to borrow an additional $15.0
million as part of the Term Loan B facility to be effective in April 1999.
Based upon current and anticipated levels of operations, we believe
that our cash on hand and cash flow from operations, combined with borrowings
available under our credit facilities, will be sufficient to enable us to meet
our current and anticipated cash operating requirements, including scheduled
interest and principal payments, capital expenditures and working capital needs.
However, actual capital requirements may change, particularly as a result of any
acquisitions that we may make. Our ability to meet current and anticipated
operating requirements will be dependent upon our future performance, which, in
turn, will be subject to general economic conditions and to financial, business
and other factors, including factors beyond our control. Depending on the
nature, size and timing of future acquisitions, we may be required to raise
additional capital through additional financing arrangements or the issuance of
private or public debt or equity securities of the Company. We cannot assure you
that such additional financing will be available on acceptable terms.
Substantially all of our debt bears interest at floating rates. Therefore, our
liquidity and financial condition is and will continue to be affected by changes
in prevailing interest rates.
16
<PAGE> 17
SEASONALITY
Historically, the Company has not experienced significant seasonality
in its business. The introduction of trade shows and conferences into the
Company's product mix through the acquisitions of Independent Exhibitions, Ltd.,
and Industrial Shows of America in late 1997, and the acquisition of
Mecklermedia in November 1998, has changed the seasonal pattern of revenue and
profit, as all three companies have pronounced seasonal patterns in their
businesses. The majority of the trade shows owned by Industrial Shows of America
and Mecklermedia are held in the second and fourth quarters and, accordingly,
the majority of their revenue is recognized in these quarters. Further, the
majority of the Independent Exhibitions, Ltd. shows historically have been held
in the fourth quarter. Accordingly, the Company anticipates that these
acquisitions will have a positive impact on revenue and profit for these
quarters.
The Company may also experience seasonality fluctuations as trade shows
and conferences held in one period in the current year may be held in a
different period in future years.
INFLATION
The impact of inflation on the Company's results of operations has not
been significant in recent years.
ACCOUNTING CHANGES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Company is required to
adopt this statement in the first quarter of 2000. Even though the Company has
entered into an interest rate cap and swap agreement, Management does not
believe this statement will have a material impact on the Company's business,
results of operations or financial condition.
YEAR 2000
General:
The "Year 2000 Issue" is the result of computer programs that were
written using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the Year 1900 rather than the
Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
Penton's Year 2000 Project ("Project") is proceeding as scheduled. Some
of our systems and related software are already Year 2000 compliant, however the
Project is designed to bring the remaining software and systems into Year 2000
compliance in time to minimize any significant detrimental effects on
operations. Our Project covers information systems infrastructure, financial and
administrative systems, production and circulation operating systems and
significant vendors and customers.
Project:
The first component of the Projects it to identify the internal
business systems and non-information-technology systems of the Company and its
operating subsidiaries that are susceptible to system failures or processing
errors as a result of the Year 2000 issue. This effort is substantially complete
with all business systems identified and priorities established for repair or
replacement. Those systems considered most critical to continuing operations are
being given the highest priority.
17
<PAGE> 18
The second component of the Project involves the actual remediation and
replacement of the various business systems. The Company and its operating
subsidiaries are using both internal and external resources to complete this
process. Systems ranked highest in priority have either been remediated or
replaced or scheduled for remediation or replacement including the replacement
of the primary general ledger and accounts payable systems with programs from a
national software vendor. The Company's objective is to complete substantially
all remediation and replacement of internal systems by July 1999, and to
complete final testing and certification for readiness by the end of the third
quarter of 1999.
As part of the second component of the Project, significant service
providers, vendors, suppliers and customers that are believed to be critical to
business operations after January 1, 2000, have been identified and steps are
being undertaken in an attempt to reasonably ascertain their state of Year 2000
readiness through questionnaires, inquiries and other available means.
Questionnaires which have not been returned are being followed up with second
requests and phone calls. This process is progressing according to plan.
Costs:
It is currently estimated that the aggregate incremental cost of the
Company's Project efforts will be approximately $0.3 million to $0.8 million, of
which approximately $0.2 million has been spent. These costs are being expensed
as they are incurred and are being funded through operating cash flow. These
amounts do not include any costs associated with the implementation of
contingency plans, which are in the process of being developed to supplement the
Company's existing Disaster Recovery Plan. The costs associated with the
replacement of computerized systems, hardware or equipment is currently
estimated to be approximately $0.5 million, substantially all of which would be
capitalized, are not included in the above estimates.
Risks:
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. Our Year 2000 Project is expected
to significantly reduce the Company's level of uncertainty about the Year 2000
problem and, in particular, about the Year 2000 compliance and readiness of its
material external agents. The Company believes that, with the implementation of
new business systems and completion of the Project as scheduled, the possibility
of significant interruptions of normal operations should be reduced.
The Company's Project readiness program is an ongoing process and the
estimates of costs and completion dates for various components of the Project
readiness program described above are subject to change. Based on the Company's
assessment and evaluation of its year 2000 readiness, it believes that the most
reasonably likely worst case scenario includes a temporary shut-down of Penton's
press operation. We estimate that a one-month stoppage of our publishing
operations could lead to a loss of operating income of about $9.4 million.
FORWARD LOOKING STATEMENTS
This quarterly report, other than historical financial information,
contains forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995, that involve a number of risks and uncertainties.
Important factors that could cause actual results to differ materially from
those indicated by such forward-
18
<PAGE> 19
looking statements include pending litigation, government regulation,
competition and technological change, intellectual property rights, capital
spending, international operations, and the Company's acquisition strategies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information relative to the Company's market risk sensitive instruments
is presented under Item 7a of the registrant's Annual Report on Form 10-K for
the year ended December 31, 1998.
INTEREST RATE RISK
Because the Company's obligations under the bank credit agreement bear
interest at floating rates, the Company is sensitive to changes in prevailing
interest rates. The Company uses derivative instruments to manage its long-term
debt interest rate exposure, rather than for trading purposes. A 10% increase or
decrease in market interest rates that effect the Company's interest rate
derivative instruments would not have a material impact on earnings during the
next year.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
10.1 Penton Media, Inc. 1998 Director Stock Option and Compensation Plan
(B) REPORTS ON FORM 8-K AND/OR 8-K/A
Date of Report Items Reported
-------------- --------------
February 8, 1999 Item 2. Acquisition of Assets
Item 7. Financial Information
and Exhibits
April 20, 1999 Item 5. Other Events
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Penton Media, Inc.
-----------------------------
(Registrant)
By: /s/Joseph G. NeCastro
----------------------------
Joseph G. NeCastro
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
Date: May 17, 1999
20
<PAGE> 21
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
27.1 Financial Date Schedule
10.1 Penton Media, Inc. 1998 Director Stock Option and Compensation Plan
21
<PAGE> 1
EXHIBIT 10.1
PENTON MEDIA, INC.
1998 DIRECTOR STOCK OPTION AND COMPENSATION PLAN
(As Amended and Restated Effective as of March __, 1999)
1. PURPOSE. The purpose of the Penton Media, Inc. 1998 Director Stock
Option and Compensation Plan (As Amended and Restated Effective as of March __,
1999) (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;
(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) "Deferral Period" means the period of time during which Deferred
Shares are subject to deferral limitations under Section 5 of this Plan.
(e) "Deferred Shares" means an award made pursuant to Section 5 of this
Plan of the right to receive shares of Common Stock at the end of a specified
Deferral Period.
(f) "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.
(g) "Market Value" of Common Stock on any date 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
<PAGE> 2
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.
(h) "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.
(i) "Participant" means an Eligible Director who has been awarded an
Option, Restricted Shares or Deferred Shares.
(j) "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.
3. LIMITATION OF AGGREGATE SHARES. Subject to adjustment as provided
in paragraph 6(c), the number of shares of Common Stock which may be issued (a)
upon the exercise of Options, (b) as Restricted Shares and released from
substantial risks of forfeiture thereof, or (c) pursuant to Deferred Share
awards shall not exceed, in the aggregate, 100,000 shares; it being understood
that to the extent any Options expire unexercised or any Options, Restricted
Shares or Deferred Shares 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 on the date of grant 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 fifteenth 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
<PAGE> 3
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 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. RESTRICTED SHARES. The Board of Directors may also authorize the
grant or sale of Restricted Shares to Eligible Directors. 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 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
3
<PAGE> 4
Section 83 of the Code for a period to be determined by the Board of Directors
at the date of grant.
(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 of Directors 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 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.
(f) 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 of Directors may approve. Unless
otherwise directed by the Board of Directors, 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.
6. DEFERRED SHARES. The Board of Directors may also authorize the
granting or sale of Deferred Shares to Eligible Directors. 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 of Directors 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 of Directors at the date of grant.
(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 of
Directors 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.
4
<PAGE> 5
(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 of Directors may approve.
7. OTHER AWARDS. The Board of Directors may permit Eligible Directors
to elect to receive grants of Options, Restricted Shares or Deferred Shares in
lieu of the payment of all or a portion of such Eligible Director's compensation
in cash, on such terms as are deemed appropriate by the Board of Directors.
8. 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, Restricted Shares or Deferred Shares in such forms and amounts as it
shall determine, (iii) to impose such limitations, restrictions and conditions
upon such Options, Restricted Shares or Deferred Shares 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, Restricted Shares or Deferred Shares 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, Restricted Share award or Deferred Share award, 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, Restricted Share award or Deferred Share award.
(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, Restricted Share awards or Deferred Share awards 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
5
<PAGE> 6
circumstances and may require in connection therewith the surrender of all
awards so replaced. The Board of Directors may also make or provide for such
adjustments in the numbers of shares specified in Section 3 of the Plan as the
Board of Directors in its sole discretion, exercised in good faith, may
determine is appropriate to reflect any transaction or event described in this
Section 6(c).
(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, the lapse of the substantial risk of
forfeiture of Restricted Shares or the delivery of Deferred Shares to a
Participant. Subject to the consent of the Board of Directors, a Participant may
make an irrevocable election to have withheld shares of Common Stock otherwise
issuable under an Option or a Restricted Shares award or deliverable with
respect to a Deferred Shares award, tender back to the Company shares of Common
Stock received pursuant to an Option, a Restricted Share award or a Deferred
Share award 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, Restricted
Share award or Deferred Share award in any manner to the extent that the Board
of Directors would have had the authority under the Plan to initially grant the
Option, Restricted Share award or Deferred Share award as so amended.
No termination or amendment of the Plan or amendment of any
outstanding Option, Restricted Share award or Deferred Share award shall
adversely affect any outstanding Option, Restricted Share award or Deferred
Share award 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 original effective date of the Plan shall be
August 7, 1998. The effective date of the amendment and restatement of the Plan
shall be March __, 1999.
6
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